Money Matters

phl-growth philstar

Philippine economic growth [Photo credit:]


by Micha

Let’s take a breather from the buzz of election campaign and talk about money – sovereign money, that is.

It’s always been assumed that for a national gov’t to be able to spend it must have a corresponding income either from taxes, fees and fines, or revenues from gov’t owned and controlled corporations. And since there’s only so much that the national gov’t could collect from these sources it must then borrow to make up the difference in its proposed annual spending budget. This picture of fund scarcity in the face of inadequate public infrastructure, hungry folks, high unemployment, and inutile military unable to fend off Chinese incursions perpetuates our acceptance of the belief that we are indeed too poor and impotent to alter our status as a country.

But, despair not, there’s a competing narrative that offers more room for our gov’t’s fiscal and monetary policies.

A Gov’t Is Not A Household

A major turning point came in 1971 when the US, through President Nixon, effectively announced the dissolution of the Bretton Woods Agreement and adopted a fiat system in place of the gold standard.

Although the Philippines was not a signatory to that agreement, being a former US colony, its currency (the peso) was nonetheless tied to the US dollar which was in turn backed by gold reserve prior to the Nixon shocker.

Today, our own Central Bank has a floating currency regime and non-convertibility to gold on demand.

This meant that, like other sovereign nations with their own currencies (Japan, Canada, Australia, etc.), the Philippines will have greater flexibility when it comes to domestic spending because it is no longer constrained by the availability of a certain commodity (gold or silver) to back up its monetary expansion. What was once the normative practice of borrowing like an ordinary household to make up for its deficits and satisfy the rules of accounting spreadsheets at the treasury and Finance Department is no longer necessary for domestic spending in a regime of monetary sovereignty. Domestic gov’t bonds are/were issued not so much to finance gov’t projects as it is to satisfy the need of domestic savers for interest bearing instruments to augment their income. Debt then could assume another name : private sector savings. One sectors’ liability is another sector’s asset.

Our foreign debts (mostly in dollars) were accumulated over the years to pay for goods and services which were supplied and contracted by entities demanding to accept payment only in dollars for ease of transactions and because it is the more stable international reserve. This primacy of the dollar is what defines America as an empire.

Let me, at this point, digress a little bit. Marcos Junior had been going around town lately bragging about his father’s mejoras such as rural electrification, roads and highways, and Manila-based urban development. He, of course, chose not to mention that the funds for those projects were sourced from international lenders all too willing to cash in on and comply with the prescription of Washington Consensus in its neo-liberal trickle-down free market fundamentalism even if it meant propping up dictators and turning a blind eye to their corruption and thievery as a countervailing force against the spread of Soviet communism. Until today, however, the country is still attuned to the recommendations put forth by John Williamson’s Institute for International Economics. Among the Washington Consensus proposals are :

  1. Redirection of public spending away from agricultural subsidies
  2. Broadening the tax base (which is just code word for taxing the poor and the middle class some more)
  3. Trade liberalization
  4. Infusion of direct foreign investment
  5. Privatization of state enterprises and
  6. Deregulation of labor and environmental laws.

The Philippines has passively complied with these recommendations and its economy has been more or less subservient to the conditionalities imposed by IMF-World Bank since at least the era of Saint Ronnie in the 1980’s.

Anyway, the common and all too erroneous notion that we should be treating the finances of sovereign gov’ts like that of a household prevails. During the height of recession in 2010 for example, John Boehner pronounced that “the (US) gov’t is broke” and that it “must tighten its belt and live within its means”.

Statements by politicians like these perpetuate the big lie which has grave consequences on the overall health of the economy.

In periods of a big slump, a sovereign gov’t must assume the role of both the spender and lender of last resort because it alone has the means and the wherewithal as most in the private sector (households and corporations) are leveraging their balances and tapering their expenses. If the gov’t should join the fray and likewise tighten its belt, it will make the situation worst because aggregate demand would then take a beating. Both Bernanke and Hank Paulson recognized this and their policy response, though limited by hard money type intransigence in Congress, averted what could have been a repeat of the Great Depression. That was standard Keynesian approach shared by MMT.

A Gov’t Is Part Of The Three-Legged Stool

There are three sectors in our economy: public domestic sector, private domestic sector, and the foreign sector. One method for determining our GDP is by tallying up the spending of these three sectors. Because the foreign sector will almost always come up with a negative number (we have more imports than exports), the desired GDP expansion will fall on the shoulders of our public and private sectors. While private sector dynamism depends on several factors such as population growth, technological innovations, and general consumer confidence, the public sector could and must ensure dynamism in the broader economy by spending on projects that generate value such as infrastructures, improved public education, agricultural subsidies, etc. It is, in other words, a crucial pillar in the country’s GDP growth. Spending in excess of revenue is desirable because money is created in the act of spending and is conversely destroyed by the act of taxation.

What About Inflation?

Inflation can be generally controlled by targeted interest rate adjustments which are in the domain and authority of the Central Bank. Fluctuations in commodity prices are governed by the free market rules of supply and demand, not by the expansion of monetary base. Core inflation, which excludes oil and food prices, is the index that matters most to monetary policy makers.

Moral Hazard

And then there’s the moral hazard argument. What is to prevent citizens from asking and the sovereign gov’t from granting, say, 10 million each because it has this unlimited ability to create moolah out of thin air?

Technically, none.

In fact, our national gov’t is already doing exactly that in its Conditional Cash Transfer program, hindi nga lang 10 million each. But must the gov’t give away 10 million to every citizen and do away with the problem of mass poverty?

No, this is one of those just-because-you-could-does-not-necessarily-mean-you-should scenarios.


Because giving away money does not create value. Only by spending on value generating projects and programs such as roads, research, education, agriculture, and yes even karl’s favorite, military hardware, could the sovereign gov’t ensure that its ability and power to create money by fiat would translate into the creation of real goods and services which we could include in the metric called GDP.

What Then, Is The Purpose Of Taxation?

If the sovereign gov’t has the unconstrained ability to spend, why tax at all? Before the adoption of the fiat system, it was necessary for sovereign gov’ts to have revenue source if its gold hoard is inadequate to permit monetary expansion.

Today, taxes assume an entirely different role. We have already covered this in a previous discussion bago naging national celebrity si Manong Joe so I will just outsource this taxation rationale here: Philip Pilkington: Taxation, Government Spending, the National Debt and MMT.

“The necessity for a government to tax in order to maintain both its independence and its solvency, is true for state and local governments, but it is not true for a national government.

Two changes of the greatest consequence have occurred in the last twenty-five years, which has substantially altered the position of the national state with respect to the financing of its current requirements.

The first of these changes is the gaining of vast new experience in the management of central banks.

The second change is the elimination, for domestic purposes, of the convertibility of the currency into gold.”

Taxes can be made to serve four principal purposes of a social and economic character:

 1. As an instrument of fiscal policy to help stabilize the purchasing power of a country’s currency;

 2. To express public policy in the distribution of wealth and income, as in the case of the progressive income and estate taxes;

 3. To express public policy in subsidizing or penalizing various industries and economic groups;

 4. To isolate and assess directly the costs of certain national benefits, such as highways and social security.

“…taxing is never to be undertaken merely because the government needs to make money payments. Taxation should be imposed only when it is desirable that the taxpayers shall have less money to spend, for example, when they would otherwise spend enough to bring about inflation.” – Aba Lerner

Another Word On Moral Hazard

If our policy makers finally come to terms with the nature of modern sovereign money, what happens if our gov’t is headed by a corrupt politician in the mold of, but not limited to the likes of Binay? Wouldn’t they then be more emboldened by stealing because it is not afterall taxpayers’ money?

That scenario is, unfortunately, all too possible. There is nothing to prevent a corrupt politician from doing exactly that. The culprit, however, is not in the nature of sovereign money; it is in the nature of a greedy politician.

It is in this light that legislative tools such as the Freedom of Information Act will be useful to ensure transparency in, among others, gov’t finances and the finances of its elected officials.

Will there be enough decent and progressive bloc in Congress to pass this bill? That will be a catch-22 dilemma worthy of being explored in another blog.


539 Responses to “Money Matters”
  1. Joe, I don’t understand this piece. So what if the government can print money instead of imposing taxes? I’m not even sure if the author understands the concept of moral hazard.

    But let it be. The Washington Consensus became an unwitting prop and tool for oligopolies. The Beltway economists aren’t as street smart as our local biggies. But the argument in favor of FOI is misplaced because we don’t need another trick for the ACDC tabloids. All we need is to decriminalize libel, and to a limited extent the SC has done that.

    • Joe America says:

      You have top take these questions up with the author of the piece, not me. I’m a marketing guy. We understand how to spend money, is about it.

    • Micha says:


      My usual attitude when visiting a forum such as this is that when I don’t understand what’s being talked about, I refrain from making a comment, or at least clarify what is going on by engaging in a conversation.

      Your dismissive tone on the ability of the gov’t to spend without having to impose taxes is a stark contradiction to the paradigm shifting view of others.

      If you happen to have functional understanding on the finances of the gov’t, I’d be happy to engage your curiosities.

      • Orlando says:

        I was being polite when I said I didn’t understand.

      • Ok so Abba Lerner thought up Keynes before Maynard. But all that macro stuff works with a background assumption that public officials can be trusted. You can then use this idea to argue the point. But the reason we have taxes is more complex. In the PH case, it seems more another tool to steal.

        • Micha says:


          Sorry, I’ve missed this comment entirely. It’s now 330 plus comments on this thread and I didn’t activate the automatic email notification.

          Anyway, so your main objection to MMT concept is that public officials can’t be trusted? I’d say, you need to make better argument than that because its non-sequitur and non-tangential to the theory itself.

    • Micha says:

      Further, the moral hazard argument was brought up in our previous discussion on the subject of monetary sovereignty here. It is extended from the original concept of socializing loss and privatizing gains by private corporations and thus emboldening them to make outlandish risk taking.

    • Decriminalizing libel would be a very bad idea for you, dear professor. Why, you get so creative and witty with your put downs that no one can pin any liability on you.

      That said, we can both chuck the past to experience and move on.

      Please come back and duke it out with Micha. She’s another woman in the Society of Honor who does not take crap from anyone.

  2. OFF-TOPIC: – I have made a digest of this article to simplify understanding at the request of Juana, here it is, please comment but NOT HERE PLEASE COMMENT IN THE ARTICLE AS LINKED:

    A. Present state

    A.1. The Philippines is a Spanish colonial product.

    A.1.a. The principalia were the coopted ex-datus.

    A.1.b. The friars also ran the villages with them


    A.2. The Americans came and tried to teach us. (Pedro and Joe story in the article)

    A.2.a. The Thomasites did what they could. (Joe)

    A.2.b. Filipinos acted the way they did with friars (Pedro)

    – they told the Americans what they wanted to hear

    – friar Catholicism was medieval and ignorant (Noli-style)

    – No real thinking: si Padre, then yes Sir – rote learning


    A.3. The Filipinos established a democracy

    A.3.a. The institutions were American on paper

    A.3.b. The ex-principalia mentality prevailed in practice

    – friar Catholic hypocrisy (clean and dirty kitchen)

    – cacique/warlord impunity even 1935 (Marcos killed Nalundasan)

    – letter of laws applied but not spirit (because of frailocratic legacy of rote)


    B. Possible solutions

    B.1. Revolution from below (Wilhelm Tell) – state was founded based on an oath

    B.2. Revolution from above (Atatürk) – state was founded by military and bureaucracy

    B.3. Evolution from above (Quezon) – state was founded by a man and his group

    B.4. Revolution from the middle (Mabini) – ideas for the state were expounded

    B.5. Evolution from the middle (Leni) – beginnings of middle-class civic democracy

    – why not B.1. NPA and B.2. Marcos? Because both had no real principles!

    – Filipinos learn by rote so the spirit is not understood – nationalists and leftists…

    – even if understood it is not lived by and not consistently – was Marcos disciplined?


    C. Reconstitute the Philippines

    C.1. Freedom Constitution.

    C.1.a. I probably provoked the constitutional fundamentalists here so they stopped reading.

    C.1.b. It contains Five Articles – a mixture of Rütli Oath, Six Arrows and Mabini’s Decalogue

    C.1.c. It is NOT a real constitution – it is about PRINCIPLES of living a democracy day-to-day.


    C.2. Continuity, Consistency, Commitment.

    C.2.a. How much commitment did we really feel when reciting Panatang Makabayan in school?

    C.2.b. Rote. Pasok sa isang tenga, labas sa kabila. Opo sir, thank you sir.

    Opposite = Understand what you are commiting to.
    Think about what it means to your daily life, not just fancy words.

    C.2.c. Inconsistency. Pag wala na ang Thomasite sugal tayo ha.
    Pagbalik SIR dis is our Constitution, we ADHERE to eat, it pala, tinago ko ba iyong suman?

    Opposite = Walk the Talk.

    C.2.d. Rütli Oath is a commitment from below – a rebel oath.

    C.2.e. Atatürk’s Six Arrows are commitment forced from above.

    C.2.f. Mabini’s ideas are like a kuya giving payo.

    Leni Robredo is mentioned – and her idea of involving the people.

    This is what I am trying to do here in the Society of Honor. Not as a Con-Con.

    But: how would the foundations of an living Philippine democracy look like for you?


    C.3. Now what the hell did Irineo do? The Freedom Constitution:

    C.3.a. uses the WE form of the Rütli Oath to strengthen personal commitment.

    C.3.b. has honor, humility and kindness as its first commitment (Mabini)

    C.3.c. Continuity and other aspects of the Six Arrows are incorporated (Atatürk)

    C.3.d. This is JUST an exercise. What would be the first five articles of an ideal state?

    C.3.e. Why did I put certain aspects in? Did I have a special reason to do so?


    Hoping for more participation, and feedback – please not here, in the article.

    • Karl garcia says:

      Say something about Greece,Euro…….Venezuela’s hyperinflation.
      You got something to say I know.

      • Karl garcia says:

        This is the place to say it.

      • THE international currency established by Bretton Woods just after WW2 is the dollar. Gives the United States an advantage because most international debts are denominated in dollars. The Euro was an attempt to create a strong enough currency against dollars.

        Because it is quite simple: a currency’s worth against other currencies is measured by the relative volume of goods and services you can get for it. Which is why the European Central Bank goes by

        The primary objective of the European Central Bank, as laid down in Article 127(1) of the Treaty on the Functioning of the European Union, is to maintain price stability within the Eurozone.[14] The Governing Council in October 1998[15] defined price stability as inflation of around 2%, “a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2%” and added that price stability ”was to be maintained over the medium term”. (Harmonised Index of Consumer Prices)[16] Unlike for example the United States Federal Reserve Bank, the ECB has only one primary objective but this objective has never been defined in statutory law, and the HICP target can be termed ad-hoc.

        This policy was adopted from the monetary policy of the German Federal Bank, which had the goal of preventing the hyperinflation of Weimar Republic years that cause money to be in baskets and people in fear going either Communist or Nazi. It became a problem when the Greeks and others cheated or were sloppy in implementing the rules, having another cultural and institutional DNA than Germany.

        Joining the currency union without sufficient financial convergence and stability: Some member states adopted the Euro without fulfilling the agreed-on stability and convergence criteria on a long-term basis. These criteria had been fixed in the intergovernmental treaties beforehand to prevent financial tensions and imbalances between the eurozone states.

        Further deterioration of financials: After joining the Euro some eurozone states did not put much emphasis on keeping their public debt and budget deficit in certain ranges or reduce deviations from unhealthy levels even though they were obliged so by the intergovernmental contracts.

        Poor financial sector supervision: Some eurozone states relaxed their national financial sector supervision to allow banks and other financial institutions to finance projects with excessive growth rates and inflated collateral. Those short-term ballooning credits started to get much higher in value than the real long-term value of the inflated underlying projects. Especially the produced and collapsed property bubbles in Spain and Ireland sent huge shock waves to those economies. Not only the bubbles collapsed but also the unsustainable tax revenues out of this excessive boom phase that had led to unsustainable high public expenses and later on produced high budget deficits. The relaxed supervision also created expensive bailout needs for tumbling banks and other financial institutions.

        Cheap money: The Eurozone member states faced generally easy credit conditions in many of the years preceding the debt crisis with lenders not really understanding the national level of competitiveness and financial indebtedness when excessively financing some members’ state public deficits and their private economy boom including financial institutions.

        Destruction of competitiveness: Some states had above-average wage and costs increases in their national economies after joining the Euro thereby reducing their competitiveness. Additionally, some states continued to have above-average corruption and inefficiency levels so their competitiveness was further impaired and capital invested in these economies misallocated. Increasing trade deficits were an important sign of the continuous loss of competitiveness in certain eurozone states. But those signs were not really monitored in the times of excessive “boom” growth rates before the debt crisis erupted.

        No insolvency, crisis, or exit mechanisms: As it was not foreseen that eurozone states would deviate from the stability criteria to an extent that a debt crisis would erupt, no tools or mechanisms had been prepared to prevent or handle a debt crisis in eurozone states.

        Merkel basically forced them to Germanize their way of doing things, especially the Greeks hated her for it. On the other side Eurobonds were used to game the system without officially going against the price stability policy. In reality prices have risen in the past few years. The Big Mac Meal here has gone up from €4.99 to €6.19 in the past years – Economist has the Big Mac Index for purchasing power, I only know meal prices but OK.

        The Swiss also kept their currency low against the Euro by buying Euro like crazy – actually they helped the Euro stay stable against the dollar in the process. But they couldn’t hold that anymore recently and gave it up, causing the Swiss franc to rise. Those who had money in Switzerland are lucky. Those in Eurozone who got mortgages or debts in Swiss francs suddenly had to pay much more. So it cause some turbulence.

        Finally your foreign exchange reserves count, how much you import – and export – counts as well in determining the value of your currency against foreign currencies. The Euro is definitely a second global reserve currency now. Since Europe can manufacture nearly everything by itself, it is stable inspite of storms. Now the more you are dependent on imports, which the Philippines is having hardly any manufacturing base, the more it will happen that your currency will devalue if you print too much of it relative to total volume of goods and services. OK BPO and OFWs are money coming in from abroad so that brings in what the Communists called valuta = foreign money to pay imports and foreign debts.

        Marcos started printing money like crazy. Before Philippine coins and money were made in England not in the Philippines. Marcos had a complex built at EDSA corner East Avenue.

        How did he manage not to collapse? OFWs had to send a fixed percentage I think of their earning home via the Embassies – using the official exchange rate. The total value of Philippine goods and services was much lower than to deserve that favorable rate, meaning you got MORE pesos for your dollars on the black market. I think tourists and others entering the country even had to exchange some of their money officially at MIA. So basically Marcos followed a Communist recipe – it was like that in East Germany also.

        • Finally, money isn’t real.. like they said in the movie Blow starring Johnny Depp.

          You have the following bayongs to consider, let us be palengkero economists like Mar:

          A) the money we have in circulation

          B) the goods and services we create locally

          The weight of bayong A) and B) will more or less remain the same always. Exceptions:

          1) money comes in from outside into your bayong. It may weigh more or less ($ or €)

          2) money leaves your bayong to pay imports and utang. If your money weighs less because you have printed more of it and not increased the volume of domestic goods and services, you have to pay more to Joe or Irineo. So Keynesian economics works only if it increases the local volume of goods and services as proportionately as possible – so better use it to build local manufacturing and service industries – the weight of both bayongs grows proportionately. Mild inflation is OK so that people do not hide their money in the bank, but spend it because it loses value – ideally they should spend it on local goods and services to enlarge bayong B). Japanese method – strong local consumption. Many local SMEs. The German way as well. Not the Filipino reliance on imported goods.

          • Europe and USA have big bayongs on both sides. Robust local goods and services. Both can manufacture or do practically everything by themselves. But due to the comparative advantage theory of Ricardo, they buy stuff from each other like Joe and Irineo are doing.

            Now sometimes they hire Karl who has small bayongs on both sides. In the end what they pay Karl has the same weight in his bayong (peso means weight) no matter how many pesos Karl has. Karl can keep the $ and € money and it will usually not lose weight because the bayongs of both Joe and Irineo are robust. Karl prints money but the weight of his money will only grow if he also makes more suman in his bayong B). So in the end the strategy is clear – grow your own capabilities so you have more to offer in return.

            Edgar has capabilities that nearly match those of Joe and Irineo. Australia. So his bayongs are big on both sides. He does not need much of his money from bayong A) to pay Karl. It is more complex in reality, but this is more or less the idea of how it works. China thought that with silver from the galleon trade they would be OK forever. Except that around 1750 they were so flooded with Mexican silver pesos – used until the 20th century in China – and their productivity was so low that their economy crashed and silver became less valuable than gold worldwide, permanently – and things happened like the Opium Wars, the Taiping Rebellion, Shanghai occupied, Nationalist and Communist rebellions, Manchukuo, Rape of Nanking, Long March, People’s Republic – that affect us until now.

            • actually I think the Spanish also overmined Potosi… their source of silver…

              so too much currency chasing too few goods in comparison worldwide. Argent is the French word for silver and for money – it was worth more than gold before Potosi.

              • I recommend the book 1493 by Charles Mann for this story of the first real globalization which had three important aspects:

                – the slave trade from Africa to America, local Arab slave traders

                – the spice trade of the Portuguese to Malacca and Ternate (Indonesia)

                – the galleon trade from China via Manila to Acapulco, then via Mexico to Cadiz

                It also has a chapter about how nearly all plants in “Bahay Kubo” song have foreign origin.

              • Karl garcia says:

                Sa Ternate Cavite walang trade route,wala pa bang blue seal noon?

              • Sa Ternate Cavite may Spanish garrison dati, at doon yata inaayos iyong mga galleon.

        • Karl garcia says:

          This topic is a big break from reading logical fallacies of Marcos loyalists, good thing I am not on Twitter,what I read on FB is nakakaloko,tapos pag Balik mo dito meron pa din.

  3. Karl garcia says:

    Orlando is an economics professor,just an FYI.
    me I am just glad you came up with this blog,because I still have to apologize when I jumped the gun and made a Raggedy Anne slash Frankenstein article about the same topic.

    • Micha says:

      In which case, I’ll invite Professor Orlando to engage on the subject.

    • Joe America says:

      Well, now you can sit back and watch two economists in a fist-fight. 🙂

    • Bert says:


      I hate meddling in a fist fight specially if not so clear on matter being fought upon but this time I would not mind to be smacked on the head and be cleared of the haze that boggled my mind when Orlando the Professor stated this:

      “So what if the government can print money instead of imposing taxes?”

      To Orlando…as an economics professor, is your statement an advocacy that you taught your students? Can you please enlighten us as to its advantage if implemented by governments? Thanks in advance.

      • Micha says:

        Natumbok mo kasamang Bert.

        Maybe Professor Orlando wasn’t thinking clearly or is aware of the implications, both social and economic, when he admitted that the gov’t has the ability to spend without imposing taxes.

        That’s the major paradigm shift that karl was talking about but the good professor just dismissed by saying so what?

  4. josephivo says:

    Or simplified, nations set up a Ponzi scheme.

    The current monetary system of most governments resembles a Ponzi scheme, pay your new investors’ interest with the money you got from the previous ones. This works fine until there are no more new investors in your scheme and everything collapses. So for a long time you can spent more than you have as long as you find new players. Same for the monetary institutions of nations, inflation as way to use money of previous depositors, national debt as a hidden void of national capital, new printed money not covered by a principal.

    Developed economies have to find new players in new markets abroad and the Chinas of this world joining the club of Ponzi schemers. The other way is to create new needs in existing markets. Get everything human activity from communication, sport, leisure, religion… more and more commercialized. But the blue marble has limited resources, the world gets saturated with basic goods, the spheres of life that still can be commercialized diminish fast. Eventually the current monetary system will collapse.

    Welcome to the barter economy. Welcome to the less is more philosophy. Hope you have enough real tangible assets, money will evaporate.

    • Micha says:


      I am not so sure about the collapse of the monetary system per se, which is independent and can survive the collapse of an economic system.

      Capitalism had already collapsed in the 1930’s and, more recently, in 2008. Communism had already collapsed in the former Soviet Union. And yet monetary systems of independent nations not only survived but is essential in resurrecting its economy.

      • josephivo says:

        Correct and every time those at the bottom of the pyramid pay for the collapse.

      • josephivo says:

        As long as one can open new markets, there is hope. But on one hand the countries setting up Ponzi schemes increase fast (e.g BRIC countries), on the other hand the space to develop new markets is shrinking equally fast. Commercialize air, a smile, sun sets and love for a grand child…?

    • Micha says:

      The barter system is a primitive way of exchanging goods and services. Imagine trading a bag of rice for, I don’t know, maybe a basket of nails?

      • josephivo says:

        I know, just to put the situation bluntly. Semi barter or money linked to a gold standard or linked to a bucket of tangible assets is more likely.

      • Juana Pilipinas says:

        A lot of very educated and enlightened Americans are going back to the basics. They are buying farms and experimenting with their own sustainable micro-economy. Exchanging goods and services are very important tenets of the movement. Will it succeed? Time will tell but so far, most of the participants are healthy and happy.

        • There are regional currency movements in many parts of Europe as well – in the end it is simplifying the exchange of stuff between bayong A) and B) – or exchanging stuff that is in bayong B) with one another to not depend too much on the value of bayong A).

          Some regional currencies are depreciative, meaning the lose value monthly automatically, meaning that you are forced to make the money circulate and stimulate local production. Because in the end you can’t eat money, which Native American tribe said that?

          • The informal economy I am seeing now is akin to bayanihan or neighbors helping neighbors raise a barn or fence perimeters, assisting in crops harvest and exchanging fruits, veggies and animal surplus for foods or implements that one need. There is no formal valuation. An example will be a dozen of eggs for a jar of honey. I think we all know when we got more than what we gave so we try to even out the trade in succeeding transactions.

        • “A lot of very educated and enlightened Americans are going back to the basics. They are buying farms and experimenting with their own sustainable micro-economy. “

          It depends on the economy, Juana. I remember when gas was like $5/gal. people started opting for public transport. When it went down, people started driving again. If looks like the Age of Suckiness is upon us, regardless of the up and downs, so if I’m reading the tea leaves correctly, DIY and Homesteading, and community building, is here to stay– it never left Cascadia.

          • Juana Pilipinas says:

            It never left rural America but acreages were gobbled up by corporate industries in the past and mono-cropping and the reliance on synthetic chemicals turned these lands into unproductive dustbowls. The small farmers who were unable to compete, left farming in droves or became contractors or subcontractors to corporations. That tide is turning, Americans are reclaiming their farmlands and nurturing them back to health. More and more people are becoming aware that land stewardship is a high and noble calling. Economics has something to do with the paradigm shift but there are other factors in the equation. Global warming and other environmental concerns are large part of it. Leaving the earth a little better for the next generation is of overriding importance.

        • Joe America says:

          So from that we can deduce that you are enjoying being a farmer?

          • Very much so. Time flies when I am farming. I get into the zone and hours turn into what seems to be seconds. It is as close as I can get to experiencing quantum physics’ chrono theory. The edible forest is thriving with very little man-made input. We’re keeping the cow away from the tomatoes pursuant to your sage advice.

    • josephivo says:

      Ponzi simplified in none monetary terms: “Who cares for the children of the yaya?”

  5. Karl garcia says:

    Orlando do comeback and do a devil’s advocate questioning,I know you have worked for the IMF,you are an expert, tell us what is wrong with mmt,monetary sovereignty,and the likes.

    • Micha says:


      The IMF was the main enabler of the Washington Consensus. It went around dangling dollar loans for dictators and despots in Asia, Africa, and Latin America.

      When the poor suckers couldn’t pay up, the bankers took over the country’s crown jewels and punish them with onerous arrangements.

      The neo-liberal bullshit saw its exceptional stink during the Reagan years and still spewing venom to this day; victimizing and impoverishing millions in the process. That is what has given rise to the emergence of the global 1% (actually a fraction of 1%).

      Christine Lagarde is an able steward of orthodoxy although she’s now aware of the challenge being posed by Keynesians and MMT folks.

      I don’t think Professor Orlando is coming back.

  6. Karl garcia says:

    Thank whoever for smugglers which is a stopgap measure for inflation and artificial shortages.

    In Venezuela due to decades of hoarding consumer goods and smuggling out instead of in,they have the highest inflation in the world.Our oligarchs are saints compared to their oligarchs,now they plan to print high denominations because money in bags are getting heavy.

    • Micha says:

      Venezuela’s economy was/is so heavily dependent on its oil exports. With the glut of oil in the US – thanks to shale fracking – and Saudi Arabia refusing to limit production, oil prices nosedived and Venezuela’s economy took a hit. Ditto with the Russians.

      • Karl garcia says:

        Now Columbia is the willing recipient of smuggled consumer goods and yes that includes gasoline.if they have drugs Columbia would buy them too.

  7. Karl garcia says:

    If philvolcs or its equivalent had a louder voice back then,the Bataan nuclear power plant would not have been built in an earthquake prone area,then we could not have that much foreign debt which we are still paying for.

    Micha,your contention a few days ago that taxes collected are in pesos and cannot pay the dollar debt, Micha for a not so bright observer my initial reaction was What? Who says pesos won’t have to be converted to dollars.

    I am no expert and obviously you are not a tax advocate,but what is wrong with having just one tax whatever you call it fair tax,national sales tax Evat.

    We will never run out of dollar inflows due to remittances and BPO,does that mean minus points for our monetary sovereignty?

  8. Micha says:

    Ok, let us follow the tax for dollar debt servicing narrative.

    1. We collect the tax in pesos.

    2. We find somebody who is willing to exchange dollars for those collected pesos.

    3. We then use those dollars to pay our foreign debt.

    If there’s anyone here who is familiar with this process, I’m open to be enlightened. However, my understanding of how third world countries such as ours service their dollar loans if their dollar reserves in the treasury is depleted is we re-structure the loans. That is, we take in new dollar loans to pay the old loan, mostly just to cover the interest.

  9. Karl garcia says:

    The foreign institutions are not the only sources of dollars,Corporate America is another source through bonds

    • Karl garcia says:

      Dollar debts

    • Karl garcia says:

      Actually not just corporate America as well anyone in the world can buy global bonds issued by the Philippines.

      • A bond is basically lending someone money. Bonds from issuers seen as trustworthier will usually have a lower interest rate, while those seen as lest trustworthy will try to get buyers with a higher interest rate. The risk that an EU or a USA will suddenly not redeem the bonds for money is very low. Philippines will still have to build a trustworthy reputation – it already is getting there, but thieves in power will make people avoid the place again.

        Whom would you rather give YOUR money to and get a promissory note – which is what a bond is after all – Mar Roxas, Grace Poe, Miriam Santiago or Jejomar Binay. The last of the four would probably feed your pesos, dollars or euros to the pigs, bye bye money.

  10. Karl garcia says:

    There is a reason why government expenditures is always like this

    we all know that education is supposed to be the priority,but we can’t have subsidized universal education for all .

    We already dicussed that 15 % goes to interest payments and 30 % goes to personnel services

    Since you said debt is ok and is a given that must not be a hindrance to spending so that 15 % percent will be forever there that leaves 85 % to work with.

    I am not a fan of nationalization ang go see so I have no problem with privatization,but first they must improve their services if they need foreign competition then so be it.

    If our bureaucracy is reduced we can lessen our personnel services budget and add that to other expenditures.

    once mmt is no longer a hard sell then maybe within our lifetime we could Witness unli spending

    • The aspect of promoting local manufacturing and SMEs to have enough local value produced is very important and the more you have the stabler the currency. That means you prioritize overprinting money to create local goods and services. Balance the bayongs.

      • Karl garcia says:

        Kwarta o kahon is the predecessor of Pera o bayong…heard of the latter?

      • Karl garcia says:

        On the defense forum, everybody says we can’t manufacture,we can’t do it,we need a roadmap etc,but when I suggested low tech and small boats, Ayaw din. Di ko maispelling

        • Mag-aral-aral kayo ng basic economics kahit Wikipedia lang a i-google ninyo. Tapos iyong librong 1493 ni Charles Mann bilhin sa Amazon. Nandiyan ang istorya ng Tsina – relied to much on imports through galleon trade tapos nagcollapse 1750 – kaya galit sa Pilipino?

          If you have primary industries – agriculture and manufacturing, you have the strength to outsource secondary industries like services. Unless you have top-level services like Austrian hotels, Swiss mercenaries in the Middle Ages etc. that command high value.

    • If I am not mistaken the natural limit to spending is whether there are investments that can be a net positive to society. The pessimist view is that we have already exhausted the low hanging fruits and now need major investments to get to the next rung of technology advancements.

    • chempo says:

      The 15% interest servicing is not a given that you can fix at that forever. It is dependent on the amount of debt.

      • Karl garcia says:

        Yup was just playing with numbers

      • Karl garcia says:

        A few years back debt servicing wAs at 33 %

      • Karl garcia says:

        If Micha’s premise that deficit spending is ok if debt servicing reaches above 50% what is there to spend ?

        • Karl garcia says:

          How can we have a deficit if taxes are removed? Am having more questions by the minute.

        • chempo says:

          Karl I think u are confusing the 2 — budget allocation, and debt servicing ratios. The 15% of the pie-chart means of the total revenue available, 15% is spend to pay off loan amortisation (capital + interest).

          Debt burden is commonly expressed in 2 ratios — (A) debt to GDP ratio, (B) debt interest servicing ratio which is the interest for the year to GDP. Ratio A is a basic guide as to borrower’s credit worthiness. It tells you how much of the year’s GDP is required to pay off all loans. Much like when you take a loan for a vehicle they ask you for what’s your annual income. Ratio B tells you how much of the year’s GDP is required to pay off the interest to service for the year. When Marcos fled, it was about 33 or 35%…off my head.

          • It sounds similar to the mistake many homeowners make when they get a loan for a house.

            They end up signing something where they pay for the interest but the debt is not sufficiently reduced. This is OK as long as the value of your house rises or stagnates.

            What happened in Spain some years ago is that the value of real estate dropped and people ended up owing more money to the bank than their houses were worth. Big trap.

            • chempo says:

              Ah Irineo — the housing loan here baffles me. I don’t think the practice here complies with whatever fair trade regulations you have. Because owner’s are never shown the true interest charged.

              • Juana Pilipinas says:

                What? How could you calculate your own amortization? How would you know if you can afford the payments for PITI? So you have to use algebra: gather up all the givens and find X?

              • Joe America says:

                They give you enough information that you can back-calculate the rate, but it takes a financial pro to do it. Most consumers, I am sure, do not know what rate they are paying. I intend to do a blog on “usury”, a concept that does not exist in the Philippines.

              • Juana Pilipinas says:

                Is there a provision on that new consumer protection law covering this issue?

              • Joe America says:

                Right. The consumer disclosures are horrible, and if you ask for more information, the RE agents treat you like the plague.

              • edgar lores says:

                The banks in Oz openly advertise their home loan rates to attract business.

                I am flabbergasted. Why would anyone borrow money — huge sums at that — without knowing the interest rate?

              • Joe America says:

                They know the monthly payment.

              • Karl garcia says:

                its in the small fine print rates are subject to change without further notice and there is nothing you can do about it……or something like that

              • chempo says:

                Hell most times you don’t even know what’s the price of the prorerty unless you do some calculation. The agents sometimes don’t know themselves.

              • Karl garcia says:

                agents give the false assurance that for five years,rates wont be touch….after five years there will be a recomputation….that means pay in cash asap.

              • I was reasonably surprised that the Big Bad Bank of the Mall owner has a housing loan that is Fixed for 15 years. The rates were far lower than that of HDMF/Pagibig Fund.

              • Karl garcia says:

                they will show a table for a five years below installment..rates will be fixed…if you plan to pay to pay beyond that you are told there is a risk that rates might change….which is bith true and a cop out at the same time.

              • “I intend to do a blog on “usury”, a concept that does not exist in the Philippines.”


                Can you connect this to Islamic banking? I’ve heard really good things on this, and might raise Filipino Muslims, ie with Ireneo’s microfinance idea vis-a-vis the BBL and just Muslim Philippines as a whole.

                I don’t really know a thing about banking (taking lots of notes here), but that term “usury” is a big deal in Islam, and usually associated with the Jews. I’m thinking the Prophet Mohammed probably got caught up in some scheme similar to what you guys are talking about.

              • Joe America says:

                Thanks for the ideas.

              • chempo says:

                @ Gian — I’m surprised there are 15 years fixed term housing loans. Either the funder don’t understand the risk or he has some long term liabilities to square off.

                @ Lance — Islamic banking to me is just some people not wanting to call a spade a spade. Koran says they cannot charge or collect interest, but the Islamic banking way makes depositors basically risk takers, and internally how they share profits out still boils down to some interest computation..

              • Karl garcia says:

                terms and rates are different they all have a table,the agents know that buyers are taking notes, they are always wait for the buyer to say, i will leave the rates of others are lower,then the negotiations begin.Another thing they are waiting for is,I like your rates they are lower. Ayala does not do that bs. it is take it or leave it,unless you are rich and famous.

              • Karl garcia says:

                different per developer

              • Karl garcia says:

                bdo thinks they will find ways,find ways to fool you into believing that the rates are not subject to change and its in the fine print,just dont read it.

          • Karl garcia says:

            Thanks for unconfusing me

  11. Karl garcia says:

    Had too much caffeine, it is only now that I feel sleeeepy good night.

  12. ” the public sector could and must ensure dynamism in the broader economy by spending on projects that generate value such as infrastructures, improved public education, agricultural subsidies, etc. “

    Aside from a couple of jars I put all my coins in and balancing my check book (which is pretty easy when Salvation by Austerity is used– Mary knows what I’m talking about), money matters to me are simple affairs.

    So when Speaker Boehner and other Tea Party’ers, although I don’t agree with much of their politics, ie. Evangelical crap, Climate Change denying, promoting Intelligent Design, etc. (all the reason Dr. Ben Carson’s leading the polls here), when these people talk about Salvation by Austerity,

    living within or below one’s means, fixing credit and lending practices (that actual sound more like Islamic banking, more tangible than abstract), I tend to agree.

    But I know there’s more things in the process, which is way above my pay grade and education. So articles like these, I find enlightening. Thanks, Micha, for writing it!

    For me, your above quote, is FDR’s New Deal and is the reason why I’m a Libertarian/Democrat/Independent, never a Republican.

    When the US decides to play Socialist, we see results, ie. the Hoover Dam, bridges, more Post offices, etc. So when I read that quote, Micha, my first thought was misappropriation/embezzlement by gov’t officials over there– seems to me you have to fix the leaky boat first before it can set sail.

    But in theory, I like it.

    And we’ve seen this work under the New Deal, and current social services– Medicare/aid, Social Security & Disabilities, and of course, Karl‘s favourite, Defense… ( though personally, I think the Philippines will fair better not in hardware, but software, invest in people not things, here’s my take: )

    The whole Keeping up with the Kardashians theme is everywhere in the Philippines, that’s why there’s malls everywhere, creating mindless consumers out of you guys, thinking this is American progress– we over here, fell for that trap, hence the rise of DIY’ers and urban Homesteading– I hope you guys can learn from us, study Detroit.

    Same with Defense spending, Keeping up with the Kardashians, apply here again, Don’t follow our Military-Industrial complex, follow Cuba’s a-Medical-clinic-in-every-corner model instead and

    Bernie Sanders’ Post-Office-into-Banks plan– put those Lhuiller’s out of business (the Philippines will be better w/out Pawn shops).

    • “the Philippines will fair better not in hardware, but software, invest in people not things”

      There are a lot projects possible. One would be for the government to upgrade its software to bring citizen services straight to the barangays as one-stop shops. Not the critical stuff like BIR, but other stuff people need and have to spend a lot of time walking around for. Or those with money hire “fixers” for. But you need good Internet connections for that – servers in Manila and web access so all you need in the barangay is a PC and a multifunctional printer/scanner/fotocopier. OK even better would be a national ID that can be used for electronic signing, eliminating the distrust factor of delegating to the barangays – because that is the true reason behind the overcontrol that stifles the bureacracy.

      That kind of project would automatically improve the Internet everywhere because the government could demand a certain service level for its connections, if they have to make things faster to every island it would benefit everybody. Plus it would give a push to the local software industry. Web applications with databases on central servers are the present wave of development. The blocking force against this would be government agencies that are overstaffed and expect the citizen to go to them and wait for service. And complicate matters very often. Citizens as customers who go to the barangay office for stuff just like they buy a mobile phone or a SIM card would make people trust the government more.

      • Ireneo,

        Are you familiar with the Lhuillers’ pawn shops all over the Visayas and Mindanao? Not sure if they’re as ubiquitous in Luzon.

        I’ve always equated pawn shops to under-served inner cities, same with small fly-by-night ‘churches’. I saw these two industries, well represented, over there.

        Cuba’s clinic on every block and their quality doctors are well known. This I’d like to see over here, as well as in the Philippines. We’re seeing more clinics on every block over here, but it seems to be the wrong iteration–

        maybe Juana has a better pulse on this, since most of the Nurse Practitioners manning these clinics are Filipinas.

        To me there’s something lost, when the profit motive is applied to health care (so maybe Cuba’s on the right track vis-a-vis health care).

        Private clinics are sprouting up, and these days, every Walmart, CVS, Walgreens, Target & Savons are standing up their own stand alone clinics– before there were just pharmacies.

        So a bank on every block, or within a 5 mile radius, seems a good idea.

        Was wondering if there’s a European equivalent to this, and if it works? Thanks, man.

        Bernie Sanders’ idea is simply re–purposing an existing gov’t bureaucracy and taking over (or under cutting) the monopolies of fly-by-night “churches” and pawn shops in under-served areas, whether in the 1st or 3rd world.

        • Medical education in Cuba is free. It has a socialized healthcare system where the government takes administrative and financial responsibility for the medical care of all Cubans. They even invite foreign students who want to be healthcare practitioners but can not afford med school to apply for scholarships.

          If I remember well, Hong Kong when it was a British colony also has a medical program that is similar to the US military officers’ program where the government pay for college in return for certain number of years of government service. They also had a socialized medicine then but since HK was given back to China, I do not know if the program still exists.

          I think it can be done in the Philippines. karl said that there is already a law passed to give the best of the best free ride to college, maybe they should group them according .to aptitudes. Graduates could be hired for hard to fill professions within PH. That will also give the government an opportunity to pick future doctors and other medical personnel to administer and provide a socialized healthcare system.

          • “karl said that there is already a law passed to give the best of the best free ride to college, maybe they should group them according .to aptitudes.”

            This is interesting.

            • It already existed in the 1950s – the valedictorian and salutatorian of every public high school got a free ticket to UP. The public school system still was the pride of the country then. In the 1970s, Marcos time, it was already totally rotten. I don’t know when the old scholarship to UP was abolished. Now Cayetano has passed a law giving the Top 10 I think of each school a free ride. OK in 1964 the Philippine Science High School – where I went to study – was established. Competitive exams in two phases. First the top 20% in match and science in every school were selected for the first screening. A few thousand passed. Out of this group, the second screening selected the 240 best. I was on vacation in Germany in 1978 – in Munich of all places my first time there – when I got the message from back hom that I had passed. I was 13. I was stunned. The model for Pisay was the Bronx High School of the Sciences in New York. Just to give some input to everybody here. Many Pisay graduates went to DOST – which is why that place is doing well.

              • My point being, meritocracy already has been tried in the Philippines. But I know from my experience and my fathers – he was Albay High salutatorian in the 50s then went to UP – that the “kaklase” become new tribes. UP became more of a closed shop later on. Pisay – we have the entire spectrum of diehard Marcos loyalists up to an NPA commander in our batch, we mostly know what the other guys are doing but we would never squeal, ever. Someone who squeals becomes an outcast and is shunned – I can dare this here because I don’t depend on these networks, I might notice some unfriendings in FB but that is all.

                UP works similarly – you don’t squeal on KKK – kabatch, kaklase, kabrod. Which explains some strange solidarities between beacons of morality and crooks. And MRPs comments.

            • Thank you, gian. Do you have a meme similar to this?

              • Nice Idea.
                I will try something like this.
                The 5 year GDP growth rate of the PNoy admin is the best for the past 40 years. If we get an unexpected bump up (Because of election spending.) PNoy may claim the highest 5 year GDP growth rate of the past 60 years.

              • Gian that would be very nice. Your memes are already great, but many people will like one meme where all the data is included. Especially those who are biased may not look at so many memes but if you have one, like a management summary, they may wake up to truth.

  13. Joe America says:

    I believe that money does matter, but when economists themselves can’t agree, and can’t express their agreement in terms that can be implemented, then what chance do we marketing guys have at contributing to a better economic model?

    For me, trying to figure out the inter-connectedness of trade and money is like the feeling I had most days in my class “Tensor Analysis with Applications to Mechanics of Continua”, as the other 8 students (all from India, oddly enough) discussed things at some theoretical level unreachable by mere farm boys.

    My suggestion to the economists would be to get thy righteousness into the back room and come out only after y’all have come to agreement and can express things in ways that we mere lay people can comprehend. When one of you comes out and tells us to go left, and the other says go right, then I’ll just keep going straight.

    I understand that value is created by smart people doing good work. The more value we have, the more goods people have to play with. If we can interject a measure of responsibility into how we play, then maybe the planet will survive.

    • NHerrera says:

      I read the blog and comments starting from @Orlando until your note above date-stamped October 26, 2015 at 9:36 am.

      I feel frustrated not having some clarity on what Orlando started with, and Micha nicely asking for some explanation/ engagement on the subject and none appeared between the two.

      Joe, between you and me, I will stick to “tensor analysis.” And between Einstein’s use of tensor analysis in relativity physics; and the economists theories and explanations on money — of the freely-printed kind or taxes — I think I will opt to struggle with Einstein’s and be a winner in the end.


    • josephivo says:

      Where does matter, money doesn’t matter. Economists are males. What to do, when to buy tomatoes at the best price… Adam Smith told us. But Adam was an enlightened bachelor living with his mom. Her cleaning, cooking and washing his dirty underwear, all with her unlimited motherly love, was kept out of his economical thinking and out of the thinking of all his male successors. More than science economics is a male thing. The exponential thinking is summarizing all those invisible actions in monetary terms. And this monetary summary was high jacked by Ponzi schemers in Wall Street with the support of national bankers. Look at the hole… might need a separate blog to explain all this in more detail.

      What really counts is being loved by someone and that has no monetary price (yet?).

    • josephivo says:

      I have good memories on tensors. The old professor teaching advanced dynamics only had 10 exam questions for ages. So we all had the answers prepared and prewritten in our pockets, during the exam you had to pull a question, then secretly find the corresponding answer in your pocket and copy the answer on the official exam paper. I had a strength calculation of a short curved hook. Didn’t have a clue what a short curved hook was, but my page was full of partial differentiates and elastic tensors and as everybody else, I passed :-)

      • NHerrera says:

        Good for you!

      • Joe America says:

        Well, I sat glassy eyed through the classes, following the professor’s every unintelligible word, and never bent my moral compass by cheating. I got my “C” from the professor, for endurance, he said, demonstrated by my actually showing up day after day, then I joined the army.

        • NHerrera says:

          An “endurance” grade. Hahaha!

          • Joe America says:

            Yes, but it comes in second place to my 9th grade teacher who gave me a “B” even though I did not do the required book report (“A Tale of Two Cities”), because “your brother was really a good student, and I know you could have done a good job as well”. I wonder if that teacher was Filipino. I forgot his name. I didn’t have to pay him or any thing. Maybe he could sense that, in my later years, Dickens would become one of my all time favorite writers.

    • Micha says:

      Economic modeling itself can be robustly constructed and defended. Economic players however are made up of individuals like you and me and everybody else whose interest does not always converge and whose actions are not always perfectly rational. Political economy comes into the picture.

      The debate then does not so much involve pure economics as it is about whose interest are we going to protect. Should we prioritize the well-being of the rich or of the rest? Are we going to allow the gov’t play an important role or should we just have to concede private enterprise dominate the economic playing field? Which part of the economy should be more appropriately left to the public sector and which part can best be in the hands of corporations?

      Those are political questions as much as economic ones.

      • NHerrera says:

        That makes some sense to me, the murky world of political economy, notwithstanding (at least to me.)

        May I add: too bad Orlando did not oblige with his reply to your comment.

      • Joe America says:

        Ah, well, on that note, you have reached through my rather thick cranium, shaped I think not unlike the skulls of those bone-headed dinosaurs my son and I were googling today. The Philippines is expert at protecting the interests of a governing or enriched few, and it is our job to do what the left cannot, for lack of a good model, and that is to break that down to release the energies of the masses now spent drinking tuba and cheering Pacquiao. In concert, as the masses are properly deployed to real jobs creating real value, we ought to be installing various controls and governors on the entitled to make sure they are working as much for the state as the shareholders, as it is a partnership that should be equal. For money matters, we delegate that particular esoteria to you and Caesar Purisima, and shall trust you implicitly, and explicitly, to do the right thing.

      • josephivo says:

        Economy as a science is a male undertaking. It left out half of the human activities essential to survival and happiness. Caring for kids, from the egg and sperm union until adult, nurturing your family, cook, clean, attend the sick. Community work, drinking a beer together, enjoying a sunset…

        Pursuing only economic, or worse monetary goals is leaving all that is important to chance. We need new paradigms, new economic rules, new priorities. Adam Smith had a distorted, partial view. People do not only make rational “money” decisions but they also act out of love, both can be logical, erratic, emotional or just randomly.

        Working more hours for less money with less security for the future, exhausting natural resources, polluting the environment just for the happiness of 0.1% of the population? This cannot be our future, we have to open a new discussion.

        • Many may not know that the main proponents of the present-day economic orthodoxy – neoliberalism – were tenured professors who did not practice what they preached? Everybody else has to compete like hell without limits while they had secure pensions?

          Or that Alan Greenspan was a devout follower of Ayn Rand – the objectivist “Führerin”? And that Ayn Rand was a very crazy Russian woman who migrated to America?

          And that Adam Smith did not figure multinationals into his equation? The present orthodoxy ignores men like Ricardo, Fredmund Malik, or Joseph Stiglitz – a former World bank economist who massively criticizes the IMF orthodoxy he once used to support?

  14. chempo says:

    Disclaimer : I’m no economist, just an avid reader of financial papers years ago.

    Monetary sovereignty was touched in this blog. It was also something that kept cropping up elsewhere and I saw some lack of appreciation. Here’s my 2 pesos worth explanation.

    Monetary sovereignty does not mean simply the capability to print your own currencies. The physical printing is irrelevant — you can print in China if it’s cheaper (bearing security issues).

    Monetary sovereignty means you manage the whole mess — monetary policies (money supply – printing, interest rate management in looking after full-employment and inflation) and macroeconomic + social economic policies. Most countries have monetary sovereignty today.

    Non-monetary sovereignty means you don’t take care of monetary policies, you handle only the macroeconomic and social economic policies. The European Union is the only example I know of. The monetary policies of the individual countries (except UK) are surrendered to a supranational institution – the European Central Bank.

  15. chempo says:

    Micha say if you can collect peso savings to fund domestic projects, then there is no foreign debt. That is of course absolutely true. But remember —

    (1) A debt is a debt. Govt now owes to locals instead of foreign creditors. Budgetary constrains on debt servicing are still there.

    (2) Economics is so dynamic, lots of cause and effects. It is not as if all those individual private savings in banks deposits are sitting idle in banks. Bank in turn put them into productive uses, such as lending to private business. Taking domestic savings and putting them into govt projects is simply a diversion of the use of domestic savings. There will be less credit available for private businesses.

    Production = land (material resources) + labour + capital You are simply using the same capital but in different enterprise.

    You want more production, you simply need to have more of the 3 factors of production. If capital (domestic savings) are not enough, you borrow externally.

    • Micha says:


      “(1) A debt is a debt. Govt now owes to locals instead of foreign creditors. Budgetary constrains on debt servicing are still there.”

      Fully agree on your first and second sentences. Budgetary constraint on debt servicing however, is an artificial construct, a remnant of the old practice before the Nixon shock.

      Because the Philippine nat’l gov’t is monetarily sovereign, that is, it has the unlimited ability to create pesos, it could – if it wants – pay all its domestic debt at a snap of computer keys at the finance dept. There is no danger whatsoever that the Philippine gov’t would default on its domestic debt even if its tax collection will fall to zero.

      We should remember however that if there’s a debtor there’s a creditor. Somebody’s debt is someone else’s asset. So if the PNG (Philippine Nat’l Gov’t) is the debtor, the creditors are private individuals and corporations who invest their money on interest generating asset called gov’t bonds. In other words, what we call domestic debt can also be referred to as savings investment of private individuals and corporations that earns interest. If you are one of the holders of those bonds, you really wouldn’t want the gov’t to pay it off unless you already need the cash.

      “(2) Taking domestic savings and putting them into govt projects is simply a diversion of the use of domestic savings. There will be less credit available for private businesses.”

      Please don’t take your eyes off the primary characteristic of a monetarily sovereign gov’t : it does not need to borrow in order to spend. Private individuals, banks, and corporations may take out all their interest generating savings from gov’t bonds and that will not in any way affect the ability of the PNG to spend.

      Private individuals, banks, and corporations will always be free to chose where to park their savings. If they still decide to invest it in gov’t bonds, the likely reason is they couldn’t find credit worthy borrowers outside of the national gov’t.

  16. chempo says:

    Note: I’m breaking my comments for ease of discussion.

    “Domestic gov’t bonds are/were issued not so much to finance gov’t projects as it is to satisfy the need of domestic savers for interest bearing instruments to augment their income.”

    I don’t quite understand this. I’m not quite sure if there is any govt in the world that does this. Is the govt in competition with private banking business? Does it mean govt bonds have better rates?. If so, the bottom line its tax payers’ money funding the rate differential. I think domestic bonds are issued primarily for :
    1. Funding for specific projects — such as war bonds.
    2. As part of Central Bank open market operations
    3. Part of an exercise to create a domestic bond market (promoting a financial centre)

    • Micha says:

      “Is the govt in competition with private banking business?”

      Please see my reply to your October 26, 2015 at 11:41 pm comment above.

  17. neo canjeca says:

    This is a re-posting just in case something happened in the transmission, not a case of rejection.

    Did the ABBA sing it: Money, Money, Money; let the wise guys add a K and some sensitive skins might bristle as their BPs shoot up.

    My high school English Language teacher enthusiastically told us: Money can buy everything except happiness; money is the passport to all places except heaven. Then as a research assistant I heard Jaime Laya, Martial Law financial wizard being a business admin expert told us the story of four professionals ; ship wrecked and marooned in an island were exchanging wise counsels debating on how they can open a can of worms to sate their hunger like use stones to bang and open the can; heat it under the fire so the content will expand and burst the can and so on until: lo and behold the economist among them shouted: I GOT IT, I GOT IT. It is so easy, let us assume a can opener. I wondered then what Dr. Gerry Sikat NEDA’s big boss will comment on that.

    People like to talk lovingly of farmers. I was fortunate to be on after studies secondment to the entire Cambridgeshire and Derbyshire regions. While in the Philippines the bare feet of a farmer is claimed to be the best fertilizer, in England it’s the tire tracks of the farmer’s Landrover that tell how often he visits his farm of Brussels’ sprouts, potatoes, strawberries, sugar beets or whatever. I learned then that farmers are the same where ever; they deeply know their calling, are experts on sun and water; the other factors too that determine their profit and losses. Experience grounded my head into believing that farmers anywhere in the world ARE THE SAME all over the farming world in honesty, integrity and their struggle against the elements of nature and the deceit of men over which they have no control. It gave me the winning a cara y cruz game feeling in the Philippines when a farmer will greet me with a smile and a glass of fresh carabao milk as we start the day’s toil or when I go home with a half full paper bag of green and red tomatoes. When in England, my Welshman buddy will go home with two sackfuls of potatoes for his family, while me with some big fresh strawberries to take home to my digs in Cambridge. No. No, I did not work for an MPhil or a DPhil in UK.

    In the Luzon’s central plain which use to be under sea water, I learned from farmers of government administered irrigation canals where water simply will NOT flow; where drainage is: what is that to farmers. Even now after a strong wet and wild typhoon, there is a likely drought problem.

    Money, money, money could be the atoms of macro or micro economics. It could be, sort of a parallel understanding of distinguishing hydraulics from hydrology; the nuances of pipe water flow to open-channel flow. Irrigation canals are open channels, open to the vagaries of nature like topography, the hydrologic cycle, the pull of gravity and most important: HUMAN NATURE which causes the hemorrhagic leakages. Economics is a dumb science if it can not factor to its formulas of assumptions massive corruptions by politicians and bureaucrats. Three guys from DOST, NEDA and BSP (Bangko Sentral) should sit down for interdisciplinary coffee to combine in one equation monkey, monkey este money, money molecules of governance in the country.

  18. chempo says:

    Re Marcos borrowing …”…the funds for those projects were sourced from international lenders all too willing to cash in on and comply with the prescription of Washington Consensus in its neo-liberal trickle-down free market fundamentalism even if it meant propping up dictators and turning a blind eye to their corruption and thievery as a countervailing force against the spread of Soviet communism. “”

    I’m not quite sure about this. Marcos borrowed extensively from the international capital market. Banks are profit driven, I don’t think they give a damn what the Soviets were doing nor do they factor in things like corruption. It all depends on their risk appetite — what the country/soverign/industry risks are and competing alternatives to where they can invest their money. The higher the risk, the higher the rates to borrowers. Philippines never has been, and is not currently, a first tier borrower. During that time, Marcos was borrowing at rates like 75 basis points above 3/6 months LIBOR. That’s pretty hefty. So if Phils is not a good bet, why were the banks so happy to lend Marcos? It’s the story of the recycling of petrol dollars. I covered this in my article on Marcos Revsionism part 2.

    • If I may add and If I remember correctly we we’re victims of the flood of petro dollars.

    • Micha says:


      One of the policy recommendations from the Washington Consensus is the opening up of third world countries to foreign investments.

      • In PH, that will require a constitutional charter change. In 2014, Mar Roxas was all for it but I am confused that he recently stated this:

        “…he wasn’t keen on amending economic provisions of the Constitution — explaining that charter change could cause political and economic turbulence. ”

        Please give us your take on this issue.

        • Micha says:

          He must be referring to the clamor by some sectors to allow 100% ownership of enterprise by foreign entities doing business in the country. It’s the domain of politics. I’m not sure whose interest he’s specifically protecting with his current stand.

          Will 100% ownership be good for the country? Short answer, no.

          • Joe America says:

            “Political turbulence” . . . someone might hijack the process to adjust term limits or make other non-economic changes . . . or the fear of it would make the process more trouble than it is worth . . . and destabilize confidence. Confidence is key to economic stability.

      • chempo says:

        The “opening up” recommendation can be viewed anyway you want. Some see the benefits, some only see fear. But it is a proven fact that the economies that are more open, they are generally the more successful ones.

        Third world countries lack one thing that foreign investors have — capital, one of the 3 pillars for production. Third world countries lack technology, education, network, infrastructure ….almost anything else that facilitates progress. Great example — Myanmar, or say Papua New Guinea.

        Those one the left want to go in and gobble up whatever they can, those on the left want nothing of this. They forget there is always a middle ground. IMO 3rd world countries should welcome foreign investors but move carefully and release the playing field in stages. First off they should decide the strategic fields that they want better control.

        I share what I know of Spore — it is open in almost any sphere except a few areas — (a) banking (reason is we are too small an economy, fair reason) so we created different banking tiers — full-banking, restricted banking and off-shore banking. Only branches of foreign banks are allowed for commercial banking. For merchant banking, foreigners can incorporate in Spore. The only foreign bank with full-banking ops is BOA. (b) the press, (c) law firms (except those handling international cases), (d) security services (provided by a special arm of our police) – because nobody else carry arms… Anything else, you are welcome to set up shop. You can register your company within 10 mins.

        There is valid concern that locals will be no match for an onslaught of foreign investors. True, so we should thread warily and find solutions. One trick is govt participation and then slowly go IPO. There are more than one way to skin a cat.

        • Micha says:


          You said : “The “opening up” recommendation can be viewed anyway you want. Some see the benefits, some only see fear. But it is a proven fact that the economies that are more open, they are generally the more successful ones.”

          Most Latin American and African countries have opened up their economies per Milton Friedman’s neo-liberal trickle down prescription. The Philippines also starting from Ramos’ term had embraced the free market fundamentalism. Successful ones?

          • chempo says:

            Micha – the opening concept is great, it’s the leadership. Look at Spore, look at Malaysia (has corruption issues, but still pretty much OK), look at Indonesia in recent years, look at how Vietnam is opening up.
            Latin American and Africa are full of countries that allows in the foreigners, then reaps them and others off.

            • Micha says:

              Malaysia and Singapore have protectionist streak. I don’t see Indonesia and Vietnam as success stories on libertarian narrative. Individual countries, unique conditions, different outcomes.

  19. Bing Garcia says:

    Never has information been more widely available, but the Internet buffet is so big, it takes real commitment to discern what is meaty and what is just junk food. Here media and academe can make a difference, just as committed bloggers and others can, too. There is also a perceptible demand for debates between the candidates. Manuel L. Quezon III

    Committed bloggers like Joe and Raissa.

    • Joe America says:

      MLQ3 is also a long term blogger. He stopped when he joined the President’s communications team.

      • I have been into blogging for six months now… and will continue with two aspects:

        1) stuff about the Philippines from my point of view:
        (with a number of peered articles together with Joe)

        2) selected news, groups and pages about the Philippines: – to counter the unbalanced and confusing noise coming from the tabloid press. Both positive and negative aspects but what I see as informative and helpful.

        My personal goal since Mamasapano was to find out what the hell is going on over there.

        The picture is getting clearer – and in the process of learning I hope to help others find their own clearer picture of things. Joe do you have an FB page for your blog? I want to put it on my FB page. My goal is to be a hub for people who want to inform themselves.

        • Joe America says:

          The blog publishes a link on the Joe America Facebook page, but I don’t put the full text there. It also publishes links on Twitter and Google+. The Word Press system does that automatically when an article is published. Facebook users then share the link on their own timelines, and that’s were the big readerships come from. The links are elaborate, having the cover photo and opening paragraphs. So you can pick up any blogs you wish and place them on your timeline.

          I must say, you have picked up a very rich understanding of the way things work over here, or don’t, during the six months. I wish you great success for your efforts. It will take durability and marketing to build a readership.

          • Thanks.. every voice that lifts the quality of information – and knowledge about the Philippines is good. At some point I will make the article about the Philippine blogosphere that I promised long ago – one conclusion I already have is that it was a response to the shoddy quality of Philippine journalism. Data is not information is not knowledge is not wisdom. I came here because I noticed that you at least analyze, put stuff into a certain perspective – which most Philippine papers don’t. Knowledge, not just information.

            • Floyd says:

              Please, first the Philippine point on the SC sea as promised as it would give you a good understanding why they will lose in the Hague.

      • NHerrera says:

        Joe, in between surfing the internet, I am now reading one of your Must Read pieces — “The Great Referendum: The national election of 2016” by MLQ3. It is a feast of information, to say the least. Thanks.

        • One more article for my FB wall. Because there are many Filipinos abroad who will vote – and my goal is to make it easier for them to get an informed view of what is going on.

          Many do not have the time to really read over here, so since I am researching myself anyway, the spin-off I see is to play the role of an aggregator for both Filipinos abroad and potential investors here – so that they do not just hear the noise and get misled by it.

      • Karl garcia says:

        Mlq3s that is one of the places Bert and I hang out .

  20. Micha says:

    Micha, simple question…Close friends are selling off their family properties and would want to remit the peso proceeds to Singapore amounting to over PHP 50 MILLION

    Could you recommend a foreign bank there who could accept the remittance in Philippine pesos?

    They do not wish to exchange their pesos for any other foreign currency.

    • Floyd says:

      Are you kidding ? No foreign banks accepts peso’s.

      • R.Hiro says:

        Apologies to all as my post yesterday was meant for Micha. The question was addressed to her. My bad that I wrote her name instead of mine.

        Karl it is a serious question as your sainted leader sometime back wanted his bright boys to look into internationalizing the peso.

        Since this blog has canonized PNoy, I wanted to find out if this policy change was accomplished?

        The Philippine government does allow the export of pesos up to Php10,000 per person when they travel..There are money changers abroad who will exchange pesos. No export is allowed to settle payments for imports. There may or may not be banks abroad that trade in pesos. Our BSP manages the float of the peso and internationalizing the peso would remove this management tool from the BSP

        Please note that prior to the creation of the Euro, Countries in the EU used their own currencies to pay for their imports…

        Monetary sovereignty means something only if this is recognized akin to political sovereignty.

        Micha’s piece is full of errors which I will address later.

        Presently the international payment system is in need of serious repair..Giving all countries a right to determine their own political expression through monetary sovereignty is the highest form of democracy.. But this type of discussion requires even a grain of knowledge and understanding of money….

        • “Please note that prior to the creation of the Euro, Countries in the EU used their own currencies to pay for their imports…” Correct. The Euro has done away with having to exchange money within the Eurozone. The bulk of trade in Europe is among EU nations.

          • One part of the Euro story often denied is that Germany with its strong economy won.

            Weaker economies lost to German exports. The Euro crisis is a manifestation of this – just like opening up East Germany during reunification destroyed most of their industry there.

        • Karl garcia says:

          forget politics stay with us RHiro

          • Karl garcia says:

            later tell me why economic chacha is so wrong if you want oligarchs to have competition

            • – read upstairs. East Germany was the strongest economy in the Warsaw pact. Yet its industries for the most part barely survived reunification because West Germany was light-years ahead of them.

              Open up the Philippines when its industries are ready. Or would you go into the MMA ring and face professional fighters. It would take you 2-3 years hard training, 2-3 hours a day to get there, I have seen you in FB. Me, it would take 5 years, 5 hours a day, no time… 🙂

              • What I am telling you bro – I do get mad from you from time to time and you at me – is that if you come here to eat ya better chew the stuff better that you eat – knowledge is FOOD for the mind, and mind is a terrible thing to waste. My role here is like this cool cat:

              • Since you like rap I saw you listen to it by your FB likes, I am sure you have listened or will listen to the lyrics of the song. But for the others – it more or less BE me and my mission – here on my blog and on

                People of the world wherever you be
                Welcome to Cosmic YOUniversity
                Where life is the journey and love is the trip
                And the study of them will make you hip

                I’m professor of the rap and when I speak
                I guarantee that my lines will not be weak
                They say a mind is a terrible thing to waste
                That’s why I’m here and on the case

                Rapping up every mind with a special degree
                In socio-psycholo G.B.E.
                The Gary Byrd Experience is my course
                When you take my class you will feel the force
                ‘Cause I know the roots that the rap is from
                When I speak to you I am not dumb
                Hear my rap and begin to dance
                And I promise you this you will advance

                You may have seen the Raiders of the Lost Ark
                But you still left the theatre in the dark
                So clap your hands to the beat as the Wonder sound
                And the G.B.E. shine on the Crown

                Chorus (Background)

                You wear the Crown
                I wear the Crown
                So proud to say that we all wear the Crown, the Crown

                I said a once upon a time in Alkebu
                Lived the kings and queens who looked like you
                It was a land of sun with a golden shine
                A place that once was yours and mine

                Home of many great dynasties
                Who created science and astronomy
                Where the Romans came to study math
                And the Greeks found out about the path

                In case you wonder what else they did
                The Alkebu-lans created the pyramids
                And before Napoleon could even blink
                In Alkebu there stood a giant Sphinx

                Some say they came from outer space
                But they are a part of the human race
                If you know the place where they can be found
                You may be the one who can wear the Crown

                Chorus (Background)

                You wear the Crown
                I wear the Crown
                So proud to say that we all wear the Crown, the Crown

                I wear the Crown
                You wear the Crown
                So proud to say that we all wear the Crown, get down

                We wear the Crown (Crystal Blake)
                We wear the Crown (Stevie Wonder)

                Not the greatest dancer with the baddest shoe
                Not the slickest rapper that you ever knew
                Have worn the Crown though they wanted to
                But they’ll want to until they die
                Not a man of science with a Ph.D.
                Not a lady of law Masters’ Degree
                Will wear the Crown unless they can see
                A unique reality

                You see when you say you wear the Crown
                Make sure you know it is profound
                In case it sounds like a mystery
                I’m talking about our story
                It can make Akhnaton nod to you
                It can make Nefertiti beckon you
                With the Crown you will begin to glow
                When its secret you begin to know

                Next time you feel like you’re in a rut
                Go see the mighty kingdom of King Tut
                It will blow your mind no doubt it’s true
                ‘Cause guess what King Tut looks just like you

                You were Cleopatra Queen of the Nile
                The sun would wink when it saw you smile
                You were the Hannibal of the history book
                And the earth would tremble at your very look

                You were the builders of the pyramids
                You were the face upon the Sphynx
                You rode on the Nile in grace and style
                Look at yourself today and think

                See the hieroglyphics upon the wall
                Like the dancers on the floor they will not fall
                If you take one look it will astound
                And then you will see who wears the Crown

                Chorus (Background)

                You wear the Crown
                I wear the Crown
                So proud to say that we all wear the Crown, the Crown

                I wear the Crown
                You wear the Crown
                So proud to say that we all wear the Crown, get down

                (repeat chorus 2 more times)

                I do recall so very well
                When I was just a little boy
                I used to hurry home from school
                I used to always feel so blue
                Because there was no mention in the books we read about my heritage
                So therefore any information that I got was education
                Bums, hobos at depot stations
                I would listen with much patience
                Or to relatives who told the tales that they were told to pass ahead
                And then one day from someone old
                I heard a story never told
                Of all the kingdoms of my people
                And then how we fought for our freedom
                All about the many things we have unto the world contributed
                You wear the Crown

                We wear the Crown (Crystal Blake)
                We wear the Crown (Stevie Wonder)

                It’s not Star Wars, it’s not Superman
                It’s not the story of the Ku Klux Klan
                The Crown will appear in the G.B.E.
                But it’s never seen on your T.V.

                It’s in black and white in your gold mine
                A picture so old it defies time
                Alex Haley drew it in his book
                It’s what Kunta kept in his other foot

                Ghana Songhay and old Mali
                They are the roots of your own family tree
                Kingdoms so vast and knowledge wise
                They removed cataracts from human eyes
                And yet today some refuse to see
                And live in fear of their discovery
                Now in fourteen hundred and ninety-two
                Columbus sailed the ocean…true
                But years before in Alkebu
                A ship set sail with a chocolate crew
                2,000 years before Columbo came
                The Olmecs paid tribute to their fame

                Stone heads with faces eight feet high
                That the Hulk could not lift to his thigh
                Though the facts historians avoid
                First to arrive was the Africoid

                It may shock the House and Shockley, too
                And if you’re not prepared it may shock you
                While some had doubts that the world was round
                In America guess who wore the Crown

                Chorus (Background)

                You wear the Crown
                I wear the Crown
                So proud to say that we all wear the Crown, the Crown

                I wear the Crown
                You wear the Crown
                So proud to say that we all wear the Crown, get down

                When you wear the Crown you will not need
                To smoke, to coke, to dust or speed
                With the Crown you can become the high
                And you will make it if you try

                But don’t you ever forget what it will take
                To wear the Crown you cannot fake
                If you gonna lead you got to be a king
                And give the world your everything

                Or be a man like Malcolm X
                And demand for all the very best
                Or conduct a railroad like Harriet
                We all owe her a lifetime debt

                If you gonna fight don’t do it free
                Make ’em pay to see just like Ali
                Or sing like Ella and make them guess
                Is it you or is it Memorex

                If you play a sport become number one
                Like Joe Louis and Jackie Robinson
                Make Doctor “J” your shining star
                Shoot like Magic, dunk with Jabbar

                Or if you can write then write some books
                Like Langston Hughes or Our Miss Brooks
                And if you think you’re smart
                Don’t deceive us be an Imhotep, be a genuis

                And don’t let anybody confuse the fact
                You don’t wear the crown just because you’re black
                Everybody in the world has a Crown and place
                That becomes their culture and their face

                And so it is, we will not deny
                Our history or buy the lie
                We have no claim to be renowned
                When we were first to wear the Crown

                Now it be me to break it down for y’all folks, to cut up the steak for the stakeholders.

                but I’m telling you all here that I knew
                knowledge be the food you got to chew

                Juana told me to be like Reader’s Digest
                Sure I can spoon feed but you gotta digest

                It’s not my fault if you don’t get it
                I’m doing all I can to simplify it

                Nix für ungut – no offense intended. Please make something of my inputs. Mary Grace and Gian already are I have seen them moving on Facebook – but they ain’t Catholics…

              • Karl garcia says:

                i can still chew….bring it.

              • Karl garcia says:

                i read all your tagalog translation of art of war….so carry on.

              • INCs and born agains have to study the Bible or Manalo’s teachings. They have to UNDERSTAND what they choose to believe and are only baptized then. They RECONSTITUTE their minds before they become believers, unlike Catholics.

                Renato Constantino was right about The Miseducation of the Filipino – his seminal work. He was wrong about English being the reason. Catholicism of Spanish friars was the reason. Just follow my lead, do as I say not as I do, you are an aso, I am Padre Damaso.

                My article “RECONSTITUTE THE PHILIPPINES” was about EXACTLY that. Edgar was close to getting it when he realized it is a proto-constitution. Actually it is about making Filipinos THINK – and not make tango or kamot-kamot sa ulo – about their nation and democracy.

              • “i read all your tagalog translation of art of war….so carry on.” 🙂 Very good…

                The language I used there was similar to Manong Eddie’s Tagalog. They speak Tagalog and Ilocano in Nueva Ecija were he comes from. He is ex-PNP and husband of my ex-yaya, so I decided to use a form of Tagalog any Filipino sarhento can understand – they are usually from another social background than the commissioned officers who usually have them as drivers. Karl I remember your posting like that, I have seen it is true.

              • “i can still chew….bring it.” yes I will… I know you can chew… you are thinking and seeking knowledge and that is good. Confusion is the prelude to understanding, it means certain things don’t fit. Edgar admitted to being often confused, when he thinks he is Confusius.

        • Joe America says:

          The blog is always open to those who those who would propose to canonize someone. They only need make a positive statement on behalf of their chosen one. It is amazing how few choose to do that, but instead decide to carp and snipe at others. It’s like the commenting crowd has a smattering of trolls dressed up as intellectuals. They can deride others, but can’t advance their own positive expression about their own favorite. PNoy is the President of the Philippines, is doing good things, and deserves respect. That’s my foundation for supporting him. Surely you believe the President of the Philippines ought to be accorded respect, as the person selected by Filipinos to lead them?

          I’m still looking for the day when you can arrive and simply teach without snide remarks aimed at propping you up at the expense of people who are here simply teaching and learning.

          • “PNoy is the President of the Philippines, is doing good things, and deserves respect.”

            Yep. I often wondered why the government talks so little about its long-term approach:

            – modernizing PNP, Oplan Lambat-Sibat human rights training – to have better cops.

            – CCT, TESDA, Dual Training modelled on the German approach – to qualify people

            – EDCA, ITLOS filing by Aquino – to hold of the Chinese until they collapse on their own

            Aquino is strategic, Mar Roxas too. Why don’t they communicate this? My experience in arguing for Aquino – after I had doubts too but was convinced – in Filipino FB groups tells me why. The Filipino body politic is still too immature for this. They would just react to it in a very negative way. So I guess the “Aspie Alien” and the “Martian” who have come to save the earthlings or islanders just decided to do it and wait for the effects – because the simple earthlings do not understand them. They experimented on Espina, making him bald.

            • Joe America says:

              They do argue continuity as a part of the strategic approach, and Mar Roxas has interjected “common sense” into the equation on several occasions, once by saying he will have a “Department of Common Sense”. At today’s business forum, with Santiago, Binay and Roxas making speeches, he responded to the question about tax reform by saying, in effect, “Yes, we need tax reform, but it should be done in a thoughtful way outside the popularity, or political, arena.” Now that is exactly what a manager would say, but not a populist like Binay, Poe or Santiago . . . the question is whether or not the broader population can understand that this is the “common sense” they would be voting for. Or do they want the simple slogans and apple pie and halo halo and showboat? I think the business community will be solidly for Roxas.

              • “Mar Roxas has interjected “common sense” into the equation on several occasions, once by saying he will have a “Department of Common Sense”. ” Best argument against Rody…

                Duterte says he has common sense unlike the theoreticians in Manila, people buy that. Well I bought into it as well because Filipino theoreticians – example Miriam Coronel with her BBL draft which I dissected – often lack common sense, head in the clouds but not having their feet solidly planted on the ground – or like generals who have their soldiers carry them instead of wading through the water like Romulo, even if in Leyte McArthur had the water up to his knees and Romulo up to his neck – this is one of my father’s old jokes. Now GRP says Mar is not a cool cat like Rody – but hey look at Korina’s breasts, he IS! 🙂

        • “The Philippine government does allow the export of pesos up to Php10,000 per person when they travel..There are money changers abroad who will exchange pesos. No export is allowed to settle payments for imports. There may or may not be banks abroad that trade in pesos. Our BSP manages the float of the peso and internationalizing the peso would remove this management tool from the BSP” So the currency controls of Marcos are still in place… I wonder if the exchange rate is still artificially fixed or floats on markets.

          • chempo says:

            Irineo, there is not capital controls. Just lots of reports, which is OK cos govt wants data.

            The control at the airport is normal travel controls, common in most countries. I don’t really understand the idea behind it. Partly I think they dont want physical notes to get out, partly they want tourists to come in and spend, not to take out, partly to catch tax evasion — u come here make some money, you report and pay tax….etc

            • OK, Germany has that too – the German central bank requires that all capital in- and outflows, even within the Euro zone, exceeding €12,500 be reported, including type of payment – goods, services and more. It is a statistical requirement.

              • And all cash starting with €10,000 Euro has to be declared when leaving.

                I know someone who went to Switzerland with €9999 each time, in case he got caught.

              • Totally moved there because he has a good nose for what will happen. Was a high volume Internet trader before. Switzerland is not safe anymore, the German tax CD affair has proven. So he did the smart thing and moved there. The world is getting more transparent.

                The German spy agency paid some bank employees to get CDs with Swiss bank accounts of German citizens. The German tax auditors who started the investigation all have warrants of arrest applicable the moment they go on Swiss soil – breaking bank secrecy.

        • Karl garcia says:

          RHiro do a guest blog.just email it and wait one week

          • Karl garcia says:

            if you went out of this blog because you say it is pro Aquino and Roxas, then stay to add flavor do it via guest blog….do a reaction to this…then even the president of your choice….anything. even Irineo said it was being to pro roxas,now he is back. Old timer ka na dito minsan me tampuhan…that is what i have been requesting you all these years is for you to do a blog,here that is possible.Unless Joe says No.

            • It is pro Roxas but with good REASONS. I am shaped by my mother’s Lutheranism.

              I only choose to believe what I have understood and buy into. I have understood why Roxas is good, so I buy into him. Joe also was skeptical of Aquino in the very beginning. Leni I bought into from the beginning, Mar Roxas not, but I have made the “orchard analogy” which I posted in the Robredo group. Roxas knows how to manage the orchard, Leni has people skills. The others want to eat the fruit without growing the orchard – Binay would make a piggery, the crazy woman would make a slave camp with Bongbong as the Führer, Grace Poe would make a movie – Alice in Wonderland, pimped by Chiz Escudero. But I had to have enough facts to know who is who – don’t you know who I am I don’t buy.

        • Karl garcia says:

          RHiro, I met ka Mentong in the Trillanes thingy and I asked him to send my regards to you,kahit di tayo close ten years is ten years.

    • chempo says:

      I assume they are trying to avoid exchange charges. There are a few things to consider:

      1. If you remit in peso to another country, the Phils bank gains no foreign exchange. Most banks will impose something called “in-lieu-of-exchange” charge. They need to earn something. I’m not sure about banks in Phils. I think remittance agencies don’t need this, their fees alone is enough revenue for them.

      2. On the receiving end, most Banks in Spore should be able to receive the pesos. For a non-customer, they will pay out in S$, so you can’t escape the exchange. They pay out the S$ to the beneficiary’s designated a/c (at another bank), or S$ currency. If the beneficiary wants in peso notes, first there is the in-lieu-of-exchange charge, then the bank will go round up Spore money-changers –the Bombays — to get the peso. Because it’s cash, the rates gonna be excessive.

      3. If beneficiary is a foreigner, he/she cannot maintain a S$ Savings a/c in Spore. S$ current a/c is OK.

      4. Foreigners and Singaporeans can open foreign currency deposit a/cs in the Asian Currency Unit, which is basically foreign currencies. So you can open a peso ACU a/c. Good news is ACU deposit earnings are not subject to with-holding tax. But I think not many banks trade in peso. Try Spore banks with branch here — Overseas Union Bank, or those with rep offices here – Keppel Bank, or any Internation banks here – they are bound to have Spore branches — HSBC, Citibank, Maybank ???

      5. PNB has a branch in Spore. You can leave the pesos here in PNB and use the ATM in Spore branch. Just an option.

      Info give without responsibility on my part and as per info I knew as at some time ago. Also give without understanding the exact nature of beneficiary’s needs.

      • Floyd says:

        I think you are wrong, the Philippine bank will send Peso to a Singaporean bank (the bank will charge for this + exchange rate), money will be in Singaporean dollars after you will have to buy Peso’s. There are no bank accounts in Peso in Singapore (bank make profit from exchange rate).

  21. The Central Bank of the Philippines seems to have printed money for personal use of a dictator in the past. I was not aware of it until I started reading about the Marcos regime. Part of the loot the Marcos family took with them in Hawaii were 22 crates of freshly minted pesos in big denominations and some supposedly bear same serial numbers.

    “A week after Ferdinand Marcos touched down at Hickam Air Force Base in Hawaii, U.S. Customs officials were still examining his luggage. The deposed Philippine President and his 88-member entourage brought with them 22 boxes of freshly minted pesos and 278 crates of jewelry, artworks, gold and real estate deeds.”,9171,960942,00.html

    I know you addressed the moral hazards of being monetarily sovereign but in PH, forewarned is not always forearmed. I’d say the time is not right for the PH to take the plunge. A top-down thorough housecleaning of the corrupt and corruptible in all government entities should be done first. If transparency, good governance, respect for rule of law and zero tolerance to corruption continue for another six years, maybe PH will be ready for it by 2022.

    Roxas said that the hold up in passing of FOI is partly due to the media’s adamance to the right to reply clause in it.

    • “A top-down thorough housecleaning of the corrupt and corruptible in all government entities should be done first.” Exactly. And fiscal governance should be addressed because my impression is that it is still messy and intransparent. The experiences of the Euro zone with the PIGS countries show that things are not that simple. Popoy’s cake somewhat shocked me because it is not easy to see at a glance what money is spent for.

  22. chempo says:

    Is there really such a thing as monetary sovereignty?

    As I mentioned above, having monetary sovereignty means the management of the country’s monetary policies are in your own hands. These responsibilities covers key areas like money supply (which includes printing the currencies) and managing interest rates to ensure full employment and smooth sailing economy.

    Having fiat money instead of having the peso tied to a gold value, makes it easier to print money. You don’t need to hoard gold to print additional peso. But you only want to print peso when you want to increase your base money — that is the money in circulation + the money of banks held in the reserves a/c with the Central Bank. (What is this reserve? — when you deposit money with banks, they cannot re-lend 100% out. They have to retain some of your money by depositing with the Central Bank. This is the reserve a/c) .So although the govt can print as they wish, they cannot do so because they have to maintain an optimum quantity of base currency. Too much of it, the beast shows up. That beast is inflation. How much base currency to maintain is the purview of the Bangko Sentral who watches lots of microeconomic datas. But basically, it has to synchronise with the GDP.

    Many ask how come the USA can do it, just print their way out. Only the USA can do that, and there are reasons. I’ll try to write something on this. It’s complicated.

    Now, having monetary sovereignty does not mean you are in total control. We all live in a global community. The more international your economy is, the more you are affected by external events. Philippines can consider itself lucky. You’re economy is not that international, it’s pretty much domestic. So you are cocooned to a large extent. Plus Phils is in a unique position with the vast amount of inward remittances from OFWs. This helps out in the country’s Balance of Payments. Nevertheles, Phils like all our countries outside of USA, are collateral damages when the USA economy sneezes. So basically, we have no real monetary sovereignty.

    • Micha says:

      “…having monetary sovereignty means the management of the country’s monetary policies are in your own hands.”

      Both monetary and fiscal policies.

      “So although the govt can print as they wish, they cannot do so because they have to maintain an optimum quantity of base currency.”

      Agreed. But…

      Printing is different from spending. When the gov’t prints money, those money are valueless and useless if it just stays in the vault of the central bank. It remains valueless even if the gov’t distributes those money to private banks (as in the QE scheme) and the former would just hold onto it instead of lending it out.

      Only by actually spending it will those money finally acquire value that can then be included in our tally to measure productivity (GDP). Only by directly injecting it to the economy (thru spending) will those printed money be finally included in the measurement of money supply (MO, MB, M1, M2 etc.).

      “Too much of it, the beast shows up. That beast is inflation.”

      If you just do the helicopter drop, yes. Not when you actually use it to create value (production of goods and services). Road construction has value. Research and development has value. Hiring teachers to educate children has value. Building irrigation canals so farmers will have higher yield has value.

      “Many ask how come the USA can do it, just print their way out. Only the USA can do that, and there are reasons.”

      The almighty dollar is king.

      “So basically, we have no real monetary sovereignty.”

      We have no sovereignty over the dollar, the yen, euro, renminbi, dinar, pound, rupee, etc.

      We have sovereignty over the peso.

      It’s that simple.

      • chempo says:

        “Both monetary and fiscal policies” — agreed – that’s the domain of the Bangko Sentral.

        “Printing is different from spending” — I think we should distinguish 3 different status here.

        (a) Agreed newly printed money in Bangko Sentral means nothing — just paper stocks, inventory. This do not get into any economic/monetary computation. (So the stash of newly printed pesos Marcos carted to Honolulu mentioned by Juana — were they inventory? Or already released by Bangko Sentral? Ask Ongpin — that’s why very frustrating when you watch TV interviews, the presenters never research and ask them these tough questions).

        (b) When Bangko Sentral release this to commercial banks in their routine requisitions, they become part of money in circulation and gets into the “base money” computation. (It has nothing to do with the GDP figure)

        (c) The actual money spending has got nothing with GDP computation. GDP figures come from production of goods and services, which are accounted for on accrual basis, not on cash basis.

        “If you just do the helicopter drop….”
        This is the gist of the blog so i like to input it in a fresh comment below for ease of commenter reference — it’s important because I saw lots of querries by commenters elswhere. It’s also something Orlando alluded to, I think.

        “The almighty dollar is king” — This is an interesting issue which I like to pursue some time soon. I think that the dollar is almighty is the effect and not the cause.

        “We have sovereignty over the peso”.
        The concept of monetary sovereignty simply implies that the country has sole control of (A) monetary + fiscal management and policies AND (B) macro-economic and social managemnet & policies. (A) is the domain of central bank and (B) the other govt bodies. One of the functions in (A) is the printing of pesos, so yes, you decide how much and when you want to print. But the primary function of (A) is to maintain a stable economy and enable full-employment. Key to a stable economy is managing things like inflation, foreign-exchange rates and interest rates of the pesos.. And the reason why I say you can have monetary sovereignty in practice, but in reality there is no such thing as monetary sovereignty because we live in an inter-connected world. External events can play havoc with our economy. These external events the Bangko Sentral has no control, thus in reality, you have no monetary sovereignty. Let me explain with examples.

        In the 1997 financial crisis, the problem started with the Thai Baht and then spread all over Asia. There was fear of a contagious economic meltdown. At first it’s Baht, then Indonesian Ruppiah and Malaysian Ringgit. Too long a story to get into details. But in brief — economies grew too big too fast and economic bubbles created, hot money flowed into stock exchanges. When American economy appeared to improve, money started to flow back to the states. Means people sell Bahts for US$ to remit back to states. So pressure on Baht started. Currency speculators saw opportunity and moved in, most famous or infamous) of which is George Sorros. Result, the country is flushed with Baths, interest rates go up, Baht value goes down. Central bank fight back using reserves to buy massive foreign currencies to pop up the value of bath. As George Sorros pointed out, nobody, not even a country, can fight against the open market. It is way too big. Same terrible problems were faced in Malaysia, Indonesia, South Korea, and Philippines. Others like Taiwan and Spore faced less onslaught.

        So is there a bubble in Phils real estate? Are there many foreign buyers in real estate, in stock exchange?

        Another example. The flow of hot money when UK handed over Honngkong to China. Also happened in 1997, but the flows started before that. Investors wanted out, and residents also want their savings out of HK. Same thing as when Taiwan and China started talking of the Straits War. You simply cannot comprehend how much money can flow out in one day. These huge flows caused problems in HK and Taiwan, as well as the places where these funds went — Singapore, Canada etc.

        All these countries have monetary sovereignty, but they cannot control the economy due to external pressures on their currency. That’s why I say there is no real monetary sovereignty.

        • Micha says:


          You’re giving way too much emphasis on external pressure/factors which has nothing to do with MMT premises. The 1997 Asian financial crisis was fueled by economic bubble in Thailand whose currency shifted from fixed to floating. Because it accumulated unmanageable dollar debt, the Baht took a hit when the US raised its interest rates after Greenspan saw the danger of inflation when US economy began recovering from the 1990’s slump making the dollar stronger.

          Again, MMT is consistent with their premises. External debt diminishes a country’s monetary sovereignty. How hard is that to comprehend?

  23. DAgimas says:

    don’t know if the guest blogger is libertarian, tea party or doomsday prepper or pro gold standard

    USA can print money because they don’t worry about exchange rates and people the world over have confidence in the USD.

    some conspiracy theorists believed that US declared war on Iraq because they are planning to sell their oil in currencies other than the USD. see how the connection between the exchange rate?

    anyway, even the Russians hoard USD, and they are even trying to compete with the US. that’s just to show that confidence matters

    • Micha says:

      I have already stated that the almighty dollar is king.

    • chempo says:

      @ DAgimas –
      – para 2 is right, but it’s only part of the reason.
      – para — there are a thousand reasons out there for the Gulf War haha. If you are referring to Gulf War I, the reason is not challenged — Saddam Hussein took over Kuwait and threatened UAE. America played the policemen role and we should all be thankful for that. Gulf War II — lots of theory. IMHO Blair and Bush really thought there were weapons of mass destruction (mainly poison gas – Iraq has used this before) and Saddam has boasted having it and threatened to use it. What is one supposed to do.
      The conspiracy theory does not hold water. Oil is traded in US$ because of a pact between USA and Saudi Arabia (in exchange for arms deal). Because of its dominant position in OPEC, Saudis will prevail over continued use of US$.

      -para 3 — I believe the new international monetary fund being orgainsed by China is a step in this direction — to eventually reduce the role of US$ internationally

      @ Micha – That the dollar is almighty is the effect, not the cause. I want to write something on this but needs some time cos it’s complicated.

  24. Micha says:

    There’s a poster who commented on October 26, 2015 at 8:56 pm who used my handle name. I’d wish you don’t allow duplicate handle name to avoid confusion.

  25. If I were a banker, I’d bank on Filipina prostitutes (not the sex slaves of which there are plenty also, but legit sex workers). The average teacher makes 15,000 to 25,000 pesos. The average prostitute makes 2,500 pesos a night– base on mid-2000’s bar fines or “early work release” fees.

    It’s harder to pin-down the exact monthly salary, since sex work is subject to direct market forces.

    You have sex-workers in brothels (casa), massage parlors, KTV/bikini bars, off the street operations and inside dance halls operations– the last 2 are where free-lancers have complete freedom, flipside of the same coin, this is also were sex-slave operations transpire.

    I’ll use the term bar fine as a catch-all phrase, that which the customer pays to the house, which the house then divides with the girl… 2,500 – 1,500 = 1,000 (depending on the establishment, girls get the 1,500 or that 1,000 pesos (* 5 = 5,000+ pesos / week).

    Without getting too mired in the details of the industry. My point is that an average looking prostitute, with a really friendly and/or flirtatious personality, can make 20,000 pesos a month easy.

    This is where Micha’s “private domestic sector, and the foreign sector” converge. Actually, I would also add “public domestic sector” (how’s that for a tri-pod?), since your gov’t officials are embezzling your hard earned tax to relieve their own pent up stress nightly.

    The 5,000 pesos a week in bar fine, tip and gifts, from the foreign sector and public domestic sector is un-taxed. That money goes to 2 places, either it stays with them or it gets sent back to the province (if they are lucky their parents and/or siblings are constructing a house or store with it, if not, embezzled).

    If it stays with them, it goes to 2 places– vice or virtue. Vice— drugs, sex with male prostitutes (this was the weirdest dynamic), embezzled by lousy boyfriend or girlfriend (another weird dynamic with lesbian relationships), etc. but it mostly goes to drugs.

    Virtue— to me this was the greatest waste—-> 50% or more of their earnings they give to Church–WTF! or they lend their money to friends (co-workers, money to Vice).

    Very seldom does this money go to a bank. They’ll go to pawn shops or engage in pyramid scheme lending, way before they’d even consider going into a bank. Because banks are where educated, regular citizens, go and they see themselves as at the bottom of the heap.

    The Irony is they don’t realize their economic power. How to get the banks to open up to Filipina prostitutes and their income, that is the question. What say you on this, Micha?

    • Oh yeah, before karl chimes in about local rates, yes I do know I was paying American rate and that 500 to 800 pesos is the local rate. LOL!

      • Karl garcia says:

        5000 for a dinner date…this I just learned from chatting with my high school friends minutes ago

        • Karl garcia says:

          Those have receipts no longer underground economy

        • Hehe high school friends…Carmen Guerrero-Nakpil wrote about a “college classmate” of her husband who he always told stories about. That classmate had many vices. She wrote in the end of the article that that friend she never met was her husband’s way of telling her what he really did in college, without having to admit it. Clean and dirty kitchens again.

          Scandals of politicians getting caught with callgirls and coke were a big deal around 15 years ago over here in Germany. Now no scandals anymore, because the present “immorality” – or realism – in society is such that most people would just yawn about it. Even Catholic politicians in Bavaria are not thinking of pushing prostitution back into illegality – they are only looking at de-victimizing young women and keeping families with kids from being exposed to the effects of the flesh trade. See my posting below on that. Pragmatism over dogmatism rules the day. Tax money plus you develop poorer areas.

          • Karl garcia says:

            not denying my past vices,All i am saying is I needed an update 🙂 man 20 k for a few hours,no way!

            • 20K… that is around €250. Escort date here in Munich – outcall dinner date – costs €350 for two hours. Ang mahal naman diyan sa Pilipinas, dito puti pa ang kasama mo hehe… 🙂

              I am not free of the colonial mentality that MRP often criticizes. But who is? Blonde Russian chicks are at the top end of the pay scale here. Black-haired Romanian chicks especially dark-skinned gypsies or mixes get less, half-Oriental Bulgarians get the least.

              • Thais mas mura pa ang singil. Going out with a truck driver, I did not want to go into a Thai place with him. He laughed, saying you are denying your own folks? MRP is right. Usually those who seem crazy are right – they just seem crazy because reality gets them going.

              • Karl garcia says:

                there are russians here, the russian mob is all over

              • Karl garcia says:

                so is the triad and the yakuza

              • Karl garcia says:

                thais dont need to go here,they cant have enough there

              • Kitam… you are not even able to defend your own illegal businesses.

                In Munich “the street” knows that police go after foreign gangs more than local ones. Some Romanian pimps have been forced to partner with older Bavarian brothel owners.

                Because the local guys have their own equivalent of a Chamber of Commerce, meaning they also have their way of dealing with foreign competitors if the police don’t. Here people are realists, not wannabe prudes like some pro-Aquino people. Outside of this blog… 🙂

              • Karl garcia says:

                had this kind of conversation before…would you believe it was with RHiro…i was inquiring about Malate and he as an old timer had a story to tell.underground economy was the subject

              • Read the stuff I have spread all this subthread like grafitti – my sister’s husband knows the tags of nearly every grafitti artist in Europe, used to be an MTV program director and is now a trendscout. But used to sell illegal CD copies as a kid in London – for a Pakistani.

                The street is a strength. The stuff I wrote here about legalized prostitution in Germany is meant to “shock the house” – not you, but those who deny the dirty kitchen. And to school those willing to be schooled. You are further than most, but you gotta chew what you eat.

              • “thais dont need to go here,they cant have enough there” from the perspective of the truck driver, Thais and Filipinos are the same. I said to him no well we look and act similar for you, but we often hate each other – like Bulgarians and Romanians do – he got it…

              • Estrada letting the BRP Sierra Madre run aground was a stroke of genius – street smarts.

                Military strategists should study Filipino street tactics. Moro-moro, pintakasi which is also a sabong term, suko ako suko putting your hands up, just to hit your opponent – Makati kid from the poor part of Makati taught me that, used to pimp Pinays in Frankfurt back then.

                Street tactics are asongkalye tactics, underdog tactics. We are underdogs, so use it applied to our situation with China. For all his vices Edgar sorry Erap did one good thing.

              • Those who don’t have street experience can LEARN from VICE Magazine… 🙂

              • Or READ David against Goliath by Malcolm Gladwell. There is an excellent chapter about how the civil rights movement in the 1960s – American blacks – used underdog tactics.

                There is a REAL dog involved in one of the stories – not minimum credible defense! 🙂

          • Bert says:

            Whaaaat, karl doing dinner dates with sexy girls? OMG! karl, isama mo naman ako paminsan-minsan, :).

    • Juana Pilipinas says:

      How about having an outreach program to enroll them in those TESDA vocational courses so they can get respectable jobs? PH need to take care of these women because they are reflection of the dire poverty in some localities in PH.

      LCpl, most of those women were raised in Catholic households. That means they were socialized to be prudish and it must really be hard for a lot of them to be peddling their bodies.

      • That’s part of the problem, IMHO, Juana.

        Prostitution as a lowly status vs. elevating this profession (no doubt one of the oldest in the world) in its rightful place– the Greeks wrote at length about this profession, where they assigned various levels, same with the ancient Persians.

        But I’ll take our difference in opinions, with utmost respect. I know optics will differ in this.

        In the end, though we still that 20,000 pesos a month. Before we herd them all to TESDA for welding ( where we, no doubt, will return back to square one, ), what can the bank system and this monetary sovereignty stuff do with all that income?

        While it goes back to China, the makers of shabu, shouldn’t we first divert all those funds to better use? Prioritize that. That is my point here, Juana.

        • Juana Pilipinas says:

          You are right. All I have is assumption based on my rose colored glasses and you have the experience in the milieu.

        • As long as the Philippines is THAT Catholic that won’t happen. What made the income from prostitution become legalized in Germany was full legalization in 2002 – during the time of Gerhard Schröder, who had a lot of friends among the Hannover Hells Angels.

          Therefore one could say that “gimme a beer Gerd” – voted in 1998 and considered among the Top 10 most useless politicians in the world, together with Erap – and a German version of Erap in being a street populist – helped his buddies like Frank Hanebuth.

          But it has brought a lot of money into the country, increased service levels in that business because it is after all now a legal thing, has pushed back pimps – because free-lancers and houses run by the women themselves can call the cops if there is trouble and they come in 5-10 minutes this is the reaction time over here, and important prerequisite for no civilians having guns – and has made it easier for part-timers to do it.

          In fact within Europe Germany has become a sex tourist haven – funny to hear that, but it is true there are groups that come for the excellent service – usually delivered by “OFPs” – overseas foreign prostitutes hehe from Eastern Europe. Poles and Czechs for the most part have gone home, not it is Romanians and Bulgarians. Usually there is a family back home, a mother who is sick = back to the socialized medicine topic, Romania went fully neoliberal after being Communist, getting sick there can mean you can’t pay your med bills and what do many good daughters there do, they pretend to work as waitresses or cooks in Germany and don’t tell their folks in that deeply Orthodox country their true job.

          But the strong ones manage to build stuff back home – Poles and Czechs are usually house-builders, open wellness or fitness centers back home, often with their boyfriend who is an MMA type, not a pimp but a protector there are such guys I respect that they are able to stomach what their girl is doing and be there if needed. Or they send a sister or a son born out of wedlock – the lattter often the reason for Poles, Romanians or Bulgarians to go abroad and live that life, they are “fallen women” in those deeply religious cultures, families pretend not to know what they are doing and they don’t tell – to university or private school so they can have a better future. It often works. So you have money in the legal flow both here and in Eastern Europe. The most forward-looking brothel owners have a service mentality. I know of one here in Munich who has is a business sherpa for Russians and Arabs, organizing everything for them – and his incorporated high-class brothel is certainly part of it. His travel agency is more for the upper crust of Munich and Bavaria when they want to take the girls on an escort trip.

          Police time and energy is freed up from having to make useless raids like before 2002. The government concentrates on catching establishments and prostitutes that don’t pay their taxes. Since many are now legally advertising on the Internet now and girls publish when they are in the house, on method is to compare the declared VAT and earnings with the schedule and prices and check for plausibility. The Christian Democratic government of now is not too happy with Gerd’s and Joschka’s law (Joseph Fischer was Gerd’s coalition fighter, a former 68er street fighter, 68ers were the anti-Nazi movement similar to hippies in attitude that spawned both the terrorist Red Army Faction on the lunatic fringe side and the Greens on the civil side) but they are not able to find a majority to repeal it.

          The Christian Social Union that is very Catholic and rules Catholic Bavaria is a bit hypocritical about it in practice, but the more pragmatic are sensible – after all they patronize these establishments too I have my sources about some. They insist on forcing all prostitutes to register with the police in Munich to curb the flesh trade which has become a problem in less patrolled areas like Berlin – just 90 kilometers from Poland now thanks to World War 2 and the territory Germany lost. They zone the city so that brothels are all in industrial zones where no families with kids live – their conservative clientele. One suggested banning prostitution for women aged 18-21. Makes sense because that is the age where young women think they know the world, are bold but tend to get pimped. Another suggested mandatory exams in German – also makes sense because a woman who can’t get around in Germany is more likely to find a “protector” who sucks her dry.

          The point being, one has to be pragmatic about this. “Free the Philippines with Cold, Hard Brains” is an old article by Joe that suggests Filipinos be pragmatic in this respect.

          Gerhard Schröder now works for Putin’s Gazprom – after giving Chancellor’s permission which was his prerogative – for a deal selling German Ruhrgas to them against German anti-trust laws just before he finished his term. Putin and Schröder are close friends. Which is a preview to my article on China coming out on Saturday. Now Russia and China have similar modus operandi. What can happen in Germany – no legal way to go after Gerd even if many are mad at him for selling out – can all the more happen in the Philippines. Ruhrgas-Gazprom was the German equivalent of the ZTE broadband thing.

          • LCPL_X wrote better tap Filipina prostitutes than have their money go to Chinese shabu.

            Legalization in Germany has dried out a source of income for Russian pimp organizations.

            Now everybody “on the street” knows that the Russian Mafia and Putin are closely linked.

        • chempo says:

          So after OFW, next for LSW local sex workers? Come one Lance, give Phils a break. If I can set up a low-tech labour-intensive plant to produce cooking pots and pay 15,000 – 20,000 a month, I’m sure you will find less girls in the bars.

            • Hehe I was once approached by a Hells Angels boss and a Turkish boss, both are in the business – for Filipinas. My father warned me about the Human Trafficking Act though.

              Another brothel owner approached me in my wilder days – he wanted baklas.

            • Joe America says:

              Hey, that was a good article. June 2013. Author is a bit of a smart-mouth though.

              • What’s the difference between a BPO worker and a prostitute in Angeles?

                One rents out his brain, the other rents out her body. I rent out my brain for €90-€100 an hour over here. High-class prostitutes make €200-€350 an hour over here. Taxes eat half of the income in “our” bracket – taxes that finance the infrastructure and social system. Lower incomes around €1500 a month – checkout clerks – pay so much taxes that they hardly have more disposable income than people on social help money – €380 allowance which they usually spend on beer plus often money from illegal work in the shadow economy plus free housing. I once told a guy like that I won’t give you a beer for free, you are already living on my taxes. Just to give perspective on tax rates and poor – Germany is not free of problems. Although I can live well on my money after taxes and can afford to work so little that I have time for stuff like here to some extent. This is intellectual intercourse I like to do for free, the other stuff pays my food and my apartment. Spending money for dem hoes is something I have reduced to nearly zero – going dancing is cheaper and makes my stomach smaller. So prostitutes spending money on male prostitutes – intellectual prostitutes like me spending money on female prostitutes. But I sure know how to DO with what I sell. Trained my mind on the job. You get it for free here.

              • Whore and Hire have the same root in Germanic languages. In Dutch the same word!

              • Joe hired people as a manager… you BEEN a pimp man.. but street cred is a good thing.

    • Micha says:

      @Lance Cpl

      Performing sexual gratification for others is also a form of service so yes, why not. If the customer pays in dollars so much the better. But I guess that gets classified as underground economy since there are no official receipt in the transaction.

      Banks however do not make money by accepting deposits. They make money by giving out loans.

      JoeAm knows that.

      • chempo says:

        Micha banks make money any way they can…when they sell currencies they make, when they buy currencies they make.. But most all activities spin off from the deposits first.

        First time mentioned here – underground economy. U are right, how much this impacts the reported micro-economic data is anybody’s guess.

        • Micha says:


          Deposits are bank liabilities. Plus, it earns interest.

          • chempo says:

            No Mica, with liabilities, there is always an asset, right?

            We can make lots of money with the liabilties without actually lending out to the business world. We can do arbitrages, we can spin our interest rate structures, etc etc. But we need that commercial transaction to start off. So we need that deposit coming in.

            • That stuff is a complex game. Arbitrage and especially puts and calls are like gambling, you have to know exactly what you are doing. Barings Bank crash an example of failure. Having said that, professional gamblers in the Philippines – if you school them properly to learn the international trade and its rules – are a hidden asset. They would get a lot of money into the country. A lot of investment bankers are gamblers in their private lives.

              • Joe America says:

                Good distinction. Investment banking is a different than what we term in the US “commercial banking”. The latter is mainly collecting deposits and lending them out, plus generating fees. Banks have treasury departments to manage the asset/liability term mix and excess funds, but it is not really the bank. The latter IS the investment banking function, and collecting deposits and making loans is ancillary to that.

              • chempo says:

                Yeah it’s complex alright. But what a lot of people don’t understand, including auditors and monitoring authorities, is that the advent of technonology has made trading easier, but the back-office staff stupidier. The number crunchers surrendered their understanding of what’s already a complex thing to the software developers who doe’nt really understand what it’s all about, they just design per spec given. Eg pre-computers, an arbitrage transaction requires maybe 32 entries through it’s life cycle, but now, the entry guy just encode a ticket. He has forgotten what the happens after that. They see various reports, but lost much understanding. The Baring Bros story is one typical example.

      • Legalized prostitution is a major source of tax income in Germany since 2002.

        And a force for Eastern European development. I have posted more details upstairs.

        • It is a form of CCT for younger siblings or children of Eastern European women who work in Germany. It has built houses and seeded small enterprises in Czech Republic and Poland and is starting to do so in parts of Romania, Bulgaria might soon follow suit.

      • Joe America says:

        They make money by managing the spread plus fees less expenses, and it is the loans that generate the revenue. The deposits in the Philippines essentially give them free money at today’s rates, so their spread is super-generous when they lend that money out to borrowers. That spread is needed, I presume, to cover the volume of loans that go south. I have not really examined the balance sheets and income statements of banks, here, but should do that. I have no idea about the loan loss record of banks.

        You have certainly peaked my interest. Thanks for the inspiration to do that investigation.

        • “You have certainly peaked my interest.” How much interest do we have to pay now?

        • chempo says:

          Loans here don’t just come with high spreads, it comes with deep discounts too. The lending manager and the fixer takes a cut before u can make a first sale.

          • Joe America says:

            Are you talking bank loans or street loans? A bank loan would be via MetroBank or reputable bank, a street loan would be from a Chinese guy who charges 2% a month or more.

            • I wonder how much NHerrera will charge us in the end. He IS a Chinoy after all… joke. Actually his dispassionate way of analyzing while understanding Filipino emotionality is typical Chinoy behavior – which is why they succeed and are assets to the country…

            • chempo says:

              I’m talking BDO et al. You negotiate a 100,000 loan @ x%pan, but upfront you collect 90,000 less the 10k for the entitleds. you still pay the interest on the 100,000. Street loans & the Bombays are killers. They are the Shylocks. But who can blame them? Delinquency is so high, and the operating cost is so high. The Bombays go arround just to collect 300 pesos per daily amortisation. I think they need to walk, jeepney fares can’t even cover the cost.
              But serious, Joe, the system kills the local small time borrowers. Whoever goes into business on the basis of these street loans, they will be dead in 6 months, unless their business is cash based and they have more than 100% GP margins.

              • The Bombays in suits are the venture capitalists. I know someone who wanted to make a startup. They ask that the company earn 30% on their investment. But of course a lot of start-ups fail, that is the delinquency because IT and other start-ups are a gamble.

                So the venture capitalists get their money back from those who succeed. But also those who fail – they force them to prostitute themselves, I mean do high-earning consulting work to pay them back, their contracts are often slave contracts with clauses that permit it…

              • Joe America says:

                Okay, that’s interesting, the cut off the top at legitimate banks. Clearly, regulatory enforcements are not set up to protect consumer or small business borrowers.

                The street loans are the melting pot of financial ignorance, desperation to try to make it, and lack of conscience among the lenders. I find it tragic, at a personal level. Even the name pawn shops to me are engaged in a scurrilous business, and they are so successful they are now advertising on television.

                I think I’ll start with a profile of bank balance sheets and income statements and then see where that leads. I’ll also look at the regulatory framework. Clearly it is set up to benefit the entitled.

              • Microfinancing is another HSS project in the Philippines… makes even more sense in that context. I have an article coming up about HSS projects…

              • chempo says:

                Irineo — your microfinance would be fun to read. I did some preliminary work on this, a side project as livelihood programme to couple a business project. Fizzled out, never took off. But I did some work on best practices and figured out how to control disbursements and collections. It’s damn challenging proposition because the loan is meagre, the geographical spread is wide (provincial part), the facilitating institutions are non-available (banks/remitance agents etc). I’m glad I went no further.

    • “Virtue— to me this was the greatest waste—-> 50% or more of their earnings they give to Church–WTF!” LCPL_X, that means the Catholic Church BE da biggest pimp in da country!

      Black US pimps and Catholic bishops both dress brightly and often wear funny hats… 🙂

    • “Very seldom does this money go to a bank. They’ll go to pawn shops or engage in pyramid scheme lending, way before they’d even consider going into a bank. Because banks are where educated, regular citizens, go and they see themselves as at the bottom of the heap.” unlike Czech and Polish (and some Romanian) prostitutes in Germany who for the most part have built houses or founded businesses, sent their illegitimate kids or younger siblings to private schools or universities – not CCT, Sex-CT hehe and have paid taxes to the German government. No stats on this but I think it is a huge source of income.

      Bulgarian women are often pimped by Russian, Bulgarian or Turkish gangsters, not much money going home there. Some Romanian women are pimped by Romanian gypsies.

      So from the present group, not much money going home to develop their countries by business and/or education – YET. Those that manage to learn German and develop a more independent mindset – if they ain’t to old yet, 30 is the sell-by date in the business – manage to go to the cleaner houses where that don’t accept women with gang background, freeing themselves of their former masters. Police even help them do that because it is not illegal anymore since 2002. So the legal economy and banks profit.

      • Karl garcia says:

        Bandini just said he was writing a book, so he had an intellectual intercourse….Im like him,not smart,not rich just me.

        • Good! Be yourself is the new Filipino. BTW the Thais have one great advantage even if they have an elitist society sometimes. Most go to be Buddhist monks for some years.

          Before enlightenment, you must sweep the floor. After Enlightenment, you must still sweep the floor. Buddhist abbots give new monks a broom when they being. To teach humility. Filipinos with “house slaves” lack humility. I learned some humility in Europe – a little… 🙂

    • I can totally see karl as Arturo Bandini, in “Ask the Dust”:

      But 20,000 pesos is 20,000 pesos, there’s no justifying that.

      People have to know the cost of things, in like and in markets. Gentrification’s all fine and dandy but in the end it bites everyone in the butt. For a 3rd world country, even if the women are Russians or Koreans or Japanese, that’s just way too Brunei-like, and look where they are now.

      Responsible consumers haggle over price– in whatever industry, but more so in the flesh trade, since there’s the likability aspect that can be leveraged, either you’re young and lean, or good looking, or you’re rich. So, karl, I hope you sit your former classmates down for some long Society of Honor–type talk, and tell them how market forces affect everyone else.

      Ireneo, thanks for all the intel on the EU scene. My observation of the Philippine sex industry scene was that popularity of girls wasn’t really dependent on color, but more on nose bridge– so there was a length vs. width correlation. Though on top of that, was the whole opposites attract phenomena. So I noticed the market evened out, where most girls actually came out on top.

      Juana, if you get a chance, in your next visit to the Philippines, you should definitely enter these establishments– I recommend bikini bars, since they’re basically US-type strip joints, only the girls don’t really attempt to dance, there’s a lot of foot stomping (I never understood that), then there’s the bar fines, when they get all dressed up and leave with a patron– that you don’t see in the US.

      Invite a couple of girls and get a bottle of Jose Cuervo or just beers, and just get to know them a bit. From the git-go you’ll realize that they are not all from poor families. Though the prudishness might be related to Catholic upbringing, I noticed it’s more of an act, to be perceived as virgin-like (ie. it’s only her 1st or 2nd time out, etc.). The more you know them, the more they open up– this part, you’ll not be able to explore, but they are playing a role.

      The main take away, is that they are entrepreneurs, they just (or most) don’t have the resources to re-imagine their roles. Some of them end up marrying husbands from the EU, especially Scandanavian countries and open up their own bars or brothels. That’s sticking to what they know, by resources I mean making use of their income, and mapping out a clear path to breaking the cycle.

      We converge here, ie. TESDA, I’m just proposing a more natural progression– basically, what Ireneo has pointed out in Europe. Regardless of opinions, I think we agree more than differ as far as solutions go.

      “If I can set up a low-tech labour-intensive plant to produce cooking pots and pay 15,000 – 20,000 a month, I’m sure you will find less girls in the bars.” That’s a big if, right there, chempo. Most of these sex-workers worked in factories (economic/export processing zones) before, so I’m thinking “labour-intensive” is the reason they went into this kind of work.

      And if you can do it, I’d argue pro the growth of these sex-workers, compared to the factory girls ( who get sexual abused by their male bosses or coworkers regardless ).

      Aside from the drugs, and other vices, that come with sex-work, the girls actually improve their language acquisition and cultural knowledge, more than factory workers, they get to travel around the Philippines, gain an expanded world view, etc. There’s plenty of growth.

      So aside from their income, I’m also calling for the leverage of all these intangibles the girls end up acquiring by virtue of prostitution. Factory workers, don’t compare to this type growth, it just needs to be recognized.

      Now I’m not saying all Filipinas should quit school and become prostitutes, I’m just calling for the recognition and leveraging of these sex workers’ income and experience as something that can help a nation– Ireneo‘s already given plenty of examples on how this can be done.

      “Banks however do not make money by accepting deposits. They make money by giving out loans.” They have to have money to loan out, Micha. I don’t know the figures of the Philippine sex industry, but I’m confident that it’s significant enough not to be ignored.

      LCPL_X, that means the Catholic Church BE da biggest pimp in da country!” LOL! Exactly, man, w/out all the slapping.

      • ” Ireneo‘s already given plenty of examples on how this can be done.” Yes.

        The Filipino problem is the clean and dirty kitchen – those who are squeaky clean, usually those who earn more money, are hypocrites who will not give a poor man the time of day, and prostitutes even much less if they meet them on the street and not in the club.

        That is one pernicious Spanish Catholic legacy. The other being that Filipinos often don’t think that deeply. Padre Damaso did not just say Pedro you are an aso, do as I say not as I do, he told Pedro to SHUT UP and believe, not debate about belief. This is the core of the rote learning and not understanding the spirit of laws and constitutions – something my Reconstitute article was about. Thinking is way too literal in the Philippines because of that – Edgar understood that I was talking about a Proto-Constitution, in a deeper sense I was trying to get Filipinos to really think about commitment to a body politic and laws and what it means. Something they never really did, because it was forced upon them always.

        In Facebook it is Mary Grace and giancarloangulo who are doing the most to promote the new democracy that Aquino, Mar Roxas and Leni represent. Both ain’t Catholic. Born agains and INCs have to study and understand what they choose to believe, so they do not fall into the Spanish Catholic of not walking the talk. Which is the sickness of the Philippines – not walking the talk, then consigning the stuff to the dirty kitchens.

        Joe will write about opportunities – but opportunities will only be given once Filipinos stop being pretend prudes and pretentious aristocrats when they have the chance. When we begin to accept that we are all Lumads at the core with varying mixtures and additions, in the end every Filipino is a Russian doll with a Lumad inside. So finally we will stop looking down on the less educated, the poor, the darker – and stop admiring and being jealous of those who are more educated, richer, whiter. This is what MRP is saying all the time. And a lot of the folks here ignore him like a trash-talking bum in the bus depot. Because they all have a more aquiline nose than he has? I probably don’t. I am whiter than my brother but his nose is more Spanish, he is taller and darker so it balances out hehe. Not giving opportunities is such COLONIAL MENTALITY: My sister’s husband is London working class – made his way up, he told me the British cadet system taught him discipline and structure in his youth. Sold illegal CDs for Pakistanis in East London, now he is a trend scout after having been a top dog at MTV London. Now at CNN Philippines, they probably would not even give the time of day to someone who has that background – even if that kind of person would be more able to dig into investigative reporting, with street cred…

        Countrymen, stop being such pretentious crapdogs. Sorry for that colorful language, but come on I have no problem being my Filpino self – and I am half-German, whiter than you. See how I am turning your prejudices against you? I preferred to UST computer grads in a project with a Filipino firm – they were just barely being noticed by the “high society” UP and Ateneo grads whom I did NOT take because they were just entitled and lazy plus very pretentious. The UST couple did good, migrated to Europe and have a house to which they invite their folks from Malabon and Batangas, poor honest folks who have made it!

        • Many here ignored my bayong example, but probably will answer Chempo’s example with highfalutin words they don’t really understand – deep within they GET my bayong better.

          Top-down, bottom-up understanding is the way to go. In Germany we had “Sendung mit der Maus” – a part comic, part documentary that taught kids how German industry works.

          Top-down, bottom-up is what Mar and Leni are all about. Mar from the top as a manager, Leni for the people. Top-down, bottom-up with Korina must be the reasons for Mar’s grin.

          Now for so many Filipinos I am a pariah because I don’t respect authority TOO MUCH – something they taught me in Germany where they called President Weizsäcker “Richie”.

          Too much respect for authority – normal respect is good – is another Spanish legacy – Filipinos don’t know how to speak truth to power, become passive-aggressive instead…

            • That is why I said MANY and not ALL… funny, I made one of these quizzes on Facebook about what kind of animal I am – FOX was the result. It fits – I sometimes run too much. Actually I have seen your competence and how you digest things – methodically and then go for it. Your approach is actually more “German” than mine is. Don’t ask me how many projects I burned with my jeepney approach before becoming the troubleshooter I am now.

          • Karl garcia says:

            i thought in the rap you said you dont care if we dont get it….
            this mmt concept even economists are butting their heads…double handed economists who always says on one hand it is like this on the other hand it is like that…

            spoon feeding is different from dumping and forcefeeding….if you could find a way to do it intravenously then do that.

            that is my reconstituted milk for you

          • Ireneo,

            I totally agree, I’ve seen the approach Juana is proposing and it’s the same approach feminists as well as religious groups take, where they want to save them first, and second is put them to work.

            I say, make their work meaningful first, treat them as entrepreneurs– as contributing parts of the economy, w/ not only economic power but on-the-ground knowledge of how market forces work– then only, when they seek it, then save them.

            Saving them first, only divides them from you (if your intent is to help). Respect what they do, recognize that there’s power in what they do. And this applies not just in the sex trade, but in general,

    • DAgimas says:

      very few become Osang…those who can go to Japan will have better future..but most will end marrying the laborer next door

    Mar’s Speech during 14th CEO Forum of SEIPI

    What I thought I’d do this afternoon is perhaps give a perspective of where we are, how far we’ve come, and in so doing, provide a basis of foundation for each and every one of you to project what’s it going to be like in the future.

    Let me start with a few statistics and convey what they mean to me as an observer of Philippine socioeconomic political developments. In 2009, the entire capital outlay of the country, of the government, was about P170 billion. This year, we’re implementing a budget with capital outlay of roughly P570 billion.

    And we have put in a budget that Congress has recently approved, and now, Senate will take its turn, of roughly P600 billion for 2016. So roughly three times the CAPEX, this year into next year, what it was when we started in 2010. That’s one statistic.

    Here’s another statistic: This year, we will be spending about P65B in a program called 4Ps, which helps ensure that our kids graduate from Elementary as well as from High School. It provides some assistance on the families who have to ensure that their kids are in school, that their kids get inoculated with all of the anti-disease injection that the DOH is supposed to give. In short–that their kids are healthy so that, in fact, they can learn the lessons they ought to learn and be at a point where they can enter the state university and college program when they go into college. That’s about P65 billion for four and a half million families.

    Last year, the government spent about P75B in PhilHealth remittances. Why is that important? That’s important because families that have had illness in their family used to have to pay for this out of their savings, out of their salaries, or going to borrow from usurers or having to sell the carabao or family farm or some other asset that they have accumulated over all these years.

    So P75 billion of private healthcare spending has now been, in effect, taken over by government through PhilHealth. And where does the government get this money? It gets it from the collections of the sin taxes. From those who smoke, drink beer, and drink alcohol. So not too bad a drain on the pocketbooks of many people.

    the other half found in the link

    • – add the stuff I wrote above to that and you have OUR answer to the GRP article that Filipino leaders lack vision.

      And the picture showing Mar, Grace and Binay – Santiago is missing. GRP is selling snake oil and has shown its true loyalist colors – stuff they say is happening here for Cory.

      Not true, because Joe gave Grace a fair chance, and turned her down on her demerits. She thinks that the movies of her adoptive father were his reality and is in a fantasy world.

      Iisa-isahin ko kayo was my favorite movie – I am a Fernando Poe fan, watched his movies at home when my parents were working with the labandera – about going against impunity.

      The reality is that Fernando Poe went with gangsters. The one pocketing corrupt billard balls one by one which is what the film title means is Noynoy – and the Ombudsman.

    • Joe America says:

      Thanks for that link, gian . . .

    • chempo says:

      That’s a good one Gian.
      Joe with your er connection, please tell Mar this…..
      In election speeches, talk less about I will do this I will do that. Every candidate will give every thing away to the voters. You know it’s crab I know it’s crab.
      Mar should talk the opposite —- where I will grow the govt’s revenue. (As a voter, to every politician who telss me what he/she will do, my simple question is where will you get the money to do it)

      • Joe America says:

        I have no connection with Mar Roxas at all. I do know that he knows of us because when the President’s press people scheduled an informal meeting of bloggers and journalists with him, he afterwards asked “where was Joe America?” If he or his staff read the discussion thread, they will pick up on it. Or you can e-mail them your thoughts. I just write blogs, that’s my communication to them.

  27. NHerrera says:

    Off Topic but a Hot Item


    Because you must adhere to international standards of reportage, you never overlook a couple of the primary missions of the journalist: to situate a story in its proper context, and to develop a long view that allows the audience to follow the development of a story with all its complexities. In other words, even as some of you must understandably measure success in breaking a story milliseconds ahead of the competition, you also put a premium on balance and context.

    How I wish all media would do the same. Let me give you an example: Early in my term, I had an occasion to talk at a gathering of the most senior men and women in local media. During our meeting, I submitted what I felt was a logical and diplomatic request: Could we come back to the idea of balanced news? By this, I mean that news should be reported “as is, where is,” and that, if there are negative stories, then would it be too bad to have some positive stories as well?

    Let me emphasize that I never asked that media refrain from reporting negative news. All I asked for was a reasonable balance. To that, I remember one of the local media personalities replying something like, “We are a business. It’s not our job to trumpet the positive.” I was truly taken aback by her response. I am not sure now if I asked, “Are we not all Filipinos? Does this mean that you are not concerned about what happens to our country?” Today, I also believe that there is enough reason to ask: Do we just take it as gospel truth that bad news sells?

    I don’t think I am the only one who cannot understand why we insist on bringing ourselves down—why we are so intent on self-flagellation, as some have put it. I wonder what any country would gain if all media did was milk a tragedy for all its worth, and ignore any positive developments related to it.

    • Joe America says:

      OMG, he’s been reading JoeAm’s rants against the Inquirer . . .

    • “why we are so intent on self-flagellation, as some have put it.” Filipino Catholicism!

      My article as PinoyInEurope – with the soaring Christ of the U.P Church as picture – was about rising from that mentality. it was my personal statement on it. Easter Sunday 2015.

      • Teach and Learn, Learn and Teach. Pay it forward – Oprah Winfrey’s adage. This is why I write about my learning curve, to help others on their own, whoever might benefit.

        • This is why – makulit talaga ako – the Hanns-Seidel Foundation from Munich is the best for teaching PNP about Human Rights, which they have been doing continously since 2008/9.

          They KNOW what they are talking about, are not theoreticians but Theopraktiker. German police especially Munich police were not known for being good at human rights. But in their own learning process, they found out about how to teach it to others – Pay it Forward!

      • NHerrera says:

        I recall that now.

        • Total Recall… by Arnold Schwarzenegger. The recent version was just covered.

          And the story of Total Recall comes from the sci-fi novel “We can remember it for you wholesale” by Philip K. Dick – not Dick Gordon from the Philippines. The movie by Tom Cruise – “Minority Report” – and “Blade Runner” with Harrison Ford (my teenage idol, my childhood idol was Fernando Poe) are also both based on Philip K. Dick novels. Recommended reading from me – the novels have strong philosophical depth, the movies as well. The only one I read though was the first. I am a Filipino after all, too lazy to read, prefers movies. Didn’t read my father’s article which has the same title as my latest blog article – “Ang Saligan ng Batas”. My dad wrote about the 70s ConCon, mine is different.

    • chempo says:

      Today’s PDI there is a reader’s opinion “Why is Grace running for president?’ by a grandmother M/s Aida Aguda. Her points in sync absolutely with opinions expressed here. I’ll take her at face value because there was no anger, just an opinion.

  28. chempo says:

    The gist of this blog is that Philippines can print it’s own peso, so there is no problem with domestic spending. We don’t need external borrowing. The govt can just print pesos to pay off public projects. Heck, we don’t even need to collect taxes for that matter.

    This line of thinking has been floating around, many point to the US way of printing the dollar at will to get out of debt. The US situation is a different matter which I will not explain here. For Philippines and other countries similarly, I don’t think this is ever possible. My view based on rational thinking, not scholastic defecation, is this:

    1. Production = Plant (material resources) + Labour + Capital. Where does capital come from? It came from previous production which we have not consumed, which we put aside, saved up. So it’s stored value or retained valued or savings. It does not come from thin air. So when you simply print the peso as the capital to fund the production, this simple ageless formula does not stand. Let’s replace it with Production = Plant + Labour + Printer?

    2. The amount of pesos required for the country has to be in snyc with the GDP. Based on the size of the economy, you require so much pesos. The good folks in Bangko Sentral has their methodology on how to derive at their optimum level of pesos to have. It’s complicated for me — things like supply of money, speed of circulation etc M1, M2, M3 etc. Basically, the bigger the economy, the more pesos you need. If you print too much, the value of the pesos drop and you have inflation. You print like crazy, such as during the Japanese occupation, or like Argentina, you end up with a banana republic. The currency becomes valueless and people start using something else. (don’t think barter, think US$).

    3. Per Micah when pesos are printed and not yet spent (kept in vault) it has no impact. Of course, no problem with that. I’m sure Sentral Bangko has been doing this all the while. This will simply be physical paper inventory. Kept aside for future use. It’s only when it is released that it gets added on to the country’s volume of base currency.

    4. Mica’s posit is that these printed pesos will be printed for public projects and then released to pay for these jobs gradually (not one shot “helicopter” dump). So since the peso is spent, it gets into the GDP so there is no inflation. In this scenarios, the printed pesos are actually creating value as Micah said. Let’s not miss the trees for the wood. What I’m saying is the total pesos in the country must have a quantitative relationship to the GDP, ie all the goods and services produced, including these new public projects. If not, you have problems with inflation. An exaggerated illustration will make this clear.

    Suppose the quantitative relation of pesos to GDP is 10%. So if the normal economy size (the GDP) is 100,000 there should be 10,000 pesos floating around. Now the govt puts up new public works of 200,000 to be paid for by printing 200,000 pesos. You end up with a GDP of 300,000 and 210,000 pesos in the country. Going forward, you have a 210,000 pesos servicing a normal economy of 100,000. The inflation would have been thousands of %.

    • – for laymen, my bayong analogy… I am an intellectual Erap for the poor in understanding, the only “dropout” in the family. My dad is a Professor, my brother a Dr., me only Masters due to my many vices.. 🙂

      • My sister is a “dropout” too, “only” Masters… I remember my mother talking to my brother, my sister blurted something like she likes to do and my mother said you don’t have a Doctorate (Nanay has) you don’t know what we’re talking about. But she is the head of a museum, where she can muse. Married a North Londoner from a working-class family – a guy who made it from selling illegal CD for a Pakistani via MTV program director to trendscout. This could be preview for Joe’s opportunity article – and about dirty kitchen…

      • chempo says:

        haha I was doing the A-B-C, you were into E=MC2

    • Micha says:


      I am in a different time zone, I need to get some sleep. I’ll answer this tomorrow.

    • detroitdan says:


      Yes, you can get severe inflation if you print and spend too much money. The point is, however, that you can run a deficit in your own currency without borrowing. And, in actual fact, a country can often run up a big deficit without inflation, as in the U.S. in recent decades, for example.

      Of course, as you imply, the U.S. has the world’s reserve currency at the moment, so it is a special case. Developing countries, such as China in recent decades along with Korea, Japan, and Germany before that, can use government policies (including fiscal deficits) to support exporters

      Taxes are needed to give the currency value, so your statement, “Heck, we don’t even need to collect taxes for that matter”, is not consistent with the MMT economy laid out by Micha.

      Regards to all from Detroit…

      • chempo says:

        Good of you to join in the discussion detroitdan. We have’nt even scratched the surface yet. Hope Micha can push this topic a bit longer and Orlando can return and give some input. This is an interesting topic, touched and querried by many in the past, but never properly run its course. It delves into the frightening spectre of American US$17T debt (thus far not covered here) and posits a more or less similar fiscal adventurism for Philippines.

        Your para 2 — I need to attend to something urgent. But like to return and take it up later.

        Para 3 — In the context of what I was writing, that was being me being sarcastic (in a friendly way). Of course we next taxes. Actually, Micha was the one going into the taxless idea, which brought Orlanda in.

      • Micha says:


        I appreciate your dropping by. And very glad that you also seem very familiar with the MMT concept.

        Warren Mosler, Randall Wray, Sptephanie Kelton, and others are always emphasizing that the state’s ability to levy taxes is what drives legitimacy to the currency that it alone has the power to issue.

        The state’s ability to spend however, is not constrained by the amount of taxes and/or income that it collects.

      • chempo says:

        I think it’s fundamentally flawed to say the US has been running big deficits in recent decades without inflation. There have been one too many — the 1987 crash, S&L crisis of 1994, the dot-com bubble 2000, Sub-prime bubble 2007. Greenspan and Bernake’s inflation index was changed from Paul Volcker’s. That was one of the reasons inflation data did not reflect the real situation. The next bubble that’s coming is the Government Debt Bubble.

        MMT academic economists work on ivory tower mathematical modelling but miss out on two key factors — the way natural markets react and human emotions. Does it factor in Greed?. Of course not, but Wall Street greed was the cause of the financial problems in the last 25 years. The models do not factor in financial and debt sectors too, that’s what I understand.

        I’m old school — those who believe that you have to work and save and invest the savings to create more value. You cannot create value simply by printing money.

        • Micha says:

          “I think it’s fundamentally flawed to say the US has been running big deficits in recent decades without inflation.”

          Do you have data evidence to support that any and all inflation spike is/was driven by gov’t deficits?

  29. Karl garcia says:

    chempo and lance, i found this about the underground economy

  30. detroitdan says:

    I’m a big proponent of MMT. See

    I stumbled onto this site while reading about Philippine flora at

    I shall return (to this site)!

  31. sonny says:

    Micha, what does MMT stand for? Thanks.

  32. caliphman says:

    Before anyone gets too engrossed in the magical promise of MMT and follows its macroeconomic twists, turns and logic leaps, it might be useful if not entertaining to read this exchange between this well regarded MTT critic and a couple of its most avid supporters. Personally, I find MMT theory rather bogus and mainly the product of wishful thinking by governments trying to jusify their inability to control perennial budget and balance of payments deficits.But thats just my opinion

    • Karl garcia says:

      Thanks Caliphman.

    • Micha says:


      You supplied a link to a site that is no longer active. When you go to his homepage, the last article entry is dated 2011. That tells you something what is or who is bogus here.

      Never heard of Taylor Conant. When I googled his name, one entry is somebody who is a manager at a Volkswagen superstore in California. Another is an aspiring singer belting Tra-la-la tune from Gene Kelly. Will the real Taylor Conant stand up? Who is he? Do you know him?

      Anyways, I think I’ll just have to settle with your objection then. You said that MMT is bogus. Would you please clarify and quantify that a little bit? I have no way of answering that without you giving factual specific reasons why it is so.


      • chempo says:

        Like Calipman I find MMT queer. There has been so many bubbles in the last 50/50 years and yet lessons have not been learnt. Before the 2007 some smart people raised the warning of the coming storm. John Stucco a derivatives expert in Lehman Bros was one such. He was a damn good trader in the housing sub-primes game, but he knew it was an impossible situation. He raised the matter, and his boss sacked him. All those MMT economists in the Fed down-played all those fears.

        The next storm is the Great Debt bubble. I think it’s an end of the world scenario.

        My misgivings: :

        (a) MMT sees the purpose of taxation as simply to create the demand for the currency and also as a tool to control inflation. My question is can you really simply jack up or down the tax rate in response to inflationary movements without consideration to how this impacts the economy?

        (b) In a fiat money regime, deficit spending is a means to promote growth. You simply print to pay off the debt. The biggest question is how do you regulate this. We give the FED a free hand? It’s for this reason that a limit is set and it requires Congress to increase this when necessary. Someone saw the danger of going the Zimbabwe way, that’s why the ceiling of debt was imposed. But MMT says we will never go bankrupt. Simply print money to pay off. I believe that the theories of MMT, up to this day, are still theories. NObody can say that hey Eureka, we have now found a way to manage the economy — the money printer. It is still not a sure bet and they are bringing America to the brink based on what? Theories. It’s not an exact science yet.

        (c) In other threads above we were talking about actual printing of pesos. Of course supply of money is not just the physical notes, but in credit expansion of banking deposits and the treasuries or bonds the govt issues. Most of the money transfers are simply electronic book entries. But treasury bills and bonds are basically IOU. Meant to be paid back some time in the future. So we are actually making use of future funds, the next generations money. Frightening but the reality. Those that say just print and pay. US debt is not what? 188 trillion? Remember, money only has value if people believe it so. Once that confidence is gone, then what? How can you repay in dollars? OK it’s closed economy, US$ and US residents. But there are lots of foreign holders of those IOU, China being the biggest holder? What will happen when the confidence is lost? Leaglly, US can just print US$ and say hey take it or leave it? I think there will be global chaos and possible war.

        (d) MMT proponents believe it’s all “money for nothings and chicks for free”.

        • Micha says:


          “All those MMT economists in the Fed down-played all those fears.”

          There are no MMT economist in the Fed. But if you know somebody that I don’t, please supply the name.

          “My question is can you really simply jack up or down the tax rate in response to inflationary movements without consideration to how this impacts the economy?”

          Tax rates need enabling laws to get implemented so that’s the job of policy makers both in the executive and congress working together. When policy makers talk about inflation they usually refer core inflation. Price movements of oil and food stuff are excluded in core inflation because those are volatile index governed by the law of supply and demand.

          “In a fiat money regime, deficit spending is a means to promote growth.”

          Correction, deficit spending is one of the means to promote growth. Remember the tri-sectoral component of the economy?

          “You simply print to pay off the debt.”

          This is a misleading statement. The gov’t do not print money to pay off debt. Remember that debt are interest bearing instruments of private individuals and/or corporations. They have, in a manner of speaking, savings account at the country’s treasury. In paying off debt, all the gov’t does is to transfer digital numbers from their savings account to their checking account in much the same way that you can transfer money from your Banco de Oro savings account to your checking account.

          • chempo says:

            Tax rates need enabling laws — that’s precisely my point why it’s wrong to view tax rate can be a means to control inflation. You cannot respond in time to fight the inflation going on. So it’s worthless, it’s just a theretical only, in reality, will not work.

            “Print” is the parlance, of course in reality, as what I stated earlier, it’s all those govt IOUs that’s creating the money. MMT always talk about the “digital transfers” taking place. The devil is in the details. When you try to work out the simple book-keeping entries, it gets complicated, especially in the US scene. In Phils I’m not too sure, have not look through it. Let me try to get something out on this. At the very least, it looks like a Ponzi scheme to me. You need to issue more IOUs to retire old IOUs.

            • Micha says:

              “Tax rates need enabling laws — that’s precisely my point why it’s wrong to view tax rate can be a means to control inflation. You cannot respond in time to fight the inflation going on.”

              Long term planning by economic managers is what’s being referred to in the tax-as-inflation-controlling mechanism. For short term or immediate inflation controlling tool, you employ interest rate adjustment by the central bank. Janet Yellen is currently contemplating doing exactly that but has postponed the move after examining the economic data which shows that inflation is not a threat and that full recovery hasn’t taken place yet.

              • chempo says:

                Long term planning just do not work for using tax as tool for inflation fighting. By the time the rate is legislated, the market has changed. Inflation need to be fought in the market place, means quick response. Inflation cannot be fought in congress.

                Yes I understand Yellen is not just doing “tapering” thing. Actually, with interest rate at zero, what can she do. Theoretically, negative rates?

        • Micha says:

          “But treasury bills and bonds are basically IOU. Meant to be paid back some time in the future. So we are actually making use of future funds, the next generations money.”

          Again this is a basic misunderstanding on the finances of the national gov’t. A monetarily sovereign gov’t doesn’t need IOU’s or bonds. It could pay off those bonds anytime it wants as long as they are denominated in the currency that it alone has the ability to issue.

          Those are not next generation’s money either. Those are savings money of bondholders.

          “But there are lots of foreign holders of those IOU, China being the biggest holder?”

          So what about China? Will they decide to cash out? Let them. The monetarily sovereign US gov’t will have no trouble paying them off.

          “I think there will be global chaos and possible war.”

          Global chaos and war if China decide to cash out? Could you please elaborate? As of now, Japan already surpassed China as the biggest holder of US debt.

          • I just found out that it’s true. hmmm….

            Japan surpasses China as largest holder of U.S. debt
            By Ellie Ismailidou

            Published: Apr 15, 2015 5:01 p.m. ET


          • chempo says:

            1. On treasury bills and bonds —
            You seem to imply that those IOUs if in the same currency of the country, the govt will pay back by the currency it has the power to issue. So u mean the printing of actual paper money to pay off the IOUs. Does’nt work that way. The way it works is US treasury issue those IOUs (always in US$) which it sells to banks to get the funds to use. Before the IOUs mature, it may be traded over many hands, some hold to maturity, some may be purchased back by the Feds in their open market operations to reduce liquidity in the system. But eventually, come the day of maturity, the US Treasury has to pay it back. So here is where MMT comes in. Just issue more IOUs to get the new funds to pay off those old matured IOUs.

            The isuing of IOUs has the same effect of expanding the base currency of the country, that’s why in their parlance, they call it printing money. The MMTs are damn correct. They can pay off all IOUs by simply printing new ones. Each time they issue an IOU, they are monetising a forward liability. If it’s a 10 year bond, they are using their kids money.

            It smells like a Ponzi scheme – it is a Ponzi scheme. It depends on a continuous issuing of IOUs to prop up the system.

            You hear the US news saying things like if the debt ceiling is not raised in the next 2 weeks, the govt employees won’t get paid. Now the Americans are not stupid people. Surely they can forecast expenditures and then quantify a debt ceiling that can accommodate them over desired time frame, instead of letting this problem appearing now and then. When they talk of deficit spending, sure it includes the notion that their expenditure is budgeted in excess of their revenues. That is just a small part of it. They are actually talking of the issuing of IOUs. These are debt instruments. Each time they issue, the debts go up. That’s what all the talk about the monstrous debt is all about. That’s why the debt ceiling keeps on hitting the roof.

            So it it’s not really about govt expenditure bursting their budget, why issue so much IOUs thus resulting in the huge debt? It is because the Fed has been managing monetary and fiscal policies on a flawed theory, MMT. It’s also because the role of Feds expanded over the years. Initial responsibility was prevent banking panic (lender of last resort), then un-employment, then manage inflation, and by now lots of other functions. Inflation is mostly managed by use of central bank interest rates and open market operations (all countries do it this way – whether fiat money or gold-standard or currency pegged currency). Then comes MMT and they learnt they can simply issue IOUs to solve lots of current problems.

            You say the IOUs are purchased by savings of bondholders. Remember in MMT, we don’t talk of value creation, it’s money creation. So govt create the money and push it out. Before they push it out, who’s got the money to buy those IOUs?. It’s a chicken and egg scenario. Well, long before MMT, the classicals and Keynesians have been creating wealth, so there were real savings. By the time of the MMTs there were real inital savings pools to kick of this Ponzi scheme. But where all these wealth come from today that can absorb all these IOUs?. There are 2 ways:
            (1) The international market — it’s huge. Now with China in, it’s got even bigger.
            (2) The domestic market. Ah I contradict myself did’nt I? MMT did create wealth after all? Yes and no answer. The wealth created in the past few decades is not in the production of goods and services — you food, furniture, infrastructure etc. Of course those types of production is still going on, but not representative of the huge sums of money that went into the system. This is what happened — all those money went into asset and financial products and services. The amount of funds that went into financial derivative products is unimaginable. That’s how they had housing bubbles, dot-come bubble, sub-prime bubble. That’s how American lost its manufacturing might in the world. That’s why over the last few years, almost all the wealth in the US ends up in the hands of the financial guys.

            The other 2 issues I’ll respond separately.

          • chempo says:

            2. Foreign holders of US IOUs:

            Thanks Mary, you and Micha are right, Japan is now the biggest holder. I’m not up to date. That goes only to show that China is smarter than what we think. They sense the Ponzi scheme and pairing down their US$ holdings. I have a feeling their initiative to create the new international monetary fund or bank has something to do with finding an alternative to the US$ as an international currency. Remember, the Chinese think long term, not in years or decades but in terms of dynasties.

            Micha, when I mention China, let’s not attach any emotion to it, put the Philippines seas issue aside. If China, and Japan — loose confidence in the US currency — if they are smart, they will pair down their holdings slowly. If they begin to dump, they will make huge losses because the price of the securities will fall. Just to illustrate the choas that will happen. If they cash out, what do they end up? Huge US$ deposits in their banking a/cs. Now that they have lost confidence in the currency, let’s say they dump US$ for other currencies. It would have been the biggest attack on the US$ the Americans have ever seen. The impact on the US$ value and interest rates will be devastating, thus affecting inflation, thus un-employment and the economy. This is another reason I have been saying the MMT theory is flawed — external events place caveats on the control you have of your monetary sovereignty.

          • chempo says:

            3. Global chaos and possible war…

            The MMTs are thinking the same way as you. If China cash out their IOUs, simple, it’s just some electronic entries in the books, or in Taylor Conant’s fancy spreadsheet.

            If China sells in the market this is how the monkeys work. Buyer bank pays, China receives. Let’s say China use Chinabank NY. Transaction cleared through Fed. Buyer banks’s a/c at Fed debited, Chinabank NY a/c credited (in favour China).

            If China hold to maturity — US Treasury at Fed debited, Chinabank NY a/c credit (in favour China). But US Treasury has no funds, MMT says no worry, issue new IOUs. New IOUs auctioned off. Fed debits buying bank’s a/c and credit’s US Treasury.

            Voila. The sleigh of hand. Money for free. MMT’s pat their shoulder’s. All electronic stuff. Nothing happened. Not so fast. Question is what happens to the US$ sitting in Chinabank’s a/c.

            (a) If China leaves it there long term (of course they will place it on term depo to earn interest), Then Chinabank NY has a cash horde of US1 Tri (assuming). bank credit expansion takes its natural course. Don’t know what is the Feds bank reserve ration or the multiplier effect in US, but bank credit expansion has the effect of increasing the money supply substantially. US$1 trillion can cause inflationary havoc, even for the huge US economy.

            (b) If China decides to spend it all in US$. They start gobbling up assets (like what Japan did during their boom years) thus pouring US$1 trillion into the economy. Same effect as in (1) but much faster pace.

            (c) If China says we’re out of here, sells off the US$ horde. Imagine what is the impact on the FX market.

            It is apparent to me that the more the US$ debts increase and the more international holders there are over time, the US is effectively surrendering it’s monetary sovereignty. There is national security issues here methinks. It is foolish not to think military mis-adventures may happen. Lots of wars have been fought over essentially monetary issues. How many here remember the Weimar Republic? — click the link below. Monetary policy mistakes was one of the root cause for WW2.


            Joe — I’m sorry I have been so long-winding here. Economics 101 is tough cookie to KISS.

    • Micha says:

      I’ll have a field day answering Taylor Conant’s fallacies but commenters on his site have already covered it so I don’t want to clutter it here anymore.

      If caliphman and others have specific objections regarding MMT and Mr. Mosler’s thesis, I will try as best to clarify and hopefully do justice to both.

    • Micha says:

      While waithing for caliphman’s specifics on his MMT-is-bogus charge, I’ll make an exception not to clutter this thread with Taylor Conant’s garbage. The following exchange is instructive:

      Guest commeter : In a fiat currency system the government can create, ex nihilo, $20,000 worth of currency either through actual printing of the currency notes or through crediting of a bank account via the spreadsheets you mention. Do you deny that government has this ability? Hold aside whether this is a wise or desirable thing to do. Just address the question of whether government has the operational ability to do so.

      Taylor Conant : Agreed. It can create all the money it wants, as a detached fact by itself, by changing digits on a spreadsheet.

      That, ladies and gents, basically sums up the whole MMT argument.

      • caliphman says:

        Micha, that Taylor Conant link works. And while you may never have heard of him, thats probably more because he is not in academia as I am guessing you might be and more well known among money managers and institutional investors. In any case, that particular link may be garbage to you but it highlights some of the basic differences between MMT advocates and what I still consider mainstream conservative macroeconomic theorists. The fact that my current opinion is that MMT sounds bogus is neither a charge or a personal attack on those who subscribe to Wray,Minsky,or any other MMT supporters. Its good for others who are not invested in MMT or trying to understand basic macroeconomic concepts be exposed to other points of view and the link is a start. It is also far easier and more entertaining a read than some the more arcane, advanced, and academic material.

        I currently don’t have huge gobs of time to blog on this or most other topics as I am like you and others here except Joe who is retired, busy earning a living so I do not have the liberty to engage in an extensive discussion on MMT or alternative approaches. So if you excuse me, I have to go back to work.

        • Micha says:


          Taylor Conant’s link works but he is no longer active. As I said, his last posted article is 2011. And if you scroll down the comment thread, his last comment was posted 2010. The point here is that his arguments had long been sufficiently debunked by Mr. Mosler and the rest of MMT folks. If he is still active somewhere in the web media, I’d appreciate it if you could supply the link. I have no issue if you actually gets entertained by his garbage.

          It is unfortunate that you made the MMT-is-bogus charge but fail to substantiate how it is so. And even more unfortunate that you actually do not intend to.

          • caliphman says:

            Micha, with all due respect, it is clear from the exchange that Taylor had little interest in continuing to take apart Mosler’s premises underlying his MMT theories, as much of the back and forth responses consisted included ad hominem attacks and did not address his fundamental criticisms of Mosler’s thesis. If Taylor has been inactive in his blog, its because like many of the more savvy investors/economists who also used to contribute posts at Seeking Alpha are perhaps preoccupied with writing advisory pieces for their clients. Still I chose to share the exchange as dated as you might think it is, because it expresses clearly and simply some of the questionnable propositions Mosler underpins MMT theory with. The responses by Mitchell and Anonymous who could be no other than Mosler himself to Taylor’s criticism’s seem unconvincing, at least to me. Perhaps if as you say, Mosler has since demolished these criticisms, maybe for the benefit of those who readand followed this exchange, you could enlighten and update us on his refutation of Taylor’s refutation?

            • Micha says:


              For one, Taylor Conant keeps on repeating the scarcity argument which is off-tangent to what MMT is proposing. He doesn’t deny that the gov’t has the ability to pay off any amount in the currency that it has the monopoly to issue but brings up the what-happens-if-the-gov’t-buys-all-the-green-sweaters-in-the-market paranoia. As I’ve previously stated, this too is one of those just because you could doesn’t mean you should scenarios. Would the gov’t be so inept to hoard items it doesn’t need?

              But granting that the gov’t does indeed decide to buy all the green sweaters in the market, what’s the worst thing that could happen? That green sweater manufacturers will have realized a handsome profit?

              See, it’s all non-sequitur. MMT actually proposes that gov’t engage in value generating projects and programs such as roads and scientific research like those in NASA, DARPA, NSF, etc, But Mr. Conant is so fearful of gov’t power, he wants private monopoly of trade and economic activities instead.

              Just typical Austrian claptrap.

              • caliphman says:

                Micha, perhaps you would be kind enough to cite the date of when Taylor posted that argument in his blog so I know exactly what you are referring to. It seems to me though you seem to be not debunking whatever point of flawed MMT thinking he was making based on the scarcity of goods in the real world, in this case green sweaters. Instead you seem to be claiming his point is irrelevant because what MMT is mainly saying is that government can just print or create whatever amount of money it needs to buy whatever real goods or services required to accomplish its objectives. For me at least, that is not a convincing refutation of his point, which if generalized and restated is that the government cannot just willy nilly create and spend money without limit because the supply of real goods and services is finite and will likely raise their prices or cheapen the currency. Something that could ultimately destabilize the society or the government itself.

              • Joe America says:

                Thank you for crystallizing the opposition to a simple, understandable statement.

              • Micha says:


                What, you supplied the link to a site in which you claimed being entertained but you do not know the gist his argument? Scroll down on the comment section. His last post there is 2010. Most importantly however, you keep on outsourcing your argument to a site that is no longer active. When I asked that you substantiate your MMT-is-bogus charge you could not produce any but refer back to an old dilapidated site.

                Again, if you have bothered to actually understand MMT (most of the literature are actively available on the web), it’s been repeated a thousand times that MMT recognizes the threat of inflation from gov’t spending. You and Mr. Conant is mis-characterizing MMT position on the matter.

                I repeat, gov’t spending is not revenue constrained. It is only constrained by the threat of inflation. Today in the US however, with all that QE programs and monetary expansion, inflation is below target of 2-3%. Deflation is what worries policy makers more.

      • chempo says:

        Micha — see, that’s the problem I have with MMT proponents. In the gray areas, where they can’t explain in ABCs, they use this kind of explanation that makes me think oh no, I’m the only one who don’t seem to understand, I must be stupid.

  33. caliphman says:

    Micha, the site is hardly dilapitated when his criticisms still seem valid and nothing you just posted indicates that his one point you chose to bring up as being debunked has not been debunked. This only goes to show the validity and value of Taylor’s arguments in his rebuttal oF MMC theory as expressed in the linked exchange which is why I shared it. If you want to label this as outsourcing and accuse me of not bothering to try and understand what MM theory is about without knowing who I am and what I have read, then maybe the real problem may be how you support your conclusions, no?

    • Micha says:

      Ok, in your own words then, what is the specific valid argument against MMT?

      • caliphman says:

        You may have the free time but as I posted earlier, this is not covered in my billable hours at the moment.

        • Micha says:

          Hahaha, make it easy on yourself caliphman. No need for verbosity here as we are both busy attending chores other than posting comments on this forum.

          At your appropriate convenient time, please state clearly and to the point your specific valid argument against MMT. I’m now signing out of here too. Will look forward to your response, maybe tomorrow?


          • caliphman says:

            You mean in addition to the valid ones from Taylor you and other MM theorists still have not been able to demolish? hehehe

            • Micha says:

              As I said, Taylor Conant is mis-characterizing MMT position and is thus totally off track in his attempt to preserve his neo-liberal market fundamentalism. But, if you still think there is valid argument to be had, bring it on, in your own words, as specific and to the point as possible.


              • caliphman says:

                He read and was critiquing Moser’s supposedly easier to read primer on MMT theory. Rather than us going around in circles and having you claim that I or anyone else is misrepresenting the MMT position and also attacking a straw man, here is my suggestion. How precisely is MMT’s position being mischaracterized? And since this is your claim, would you mind simply and clearly restating what you consider is MMT’s position so we dont go around in sn endless loop and waste precious time snd effort? Thank you.

              • Micha says:


                I already gave you prime example of his mis-characterization which is that inflation is not a recognized constraint in gov’t spending.

                How many times do I need to repeat myself here? How plain a language do I need to use? MMT RECOGNIZES THE THREAT OF INFLATION IN GOV’T SPENDING.

                Are you getting this or what?

              • Caliphman says:

                I do not need to get anything from you. Whats clear to me is one of Taylor’s main criticism’s of MMT is its primary policy prescription of unfettered printing of money to sustain or stimulate economic growth. Almost all macroeconomic analysis from Keynes onwards recognizes that unlimited expansion of the money supply or policy focusing on this approach will ultimately lead to chaos. To say that MMT theory recognizes the danger of inflation is to say nothing and mischaracterizes Taylor’s criticism that the theory is flawed because it does not adequately deal with the problem of inflation that its.primary policy prescription inevitably creates. Sorry but I find this discussion uninteresting and unproductive, do with that I am out.

              • Micha says:

                “…that the theory is flawed because it does not adequately deal with the problem of inflation that its primary policy prescription inevitably creates.”

                I would suggest that if you intend to critique something, you at least should have functional understanding of what it’s all about. But you and Conant have so far demonstrated nothing of the sort.

                The inflationistas have been harping on this invisible threat that keeps on failing to materialize. Just look at Japan as prime example. All that QE and monetary expansion jazz and their problem is not inflation but deflation.

                But of course inflationistas turn their eyes off this inconvenient evidence and will always cry Zimbabwe! or Wiemar! at a drop of a hat.

  34. Karl garcia says:

    MMT was discussed extensively by Micha here in his or her exchange with RHiro

  35. Micha says:

    What the Steve Jobs movie won’t tell you about Apple’s success :

    Economists have recognized that government has a role to play in markets, but only to fix failures, like monopolies, for example. Yet if we look at what governments have done around the world, they have not just stepped in to address failures. They have actually actively shaped and created markets. This is the case in IT, biotech, nanotech and in today’s emerging green economy. Public sector funds have not only supported basic research, but also applied research and even early-stage, high-risk company finance. This is important because most venture capital funds are too short-termist and exit-driven to deal with the highly uncertain and lengthy innovation process.

    I often use the iPhone as an example of how governments shape markets, because what makes the iPhone ‘smart’ and not stupid is what you can do with it. And yes, everything you can do with an iPhone was government-funded. From the Internet that allows you to surf the Web, to GPS that lets you use Google Maps, to touch screen display and even the SIRI voice activated system —all of these things were funded by Uncle Sam through the Defense Advanced Research Projects Agency (DARPA), NASA, the Navy, and even the CIA!

    • Joe America says:

      I think the relationship between government and American research universities would have to be considered an amazing triumph of mutual advantage, starting aggressively with the space age. I think both government and the universities realize gains, and the intellectual knowledge goes to highest and best use.

      • Micha says:

        Which is of course the polar opposite of what the right-wing nutcrackers want to do; that is, to shrink gov’t small enough to get drowned in a bathtub.

        • Joe America says:

          Right. Nuts and crackers they be . . . where a “cracker” is a white racist (slave driver who cracked the whip) not unlike Rush Limbaugh.

          • Micha says:

            Ted Cruz is proposing that the next GOP debate should be moderated by Limbaugh and Hannity because previous moderators, according to him, were biased including that Fox News babe who sparred with Donald Duck.

            The Republican Party is devouring its own tail.

  36. RHiro says:

    To finally put to rest this never ending MMT theory by Micha I have attached actual data of the advanced economies of the globe and their total debt, government revenue and expenditure as a ratio of their total output of goods and services more popularly known as GDP…No one funds government procurement through central bank printing of money w/o tax revenues…..

    • Joe America says:

      RHiro, three or more links automatically directs a comment to moderation. That’s the reason you had difficulty posting, and there was a delay in publishing your comment.

    • Micha says:


      Thanks for the links but it says nothing nor proves your assertion that gov’t has to collect taxes in order to spend.

      Incidentally, many in the list include countries from the European Union which have given up their monetary sovereignty including France, Germany, Belgium, Greece, etc. Those countries really do need to have revenue sources to support their spending. In contrast, Britain, Poland, and Denmark are examples of monetarily sovereign countries who are not dependent on monetary and fiscal policy prescriptions from the European Central Bank.

      In order to be able to understand MMT you need to be able to distinguish the difference between a monetarily sovereign and NON-monetarily sovereign countries.

      • RHiro says:

        With all due respect to Joe and to you. First you probably do not understand what it is you know…let me point out that all countries in the Eurozone have fiscal power to tax and borrow on their on…The links I provided prove that OECD countries including those in the Eurozone tax, borrow and spend. The links clearly show the government revenue and expenditures as a percentage of GDP. That is fiscal policy. The graphs clearly also show the debt to GDP of the countries…Japan the leader with over 200% debt to GDP ratio.

        So where is the practical example of the leading countries of the world foregoing taxation in favor of simply having the central bank create new money to cover government expenditures….Please do not give us the idiotic example of QE which is a last ditch attempt of central banks to prevent deflation by trying desperately to create inflation….

        QE simply is the central banks infusing new liquidity into banks in exchange for govt debt paper on the secondary market. The bonds will ultimately be retired by taxes paid when they expire. The funds then transferred to government.

        Today many countries are being urged to use fiscal policy to socialize investments to help restore severely sluggish economies to normal growth patterns.

        The Eurozone was a mistake and they will have to move to a unified fiscal policy/ banking union and singular bond market to correct the tragedy…

        Do you understand fiscal policy, monetary policy, fractional banking system under a gold standard, gold exchange standard, dollar exchange standard, or a floating currency regime as opposed to fixed rate of exchange system under a de facto common currency arrangement or a system of variations of a floating regime…

        Simply point out a leading economy that does not tax but creates new money to pay for general government expenditures.

        • Joe America says:

          My engagement on the subject would be more along the lines of the regular Joe who does not understand economics. I could only fault economists for failure to express themselves in ways that we common people could comprehend.

        • Micha says:


          All monetarily sovereign countries do not need taxes in order to spend. By that I mean all countries that have their own sovereign currencies. That does not mean however that they altogether forego the business of collecting taxes because taxes has acquired an entirely new utility in the economy – as a mechanism to regulate/control the amount of money supply. It serves as a drain to avoid overflow (inflation).

          Also, by adopting progressive taxation, that is, tax rates are higher for the super rich and lower for the lower quintile, taxes control the unmitigated accumulation of wealth on few very lucky individuals.

          Further, as Randall Wray have already stated a thousand trillion times, taxes drive money. By that he means that, by requiring citizens to pay taxes, the sovereign has a mechanism to give legitimacy to the currency that it has the monopoly to issue because it accepts payment to settle the tax burden on that same currency.

          So no, there are no countries/nations/economies that have eliminated the business of collecting taxes. But it has an altogether different function that what your conventional/classical/orthodox understanding has implied all through the ages.

          Think about this for a minute : when the Philippine Republic was establish in 1946, where did it get the money to spend in its first year of operation since it hasn’t collected any taxes yet?

  37. RHiro says:

    Micha i wish you long life however I am trying to prevent you from dying stupid when the day will come that you will pass on…

    Sweet cheeks from the time countries issued their own currency through their governments to pay for their bills taxes served as the foundation of currencies. The term legal tender derives from that principle.

    However you are putting the cart before the horse. No government monetizes it budget requirements simply by issuing currency. They tax to enable them to spend. If short they borrow since they have the power to tax….

    Money supply is controlled and managed by controlling the mechanism for pricing the cost for the creation of money—-INTEREST…….Taxes are not used for controlling money supply. Taxes are the purview of fiscal policy and rests in the hands of the executive department…Money creation is now placed in the hands of the central bank that has unlimited reserves as the lender of last resort…Before the creation of central banks, banks served as their own central banks but with limited bank reserves….Under the free banking system no state central banks were established

    The creation of money started and till today lie with the fractional reserve system of banking……

    That is the rationale for the creation of the central banks… all countries that are politically sovereign have the right to issue their own legal tender and have varying degrees of monetary sovereignty…From light to heavy degrees…Zimbabwe was the last country in recent times that monetized directly government expenditures to tragic results.

    65% of international trade is settled in U.S. dollars. 20% in Euros followed by English pounds, RMB and yen and others. Our peso is not yet fully convertible in international currency markets. Hence we are still in a de facto common currency arrangement.

    Sweet cheeks the Philippine commonwealth was a signatory to the Breton Woods conference in 1944 and already had the foundation for establishing our first Central Bank…

    The U.S. government then imposed our exchange rate of U.S. 0.50 cents to a peso…We had foreign exchange controls and we had banks that were creating money through their power of licensing from the central bank…The government was imposing tariffs and taxes already since before the war….

    The central bank then was the only bank authorized to own gold and foreign exchange…

    Please note that the first bank in the Philippines to issue paper money was the Banco de Islas Filipinas de isabel II the forerunner of BPI in mid 19th century….

    Do you know the implications of this quote, ” I will not crucify labor on this cross of gold?”

    The Philippines has gone through IMF World Bank structural adjustment programs and standby loan agreements for more than a half a dozen times since 1962…..All due to the lack of foreign exchange to pay for our import bills. Today it only takes U.S. .002-.0.03 cents to buy a peso….

    Even a dictator could not solve the problem….

    • Micha says:


      1.The Philippine Commonwealth is not the Philippine Republic of 1946. The former was merely the administrative body of the colonizing power to govern the islands taking orders from the President of the United States. Hence the Philippines, as a republic, could not possibly be a signatory to the Bretton Woods agreement of 1944.

      2.Our own independent Central Bank itself was formally inaugurated only in 1949 under President Elpidio Quirino’s term with Miguel Cuaderno as its first governor.

      3.Your assertion that “The government was imposing tariffs and taxes already since before the war….” is misleading and inaccurate because there was no independent Philippine Republic before the war.

      4.The creation of the peso under the commonwealth was also by fiat but tied to the US dollar. Since you have included that era in our discussion, I will retrace my question to cover that era as well. When the commonwealth gov’t first started to operate the colonial economy, how did it financed its functions even before it began collecting its first tax revenue?

      5.The point to that question is that you have nothing to tax unless and until the sovereign gov’t must first issue and spend its own currency. It must first inject money into the system before it can even contemplate collecting some of it back. Therefore it is a myth that taxes are necessary for gov’t spending.

      6.The initial infusion of peso denominated money in circulation must still come from that initial gov’t spending independent of its tax revenue.

      7.Again, you’re missing what have been said in this thread repeatedly. Taxes and interest rate adjustments are the mechanisms or tools to control inflation and/or money supply.

      8. Private banks also contribute to money creation by lending. The only difference is that when those loans get repaid, that money gets obliterated until such time that the bank re-lends or spends it on something else.

      9.On the other hand, gov’t creates money by spending and extinguishes part of it through taxation.

      10.As was previously requested by Joe and me, make your arguments without resorting to insults and ad hom. Thank you.

      • R.Hiro says:

        On your point no. 1.

        Philippine Commonwealth government was authorized by American law as the transitional phase for full independence later in 1946. The first constitution was drafted and ratified in 1935. That basic law was operative till 1972.

        President Manuel Roxas was elected as President of the Philippine Commonwealth before July 4, 1946. He had to take two oaths of office– By operation of law the juridical entity known as the Philippine Commonwealth transitioned to the Philippine Republic. Elected as the last President of the Philippine Commonwealth. He became thus the First President of the Republic.

        So all acts performed by agents of the commonwealth then like being a signatory to the Breton Woods agreement then in 1944 are carried forward as acts of the Philippine Republic.

        Perfect example is the 1935 Philippine Commonwealth Constitution.

        • Micha says:

          When we consider the point of reference when the Philippines became a fully independent and sovereign country, free from the administrative dictates of a colonizing power, that should always be July 4. 1946. And in as much as we are talking about sovereignty here, monetary as well as political, then that distinction and point of reference must be made clear. There was no Philippine Republic before 1946.

          • Micha says:

            Let me qualify that last sentence. There was no independent and sovereign Philippine Republic free from the dictates and governance of a colonizing power before 1946. Although of course it’s still debatable if the influence of colonial America has really left the country after 1946. But for the purpose of this discussion, we refer to that date as the point where we have attained, at least, our nominal independence and sovereignty.

      • R.Hiro says:

        On your point .2/3

        Kindly read up on the history of central banking in the Philippines

        Please note that during the period of the colonial government, the treasury department was the banking supervisor.

        Please note that the U.S. being the colonizer was on the gold exchange standard.

        We were using the silver reales worth 8 reales while the Spanish gold escudo was worth 16 reales. Hence the U.S. dollar worth 0.50 cents was equal to one peso.

        Under Spain the currency used silver as the standard.

        Precious metals were the currency used in early times. One of the most important grievances the American revolutionaries has vs the English was the ban on the colonies from minting their own coins. Hence the Spanish silver coins became the currency of choice then.

        • Micha says:

          The era of the gold standard is irrelevant and inconsequential to Modern Monetary Theory precisely because its foundational mechanism could only function under a fiat regime which was the period from 1971 to the present.

      • R.Hiro says:

        SEC. 9. (1) The President shall submit within fifteen days of the opening of each regular session of the National Assembly a budget of receipts and expenditures, which shall be the basis of the general appropriation bill. The National Assembly may not increase the appropriations recommended by the President for the operation of the Government as specified in the Budget, except the appropriations for the National Assembly and the Judicial Department. The form of the Budget and the information that it should contain shall be prescribed by law.

        “The Philippine National Bank was established as a government-owned banking institution on July 22, 1916 with headquarters in the old Masonic Temple along Escolta, Manila. Its primary mandate was to provide financial services to Philippine industry and agriculture and support the government’s economic development effort. World War I, then raging in Europe, generated huge demand for the country’s major exports namely: sugar, copra, coconut oil, Manila hemp and tobacco. However, not much was being done to develop the industries that produced these sought-after crops since access to credit facilities was limited then. To solve this problem, Henderson Martin, Vice Governor of the Philippines, together with Mr. Miguel Cuaderno (who later became Central Bank governor) drafted the charter for a national bank.”

        “The First Universal Bank in the country”
        “With PNB’s establishment, Filipinos found a bank of their own. PNB was authorized to grant short and long-term loans to agriculture and industry. The Filipino farmers then could avail of loans with interest between 8% to 10% per annum. PNB was also authorized to receive deposits, open foreign credits and rediscount bills. It was also given the special power to issue circulating notes. As such, PNB functioned as the de facto Central Bank of the country until 1949.”

        Lastly point to one leading economy in the world that utilizes taxes to manage inflation.

        During the late 70’s and early 80’s of the last century Paul Volker raised the fed’s rate to double digits to break the back of double digit inflation while President Reagan went on a tax cutting spree in the midst of high headline inflation….Why the contradiction….

        My thanks to Jonathan Chait for this last quote.

        “The interesting thing about Micha’s continuing insistence on her version of MMT is that she has elevated flamboyant wrongness to a kind of performance art.”

        The U.S. till present times through the Bell Trade Act and then through the now zombie institutions of the IMF World Bank have continued the economic colonization of the so called sovereign state called the Philippines.

        • Micha says:

          Earlier functions of the PNB such as giving out loans to farmers is entirely different from the functions of a modern Central Bank.

          You asked for..”one leading economy in the world that utilizes taxes to manage inflation.

          In fact, not only one but all countries that drains money out of their economy by collecting taxes are, by default, controlling inflation.

          You also asked, “During the late 70’s and early 80’s of the last century Paul Volker raised the fed’s rate to double digits to break the back of double digit inflation while President Reagan went on a tax cutting spree in the midst of high headline inflation….Why the contradiction….

          The inflation during that period was largely driven by the rise of oil prices as a result of embargo imposed by Saudi led oil cartel. It was not driven by monetary expansion. Volcker used the tool available to him as a central banker which has the dual mandate to control inflation and unemployment. Ronald Reagan’s tax cutting spree is a political decision emanating from his ideological commitment to shrink gov’t small enough to drown in a bathtub. In a sense, those tax cuts were stimulative, although it largely rewarded the super rich.

          Lastly, Chait most definitely doesn’t know me from Adam so you’re most probably just making stuff up.

          • R.Hiro says:

            Once again you try to squirm away by avoiding the objective side.

            “PNB was also authorized to receive deposits, open foreign credits and rediscount bills. It was also given the special power to issue circulating notes. As such, PNB functioned as the de facto Central Bank of the country until 1949.”

            The Fed was established 1913. Our de facto Central Bank was established 1916.

            Governments tax to pay for their objective of administering and managing human societies…

            All taxes are embedded in the price of goods and services and spent on the expenditure side of the economy. Money is not drained from the cycle of taxes and expenditure..

            .However if total money supply is to be curtailed interest rates are used to entice people to save and not spend…..

            “The inflation during that period was largely driven by the rise of oil prices as a result of embargo imposed by Saudi led oil cartel. It was not driven by monetary expansion. Volcker used the tool available to him as a central banker which has the dual mandate to control inflation and unemployment. Ronald Reagan’s tax cutting spree is a political decision emanating from his ideological commitment to shrink gov’t small enough to drown in a bathtub. In a sense, those tax cuts were stimulative, although it largely rewarded the super rich.”

            Sweet cheeks the price of oil was raised in 1972 and it created a massive wage price inflation cycle… Nixon even tried wage and price controls. Hence the dollar gold standard collapsed in 1972… Floating exchange rates became the norm and floating interest rates became the way to mange monetary policy. If a strategic commodity like oil increases by the extent it did, it releases a wave that effects almost everything. It then releases inflationary expectations wherein wages rise causing another wave of price increases and on and on…By early 80’s inflation hit double digits…You get get double digit interest rates on CD’s. Volker an ideologue of hard money raised short term rates to double digits and inadvertently started the most serious financial crisis here.

            However his efforts stopped high inflation in its tracks….Karl Garcia had provided numerous links from Forbes that betray your almost total ignorance about MMT. Milliken then introduced junk bonds to the financial markets…

            You love using quotes that are not supported by facts…

            Look sweet cheeks, Jobo Fernandez in the midst of the most serious liquidity crisis here in 1983 issued bonds that paid over 30% per anum… Our own Central Bank issued junk bonds and Cory did not repudiate the Marcos debt and raised taxes in the midst of double digit inflation…One could double ones principal in 4 years…That supply side push inflation caused by a massive devaluation created a massive wave of wage demands and price rises…Up until the late nineties government was paying double digit interest rates…I borrowed the tenor of Jonathan Chaits quote and revised it to match you…Chaits was criticizing Kudlow who like you was preaching nonsense.

            • Joe America says:

              Really, RHiro, can you not state your case without such condescension? “Sweet cheeks” seems to me to be about as obnoxious a gender insult as I have seen in modern times. I thought people had moved beyond that. I don’t even want to read your argument, it makes me so angry. If you keep that up, you are gone.

            • Micha says:


              1. Modern central banks do not give loans to farmers or even to industries. The cited functions of old PNB is pretty much what a typical for profit private commercial bank is doing now. Today’s central banks operate as the bankers’ bank that also serves as the monetary policy arm of the gov’t.

              2.You said, “Governments tax to pay for their objective of administering and managing human societies…” That is the orthodox view, the old paradigm that no longer holds true because the sovereign could now, under a fiat regime, satisfy its financial requirements independent of collected revenues. Think how far more liberating that is.

              3.The rest of your rant are recycled from our previous discussion on this subject and there is really nothing new in there except perhaps your talent to dish out new forms of insult borrowed from Jonathan Chait.

              4.You are of course welcome to post more comments in the event that you have finally understood MMT or found one valid argument against it. Thank you for your time.

              • RHiro says:

                1. PNB a government bank was the only bank authorized to issue currency based on the dual bi-metal standard then in operation…It was the main monetary arm of the colonial government then…The colonial trade was mainly natural resource and agricultural resource based. The sugar landlords prospered through it as it was the main source of then dollars for international trade. The Philippines then was only party a monetary society then…

                2. So after all the links present by myself, Karl and yourself prove that MMT has still not been used except in Zimbabwe…

                During the fight for independence, the U.S. colonies issued IOU’s to help defray the cost of the fight vs the British…After the war Alexander Hamilton convinced President Washington to impose the whiskey tax to defray the costs of those IOU’s of the original 13 colonies. Certain sectors resented and revolted in the whiskey rebellion…

                Hamilton the first Secretary of the Treasury used the power to tax to pay for debts of the thirteen colonies who were now states of the new Union…

                The largest sector of the worlds financial markets apart from the currency markets are the sovereign bond markets…

                Hence no MMT… None in the developed economies, none in the emerging markets and none in the frontier markets…

                Do not know in any parallel universe.

                Money created by central banks cannot be destroyed…Money created by credit eventually disappears when debts are paid…

                Just imagine BSP head Tetangco informing one and all that he will create Php5 trillion and place it in the account of Land bank and DBP and PNoy will announce no more need of taxes….

    • Micha says:

      The point of #10 is that I am also capable of returning the favor. But if we both be doing that, there is no reason to engage in further discussion. We’ll just trade insults and ad homs and I don’t see the utility of that.

  38. Micha says:


    Adair Turner most recently gave a lecture at an IMF conference laying out the mechanism parallel to, more or less, what MMT had been proposing. Lars Svensson of the Stockholm School of Economics also basically agreeing with him. So we’re gaining grounds going mainstream now. Nonetheless, more effort is still needed to explain the basics.

    • karl garcia says:

      maybe soon enough this goes mainstream.

    • Micha says:

      Here is the video of Lord Turner’s talk at the IMF Conference in case you have playback problem in the IMF multimedia link above.

    • R.Hiro says:

      Once again missing the point….CONTEXT—CONTEXT –CONTEXT

      The video above must be taken in the proper context…Expansionary fiscal stimulus or expansionary fiscal austerity…Almost ten years after the crisis direct monetary finance is being discussed…To be used appropriately by the political establishment in the midst of secular stagnation and fears of rising debt loads..




      Our own BSP was terrified of the extent of the growth of our own money base that it introduced the Special Deposit Account and was paying 4% interest to drain almost Php2 trillion from financial institutions that it itself had created to buy dollars over the period 2003-2013.

      The 1% here would have wound up owning the entire country.

      • Micha says:


        There is no such thing as expansionary fiscal austerity because all austerity is contractionary.

        • RHiro says:

          The Republican party, and the ECB believe that. So you agree fiscal expansion in a state of weak aggregate demand will be expansionary….But you say that even in normal times and not only in a downward trend of the business cycle fiscal expansion or fiscal expenditures can be accomplished by monetizing budget expenditures without the need of taxes….

          Plus you insist that all government at present do use taxation as a means of draining cash from the economy to preclude inflation….Liquidity is removed and parked in the vaults of banks…However the OECD countries not one has a reserve liquidity parked in banks…They all are running large debts of GDP, large tax revenue to GDP, large expenditure to GDP…Japan off course is the top notch in debt to GDP…

          • Micha says:

            1.The Republican party, and the ECB believe that.

            Nope, the Repubs and to a certain extent the ECB as well, believe that austerity is expansionary, disregarding all evidence to the contrary.

            2.But you say that even in normal times and not only in a downward trend of the business cycle fiscal expansion or fiscal expenditures can be accomplished by monetizing budget expenditures without the need of taxes..

            That is, more or less, correct.

            3.Plus you insist that all government at present do use taxation as a means of draining cash from the economy to preclude inflation.

            Minor correction : Gov’ts do use taxation as one of the means to control inflation.

            4.Liquidity is removed and parked in the vaults of banks.

            Nope, liquidity is not parked in bank vaults. Liquidity is destroyed. Taken out. Incinerated. Taxation is money destruction.

            5.However the OECD countries not one has a reserve liquidity parked in banks.

            But of course they don’t have reserve liquidity in bank vaults. See #4.

            6.They all are running large debts of GDP, large tax revenue to GDP, large expenditure to GDP.


            7.Japan off course (sic) is the top notch in debt to GDP.

            Yup, Japan has large public sector debt. Most of those debts are in their own currency. Very little dollar debt. (Not sure about the exact figures though). What that means is that they are not in danger of defaulting. They could run out of dollars but they can never run out of yen.

            • R.Hiro says:

              The ECB and the Republican party believe in expansionary austerity…That is exactly what I said…The right has been anti new deal since the 30’s. They liquidationist’s then under Mellon are no different from most of the Republicans today…

              4. Most taxes are paid by transferring ledger accounts from private sector to public sector…Very few people pay for taxes in cash…The only cash burnt are those exchanged for new notes…

              What part of OZ do you come from?

              No need to dwell on your answer to 6.. You may have a big problem with the written English word and comprehension…

              On Japan
              Debt is peoples/corporations money lent to their government. Their debt is the cumulative accumulation of budget deficits…Why is there a debt of that size if they could simply monetize all their budget expenditures??????

              • Micha says:

                Most taxes are paid by transferring ledger accounts from private sector to public sector.

                That’s right Lolo Hiro, it’s all accounting tricks. That money which was in the hands of the taxpayer a moment ago soon disappeared in the nether world of a gov’t’s computer. Destroyed. Rendered useless. For when the gov’t then decides to draft its spending budget in a given year it can allocate money based on its requirements (a political exercise) independent of the figure in its computer. The most striking example of this of course is when the US decided to spend massively in its war effort, jacking up its deficits and, instead of doomsday predictions from hard money types, stimulated its economy. In contrast, accumulating a surplus leads to recessions.


                Orthodox classical economist of course pretend it’s not the case and that is the reason why we’re having this conversation.

              • Micha says:

                Why is there a debt of that size if they could simply monetize all their budget expenditures??????

                Yes they could and yes they should. They don’t have to rely on borrowing for their expenditures. It’s a political choice, not an economic one.

              • R.Hiro says:

                Once again the little kitten is still stuck in the tree….Fiscal and monetary authorities….

                Finance is the executive….They collect the taxes and the DBM implements the allocation prescribed by Congress. So from private bank accounts they go to the account of the Philippine treasury. Then the DBM implements the spending program using Land Bank to pay for government operations. In past years paper currency was issued as the medium or media for the payment system…In today’s world modern means of communication are used…

                Since the tax effort falls short the government resorts to borrowings by issuing IOU’s to cover budget deficits…..

                FYI FDR Jr. raised the marginal progressive income tax to 90% during the war…They also introduced the withholding tax scheme for income taxes….JFK Jr. started the process of lowering the taxes. However LBJ instead of raising taxes decided to borrow from the social security trust fund to pay for budget deficits…Primarily caused by the Vietnam war..JBJ also withdrew the U.S.from the London Gold pool in 1968.

                Since ancient time the system of debits and credits either carved in stone literally or now in the form of digits in an electro-mechanical device is of no consequence…It is not an accounting trick…

                It is the simple system of rolling over debts that a government can do…It is the trick of numerator over denominator as its relationship to the nominal and real values of our shared expectations…

                But the basis of creating currency derivative in paper form since ancient times still depends of the asset behind the paper…Deposits based on gold or cash reserves or debt paper… and taxes both future and present…

                “When the people of any particular country have such confidence in the fortune, probity, as to believe that he is always ready to pay upon demand such of his promissory notes as are likely to be at any time presented to him; the notes come to have the same currency as gold and silver money, from the confidence that such money can at any time be had for them”… WN Adam Smith 1776

                Issuing credit/debt that does duty as money is based on probity and at the heart of it all the expectations based on FAITH….

                If Karl Garcia issued a post dated cheque for Php1m will anyone here re-discount his IOU?

                If the President of Venezuela asks PNoy to lend him $20billion and uses oil in the ground as collateral would Pnoy be wise to lend him the money???

                NO NO NO… Simple rationale— how can you insure enforcement of the contract????

                Why the sovereign power of issuing currency by Venezuela is useless…Because the consumer basket is mostly imported…

    • R.Hiro says:

      For the love of God Turner is proposing this whole issue which is to be used sparingly in the context of the political climate in the West as an extreme measure to utilize. Almost all politicians from all sides have been made fearful about debt loads and low interest rates being inflationary in a state of still weak aggregate demand…Keynes spoke on socializing investment through deficit/debt financing…

      But the neo-liberal establishment which has taken hold in the West would never agree..

      This debate is only for the advanced industrial economies that have all become like Japan..

      Giving a five year old like Micha a “loaded gun” is totally insane..She still does not have the capacity to think critically or practice critical thinking on how the process of money creation is accomplished and the role humans have in the process.

      Money is defined as a representative idea of our SHARED EXPECTATIONS of value…

      The application of this concept is three fold —-medium of exchange/store of value/unit of account…


      I buy almost half of goods and services that I bought with the same pesos 15 years ago…

      • Micha says:

        “Almost all politicians from all sides have been made fearful about debt loads and low interest rates being inflationary in a state of still weak aggregate demand…”

        Their fears are unfounded because weak aggregate demand cancels out the effect of low interest rates.

        “Giving a five year old like Micha a “loaded gun” is totally insane..She still does not have the capacity to think critically or practice critical thinking on how the process of money creation is accomplished and the role humans have in the process.”

        As opposed to a 75 year old Lolo lost in the economic world of dinosaurs?

        “Money is defined as a representative idea of our SHARED EXPECTATIONS of value…”

        You are of course entitled to your own definition of money.

        “The application of this concept is three fold —-medium of exchange/store of value/unit of account…”

        We already know that. Next lesson please.

        “Per capita GDP IN THE PHILIPPINES EXPRESSED IN PESOS CIRCA THE YEAR 2000 AND SPENT TODAY IS WORTH PHP 72K. I buy almost half of goods and services that I bought with the same pesos 15 years ago. “

        Yeah, inflation calculator anyone?

  39. chempo says:

    Hi guys, good challenges and rebuttals. I’ve just completed an article I call “Demystifying the American US$18T debt”. Just trying to get the damn pictures in. I think some of the underlying basic difference of opinion in this discussions may be answered in my article. In the world of economics, I’m just a road sweeper with a common sense. Sometimes common sense can provide insights. Do check it out.

  40. caliphman says:

    I have a feeling this MMT theory has been about whipped to near death and talking about its flaws and merits is as stimulating as a soiree by the Flat Earth society.The concepts involved are not rocket science and rather simplistic and Turner Adair has done a brilliant job in presenting the gobbledy gook of ideas and claimed misrepresentations of it here rather clearly, cogently and concisely. The reasons why the theory remains in the backwaters of mainstream macroeconomic thinking and hardly applied in practice are clearly and honestly articulated by Turner. The huge theoretical vacuum that MMT is unable to explain are the effects on pricing and incremental boost in the production of real goods and services brought on by MMT style monetary expansion. If there is no assurance that the effect is more pricing adjustment like when a corporation issues a stock dividend or a stock split,with little or temporary economic growth, then it is more like peddling macroeconomic snake oil rather than a useful tool for trying to understand and manage growth, inflation, unemployment and boom and bust cycle problems of a country or region. Moreover, Turner is spot on when he states that political risk is the main reason for the universal reluctance to accept and experiment MMT theory during a time of slack economic growth. Governments and public officials unfortunately have as their first priority the retention of their office and power and the lure of dipping into bottomless well of free money to accomplish this aim is a theoretical certainty.

    • R.Hiro says:

      Why is Micha’s thesis on MMT the epitome of politicians wet dream…

      The basis for Lockian social contract is for the State to provide security, stability and property rights…

      In exchange citizens allow the confiscation of property (taxes) to pay for that endeavor…

      Micha in her childlike wonder now says that taxes are no longer necessary as states can create financial assets from nothing…














      • Micha says:


        1.The basis for Lockian social contract is for the State to provide security, stability and property rights…In exchange citizens allow the confiscation of property (taxes) to pay for that endeavor…

        That, my dear Lolo, is the old view, the old paradigm. No longer valid after 1971. Taxes do not pay for gov’t spending. Time to move on and discard your old shirt.


        Yes my dear Lolo, that old equation does not apply to governments because a sovereign gov’t is not like you and me. Nor is it like a corporation. Only a sovereign national gov’t has the ability to create money out of thin air. No other entity in the country has that ability so it is absolutely wrong to treat its finances as just like of an ordinary household, ordinary income earner, ordinary corporation.


        They should and they could. But I do not take credit for that thesis. That is MMT.


        In the US, 2 to 3% is the desired natural rate of target inflation.

        5. Please stop screaming Lolo Hiro. You’re really coming out grumpy. 🙂

        • R.Hiro says:

          Why oh why is government handing out PPP projects if they can create all the financial capital they need to implement all those projects…This is the real universe in the world of common sense economic policy…

          Don’t they know that all the funds can simply be created by Micha’s magic?

          HSBC, Secretary Abad, Secretary Purissima and the President must all be economic dunces according to the money maven of this blogging community…

          Micha please explain top them why there is no wall of financing????

          Look if we have no wall of financing then the country can even grow in nominal terms by 20% and the economy could double every 3.5 years…

          Sweetheart the cost of sales taxes and other value added taxes rises with higher inflation…Government VAT take rises when companies raise their prices all along the supply chain…

          Do not mistake NAIRU or the Non-accelerating inflation rate of unemployment…which is the reason for inflation targeting…That is the measurement for an economy reaching full employment…

          You have to move back from your parallel universe.

          HSBC Airs Concern Over Availability of Infra Funds

          Read more:

          The country’s next president will have to ensure both government and the private sector avoid reaching a wall in terms of financing and capacity to build the infrastructure the country sorely needs.

          Most of the major infrastructure projects in the government’s pipeline are all urgent, given the need for the country to catch up to neighbors in the region.

          Ensuring the government and the private sector continues to have the money needed to pay for these projects, many of which will be under construction at the same time, will be vital to success.

          “Absorption capacity to carry forward these projects can be an issue,” HSBC economist Joseph Incalcaterra said in a briefing Wednesday.

          Public private partnerships (PPP), wherein private firms pay for the construction of major projects for the chance to earn from fees, are a major part of the Aquino administration’s infrastructure development plan.

          At the moment, the government has nearly three dozen infrastructure projects in the pipeline worth $28.5 billion in its list of PPPs.

          Due to single borrower limit (SBL) rules set by the Bangko Sentral ng Pilipinas, there is a natural limit to the amount of money banks can lend to private firms.

          SBL rules were relaxed for PPP projects were relaxed by the BSP in 2010, but this window will close in 2016.

          In 2016, the government plans to spend P766.5 billion on new roads, bridges, airports, and the like. This is roughly the equivalent of 5 percent of gross domestic product (GDP).

          Read more:

          • karl garcia says:

            prrrt said sweetheart.

          • Micha says:


            Why oh why is government handing out PPP projects if they can create all the financial capital they need to implement all those projects.

            That is because, dear Lolo, most of the money supply is created by private banks. In the UK for example, 97% of money supply is private bank created and only 3% is created by gov’t. The US has more or less the same proportionality, ditto for the Philippines although I don’t have exact figures. Private banks create money out of thin air too. It doesn’t have to be that way but that is the current picture.

            PPP projects is accommodated and undertaken by gov’t because most of current capital is created by private banks.

            • RHiro says:

              Micha you are akin to a little kitten who climbs up a tree and gets stuck because it does not know it’s way down.

              The Right To Issue Credit Money

              On September 30 Marriner Eccles the Governor of the Federal Reserve System gave testimony before the House Committee on Banking and Currency. The purpose of the hearing was to obtain information regarding the role of the Federal Reserve in creating conditions that led to the depression of the 1930s. Congressman Wright Patman, who was Chairman of that committee, asked how the Fed got the money to purchase two billion dollars worth of government bonds in 1933.

              “Eccles: We created it.
              Patman: Out of what?
              Eccles: Out of the right to issue credit money.
              Patman: And there is nothing behind it, is there, except our government’s credit?
              Eccles: That is what our money system is. If there were no debts in our money system, there wouldn’t be any money.”


              In his William Temple’s initiative the Archbishop of Canterbury, using typical English understatement, wrote:

              “In the case of money, we are dealing with something which is handled in our generation by methods that are extremely different from those in vogue a century or half century ago….we have now reached a stage where something universally needed – namely money, or credit which does duty for money – has become in effect a monopoly…

              “The private issue of new credit should be regarded in the modern world in just the same way in which the private minting of money was regarded in earlier times. The banks should be limited in their lending power to the amount deposited by their clients, while the issue of newer credit should be the function of public authority.

              “This is not in any way to censure the banks or bankers. They have administered the system entrusted to them with singular uprightness and ability and public spirit. But the system has become anomalous, and, as so often happens when anomaly has persisted through a long period of time, the result is to make into the master what ought to be the servant.” [1]

              No private bank can issue credit doing duty as new money unless covered by differing levels of deposits…for universal banks here up to M-4

              M-4 for the little kitten – Dollar deposits+trust accounts+savings and CD accounts+demand or checking accounts…..

              Universal banks have retail /consumer banking, corporate banking, trust and investment banking and private banking services…

              If you would have bothered to read and understand the concerns of bankers here about the limited amount of fiance capital available with bankers to fund trillion peso projects…There are very strict regulations on private banks as to the amounts that they can lend. Even during the time of the gold standard banks used to over lend over and above their deposit reserves…

              Hence when the industrialization phase of human development came about, States began to regulate and issue their own legal tender.

              Governments also are circumspect in the issuance of new money which they can do since money is nothing but as simple derivative of future taxes…

              The last financial crisis was caused by the over-securitization of mortgage debts with credit default swaps which had not enough back up reserves…

              Even during the time of Adam Smith the power of private banks were already coming under scrutiny since they had the power to create credit /money…..Have you not read the WN. That was 1776….

              So PPP projects require debt financing backed up by deposits held in banks….But you said government can simply issue the currency w/o having to resort of borrowings…


              Kindly check out the latest rates for sovereign bonds of the Philippines and U.S.A.


              They serve as the benchmark of lending rates of banks…

              So where is the monetization of budget deficits when government still continue to issue debts to cover deficits…


              • RHiro says:

                Piece on Adam Smith on bank regulation…

                “For one thing, governments always, when push comes to shove, end up rescuing key financial institutions in a crisis. And more broadly, relying on the magic of the market to keep banks safe has always been a path to disaster. Even Adam Smith knew that: he may have been the father of free-market economics, but he argued that bank regulation was as necessary as fire codes on urban buildings, and called for a ban on high-risk, high-interest lending, the 18th-century version of subprime. And the lesson has been confirmed again and again, from the Panic of 1873 to Iceland today.”

                Krugman is correct about the details – Adam Smith did advise that government regulation of elements of banking practice justifiably could be legitimised by the consequences to innocent others from failures in certain specific activities, notably the issue by banks of low denomination promissory notes, such as for 6 pence, even though customers and their customers were prepared to accept them, and certain high risk lending (WN II.ii.94: 324).

                He acknowledged that such regulations are “a manifest violation of that natural liberty which it is the proper business of law, not to infringe but to accept” (no prevarication there then), but set against the “security of the whole society” the “natural liberty of a few individuals” which “might endanger” that “security”, should and “ought to be restrained by the laws of all governments; the most free, as well as the most despotical” (no lack of clarity either).

                He went further too: not only must bankers be “restrained from issuing” low value bank notes (the central bank had not monopoly at the time in circulating paper currency), they must also be required to make “an immediate and unconditional payment of such bank notes as soon as presented”. The consequence of this last regulation would be that “their trade, may with safety, be rendered in all other respects perfectly free” (WN II.ii.106: 329).

                The purpose of banking regulations was to oblige “all of them to be more circumspect in their conduct, and by not extending their currency beyond its due proportion to their cash [in Smith’s day, gold and silver], to guard themselves against the ruinous runs, which the rivalship of so many competitors is always ready to bring upon them”.

                He added that by “dividing the whole circulation into a greater number of parts, the failure of any one company, an accident which, in the course of things, must sometimes happen, becomes of less consequence to the publick” (WM II.ii.106: 329).

                Now Micha would like to give the power to the state to go ahead and monetize government expenditures without having to resort to covering them with taxes…..

                She says that is real freedom……..You know the thing about absolute power and all that….

                At the turn of the previous century Lenin was already warning about the power if finance capital and its threat to workers and freedom….

                Like all the victims of ponzi scams Micha thrives on the basic ignorance of most….

                Trust but verify….

              • Micha says:


                Before going any further, a little bit of housekeeping is in order.

                After reading your posts above and hearing your pronouncements in Tiu Laurel’s show, I was prepared to write a comment and call you a conflicted buffoon. But, as I’ve previously said, what would have that accomplished? What it will most probably bring is that we’ll just be trading insults here, corrupt the flow of respectful discussion, and I honestly don’t want to waste my time doing that.

                The economic discipline is not an exact science. There are currently different macroeconomic schools of thought competing for validation of its modeling and theories. The purpose of this discussion then is to gain new insights. Let’s get right down to business of offering one and defending it with coherent reasoning free from the juices of insults, okey?

                Having said that, let’s resume. Do you disagree and do you deny the fact that the current estimated proportion of money supply is 97% private bank created and only 3% is gov’t created money?

    • Micha says:

      Welcome back caliphman. Been waiting for you when you posted last on this thread on Nov.3. So, after all that week long hiatus, the following is, in essence, your main objection to MMT :

      “The huge theoretical vacuum that MMT is unable to explain are the effects on pricing and incremental boost in the production of real goods and services brought on by MMT style monetary expansion.”

      In other words, you are worried about inflation. You do not contest the ability of a sovereign gov’t to create money out of thin air, you’re just worried about inflation as a consequence to possible increase in gov’t spending. Well, I have news for you. You are in fact agreeing with MMT folks because that is their exact position as well.

      They’ve offered this insight that gov’t spending is not revenue constrained. The only constraint to a sovereign gov’t spending is inflation and real resources. And it is up to the policy making arms of the sovereign gov’t to deal with those constraints given the tools they have at their disposal. What we need to stop pretending is the notion that a sovereign gov’t is revenue constrained to implement the projects and programs it deems vital or necessary for general well being and progress of the country and its people.

      So after all this time, here we are with you basically agreeing with MMT folks. Welcome to the fold.


      The second part of your quoted sentence above is a positive, a compliment to MMT. Who doesn’t want a boost in real goods and services?

      • caliphman says:

        If it was the case that the core content of MMT theory is a scheme to print money to finance government spending and leave the problems of cheapening of its currency and potential runaway inflation to “the policy making arms of the sovereign govt”, then it offers nothing new or of value in the study and application of macroeconomic theory. If these
        observations are as you say in agreement with what MMT is all about, there is little wonder it is not being taken more seriously.

        • Micha says:

          And what, pray tell, is the study and application of macroeconomic theory?

        • Micha says:

          There are Keynesians, neo-Keynesians, post-Keynesians, Austrians, Chicago gangs, saltwater, and freshwater school of thought in macroeconomics. Which one of this do you belong?

  41. caliphman says:

    Sorry, but this is your blog and its about MMT and not those topics 🙂

  42. caliphman says:

    immaterial and irrelevant as the more crucial concern was where and why was I heading with MMT. I mean it’s none of my business and out of topic but Joe and a regular here questioning your gender but seems like our local Hiro had the answer for that.

    • karl garcia says:

      ok Micha is a she unless she says otherwise.

    • Micha says:


      It’s also alright to say you do not necessarily subscribe to any of those.

      Why you make it particularly difficult to reveal where you’re coming from relevant to what we’re discussing here escapes me.

  43. Micha says:

    Steve Keen is a London-based economics professor whose post-Keynesian view aligns with MMT.

  44. Micha says:

    Steve Keen on private debt.

  45. caliphman says:

    Ughhh…sorry but I have no idea what Keen is talking about but I am absolutely convinced neither does he. To say from what I heard from these two videos that his views are aligned with MMT is to say both spring from Keynesian roots and the more the government engages in deficit spending, the better the world is, economically. Well two parallel lines 1000 par secs apart can be said to be aligned but never the twain shall meet. He does not mention anything about the government issuing non-redeemable, non-interest bearing bonds to the central bank to enable limitless deficit spending as Turner discussed in his IMF presentation except he has this irrational aversion to private but not government debt. I certainly will not risk wasting my time reading his Debunking Economics books given his muddled thinking, condescending attitude , and obviously cynical view of macroeconomics in general. His educational, teaching, and research credentials are third rate, not that one has to come from Harvard, Yale, Princeton, Stanford, MIT, or Chicago, Oxford, Cambridge, or LSE in order to be worth reading or listening to, but it seems that his primary claim to fame was he anticipated the 2008 collapse of the financial markets in the Western world and not due to the brilliance of his economic ideas. Jeebus, these last sentences of mine probably even sound very much like him…sorry about that.

    • Micha says:

      Hahaha, you are of course free to ignore alternative viewpoints caliphman, just don’t be too sure you have Keen all figured out.

      He and Paul Krugman, the neo-classical New-Keynesian,Nobel Prize awardee New York Times columnist had a debate and he got the better of PK. Nowadays, if you were following Krugman’s column and blog, he is slowly adopting the ideas and language of MMT. But because he built his lifetime career on Keynesian foundation, pride driven stubbornness prevents full capitulation. That’s the reason why its difficult for MMT to penetrate the mainstream because classical folks are on guard jealously defending the old paradigm.

      • caliphman says:

        Micha, dont take take my word for it but perhaps you should watch those Keen videos in your links yourself before declaring Keen subscribes to MMT ideas or that his beliefs represent an alternative macroeconomic theory. He cannot possibly summarize his ideas any better than the title of his two volume opus, Debunking Macroeconomics. And that would include your beloved Austrian School, NeoKeynesians including Paul Krugman, and unfortunately all the macroeconomic and monetary principles assumed by MMT for its concepts to operate at all and most probably fail. Krugman at one time was a Nobel prize winner and an economics superstar but much of his thinking is not worth much and worthless if he weaves MMT into it.

  46. karl garcia says:

    RHiro in youtube…Talking about Debt

    • Micha says:

      Tiu Laurel : why do we keep increasing our gov’t debt?

      Hiro Vaswani : because we always run budget deficits, annually. This is basically a critical sign of structural and systemic impediments in the national economy of a serious lack of domestic savings.

      My question for Hiro : You said our public sector debt is 7.7 trillion pesos. Do you have a breakdown of this figure? How much is owed to foreign entities? How much is owed to domestic lenders?

      For 2013, our total external debt (money owed to foreign entities) is 72 billion dollars. What’s that figure for 2015 or at least 2014?

      • R.Hiro says:

        Sweetheart please note that the NG + GOCC’s make up public sector debt….NG debt is Over Php5+ trillion….Of that $37 billion.+ is foreign currency debt of the NG…The total foreign currency debt is Php75 billion of both private and public sector…These figures as of end 2014….

        Please note that total taxes as a % of nominal GDP is 14%…

        • Micha says:


          Ok, for purposes of this discussion let us focus on national gov’t debt. Do you agree or disagree that deficit spending by the gov’t is good for the economy?

  47. chempo says:

    I like to interject on this point that Rhiro brought up — the lack of savings in Philippines thus necessitating foreign loans.

    I mentioned this before that with a small pool of local savings, govt Peso loans will suck away resources for private sector use. So obviously the funding has to come from overseas.

    That is only a half truth. It could (I did’nt say can) be done this way. Financial institutions take on foreign debt, convert to pesos, and lend to govt. This way, you don’t have sovereign foreign debt, only private sector foreign debt.

    But you can’t do this because Philippines financial industry is not that well developed so it may not be easy for the banks to hedge their foreign loans, and more importantly, Filipino banks do not have large credit lines from international banks that they can tap into.

    • karl garcia says:

      Chempo, I need your on SDA,per RHiro is a parked fund just lying around.


      RP wasting $30-billion fund
      QUOTE (trismegistos @ Jul 2 2011, 01:53 AM)
      The Philippine political leadereship and its Financial managers especially those in the BSP better flexed their political muscle and show some sovereign testicles and instead of being beholden to the Foreign Financial controlling interests led by the Dark cabals.

      RP wasting $30-billion fund
      Herman Tiu Laurel


      What could be more important than writing about a key bit of information that will make the Filipino people realize they don’t need foreign funds in the national economy anymore to enable them to throw the yoke of economic colonialism immediately? All the BS that cause the inferiority complex and mendicancy of Filipinos (BS such as “we need foreign investors”; “we don’t have the funds”; “we can’t run the country without debt”; or “we can’t escape the debt trap”) will simply have to go down the toilet drain.

      Several times before, we have written about this idle fund that can free us of foreign dependency right away. We placed the figure at $28 billion or P1.3 trillion and identified that fund as the Special Deposit Account (SDA) with the Bangko Sentral ng Pilipinas (BSP), which was pointed out to us by economist Hiro Vaswani of KME (Kilusang Makabansang Ekonomiya). Recently, we got another confirmation of the existence and availability of this “disposable” fund kept idle only because of the treasonous streak of our BSP officials.

      In a guest column by Mario Antonio Lopez in one business daily, it was reported that former Neda Chief Romulo Neri was of the opinion that “our dollar reserves of $65 billion (are) substantially above what the IMF (International Monetary Fund) considers adequate for a nation of our size and needs.”

      In fact, Neri was said to believe that “we can, if we wish to, use perfectly legal means to liberate half of the fund ($30 billion) to jump-start a number of badly needed initiatives in education, agriculture, and health over and above the money currently available,” stressing that the “P40 billion requested, indeed needed, by the AFP (Armed Forces of the Philippines) is a small amount compared to what can be made available to the three other programs which, in the process of providing the needed services, also means increased employment and livelihood opportunities.”

      In other words, we don’t need the PPP (Public-Private Partnership) projects of PeNoy because this $30-billion fund is already larger than all the funding requirements for the 83 “flagship” projects under his entire term.

      One report even placed the relatively miniscule “investment” requirement at “P739.78 billion under the Private-Public Partnership, 10 of which with investment requirements of P127 billion have been shortlisted and readied for rollout in 2011.”

      Besides this, another reason for tapping the idle SDA is that PPP partners get unconscionable “sweeteners” such as TRO-free operations which, like in past BOT (Build-Operate-Transfer) projects, effectively bar people from resorting to the courts no matter the inimical nature of these projects to public welfare or how financially abusive the project owners become. Of course, this is on top of the fact that “investor-partners” of government also get “sovereign guarantees” for their profits, which only means that they get to secure their loans risk free and their profits at exorbitant rates of return.

      One of our fellow columnists in another paper, Romeo Lim, sums up the flawed logic of the PPP program (and the BOT law that preceded it): “Government (does) not have money to fund the huge investment requirements of our infrastructures program. Revenue collection (is) never enough… Government assets for sale (are) not inexhaustible, and there (are) limits to government borrowings.”

      Unfortunately, that rationale, despite never being valid nor true, has gotten even the most intelligent and well-informed of our leaders either totally or partially ignorant of the existence of the huge fund that the country can use, perhaps out of a reluctance to exercise a modicum of mental or political independence.

      Actually, the BSP and the country’s bankers know that this gargantuan fund is readily available for the nation’s benefit. But why is everybody silent about it? Is it because of certain shenanigans in the BSP, where officials are in cahoots with foreign fund managers to take advantage of it?

      A recent news item (“BSP’s outsourced funds reach $9.8B”) reveals that a huge chunk of our reserves continues to yield management commissions or fees to almost a dozen foreign fund managers, stating, “The central bank’s externally-managed portfolios as of the end of last year totaled $9.89 billion, up by $5.94 billion from $3.95 billion third quarter of 2010 due to a shift in portfolios. (The BSP’s treasury department)… said the amount of almost $6 billion were cash infusions from the BSP’s internally-managed portfolios. The move was to shift this much amount from the internally-managed funds to externally-managed portfolios, which are funds outsourced to external managers and invested in longer-dated maturity securities, to preserve the country’s foreign currency capital. The BSP’s external fund management program started in 1997 (FVR’s time), when a portion of the gross international reserves was invested in long-term instruments. The BSP currently has 10 external fund managers including JP Morgan Chase.”

      So who are the other “fund managers?” Do BSP officials receive fat commissions for subcontracting this, too?

      In addition, it was revealed that “about 42 percent of Philippine funds which are US dollar hedged portfolios — are invested in the US, 33 percent in the Eurozone, 11 percent in Japan and nine percent in the United Kingdom.” BSP insiders tell us that commissions are paid out for such “investments” as well.

      The Filipino people should thus wake up to the big scam that is going on with the country’s huge financial reserves. We are not as poor as those opportunistic elements in our ruling elite and financial cabals make us to be.

      We, the people, should take charge of our nation’s financial resources through a People’s Bank run by our knowledgeable representatives — not by gofers of the international and local banking cartel.

      • chempo says:

        I don’t know what the SDA you are referring to.
        As regards the comments of the link you copied:
        I generally would not waste time with articles of hate language. These are usually empty bottles.
        I am not very sure of what funds they are referring to, but I would hazard a guess they are talking about central bank foreign reserves.
        All central banks hold reserves in various foreign currencies, large chunks of it in US$, Yen, Sterling, Deutsche Mark, and gold. They are of course not left idle, probably invested in low risk and easily realisable earning assets, like treasury bonds.

        The best way to explain this foreign reserve is like this :
        – under gold standard, peso is pegged to gold, so CB need to maintain the appropriate level of gold relative to their base currency aggregate
        – under Bretton Woods, peso is pegged to US$, so instead of gold, CB need to maintain US$ reserves.
        – under floating rate — peso is fiat money, so technically CB does not need to maintain any reserves. But if you don’t have anything to back your peso, who is going have faith in your currency? That’s why MMT is hogwash. Your hands to printing money is still tied. That reserve is to protect the value of the peso in the international market. It allows the Bangko Sentral to intervene in the forex market to protect the peso. If you run out of foreign reserves, the peso can be cornered. In the 1997 financial crisis that’s how the Thai Baht got cornered by players like George Sorros.

        The foreign reserves of Bangko Sentral is now US$80B.

        • karl garcia says:

          Many many thanks,will be looking forward to your article and I hope to continue learning more.

            • chempo says:

              OK with these 2 articles, the SDA is clear.
              Meanwhile my comments on the central bank foreign reserves remain valid.

              The best way to explain SDA is like this:

              Central Banks use Treasury bonds as a tool to manage money supply in the country, When there is too much liquidity in the economy, CB issues Tbonds. Banks buy them up and pays the CB thus the desired amount of money is withdrawn from the economy. To inject money into the economy, CB buys back Tbonds and pays the banks thus pushing money back into the market.

              CB everywhere use some variations of Tbonds as a tool to manage money supply. In 1998 there was too much liquidity in the market. Too much money in circulation will cause inflation, the price levels will go up. Instead of using Tbonds, the Sentral Banko created a new facility they call SDA. It is as it says, a Special Deposit Account. But this is not open to one and sundry. SB was targeting only trust money (remember Imee and here trust a/c – if only she will put here money here !). Obviously SB was not going to do retail banking and accept 1,000 peso deposits, they go for the high networth types. So these Trust companies open SDA a/c and put their money with SB instead of commercial banks, thus money is withdrawn from the market.

              Now that the money is with SB they just cannot do nothing because they are paying interest on the SDA a/cs. They cannot lend it to the govt for use in projects. That would have pumped the money back into the market, thus defeating it’s purpose. The only way is to invest offshore, pump it into the international economy.And that’s what they did, investing in foreign bonds and other securities.

              Meanwhile, for govt projects, no choice but to tap foreign funding. Using foreign funds, the govt converts to peso and pays contractors. There is no increase in money supply because the peso is sourced locally.

              All those commenters Herman Tiu et al hold only a one-sided view of things and blow hot air. It’s not just a question of having the stash of peso for govt projects, its the level of money supply that’s more important.

              So in 2014 SB decided to stop this SDA thing so depositors will withdraw and deposit into commercial banks thus pushing money back into the market. They expect inflation to rise in 2014 and 2015. SB is releasing the SDA funds because they feel the market can now absorb these increase in the money supply.

              It’s a sad commentary of life. Good people have to do the difficult jobs of managing intricate affairs but are subjected to barbs from hot-headed bimbos who do not understand the complexities.

              As a side issue, this vast amount of trust fund money certainly tells a big story. Lots of tax evasion and corruptly accquired money in them money. Vote for the party that says they will pass a legislation to empower the IRA to request info from banks for big depositors.

              • karl garcia says:

                Chempo you offer a balanced,not so technical commentary.I appreciate it.

              • chempo says:

                Statistics bear us out. SDA stopped arround Jul 2013 inflation was slightly below 2.0. It started climbing and peak at almost 3.5 arround 2014 Oct/Nov, then it started easing again.

              • chempo says:

                I was just trying to economize the explanation as I was rushing. Bit more time now so I return to add a bit more info to make it crystal clear.

                Let’s say Sintra Trust Fund has 100mm peso in BPO in current a/c. This a/c is aggregated in the money supply M2. Now they open a SDA a/c with Bangko Sentra. They write a check on BPO and deposit it with BS. Since their a/c at BPO is now nil, the M2 is now less 100mm peso. BS debits BDO’s a/c with them and credit Sintra Trust Fund SDA a/c.

                What just happened? Nothing, just electronic entries in BS’ books. There’s no suitcase of peso notes in BS. So now BS has a liability to Sintra Trust represented by the credit balance in the later’s SDA a/c. There’s a cost of funds to BS because the SDA a/c is interest bearing. So BS must have a revenue source to pay Sintra Trust. Obviously it must come from their various investments.

                What are BS’s investments? Mostly if not all, from those reserve holdings mentioned previously.

                Status is :
                (1) There is no 100mm pesos cash at SB to lend to Treasury dept. That’s because the money is already withdrawn from the money supply. The M2 is decreased by 100mm.
                (2) Technically, SB can create the money for Treasury Dept simply by crediting Treasury a/cs at BS and debit a “Loan to Treasury Dept”. With credits in their a/c Treasury can make payments to contractors. 3 problems here — (a) SB is putting money back to the money supply. (b) Legal issues — can BS ‘print’ money like this? Don’t think so — it’s Treasury dept that ‘prints’ money. (c) can BS make out loans like this? don’t think so it’s allowed.
                (3) All those investments Tiu mentioned are from the foreign reserves, not the Sintra Fund money.

                So when you appreciate the micros, Tiu’s comments were naieve and un-informed.

  48. chempo says:

    Another point is about taxation and repayment of debt extinguishes the money. Unless tax and debts are paid in peso notes and the govt and creditors are crazy enough to burn them, all those money will still be in somebody’s banking a/c which remains snugly in the M2 stats.

  49. karl garcia says:

    But this is impossible under modern monetary theory!
    Written by Tim Worstall | Sunday, June 28th, 2015 | Estimated reading time: 2 minutes
    Or perhaps we should revise that to a “this is impossible under a deeply deluded understanding of modern monetary theory”. For there’s a certain segment of the populace who insist that banks just make up money out of thin air. So, therefore, this can never happen:

    Ordinary Greeks rushed to withdraw cash from ATMs in the early hours of Saturday morning. Greece’s Alpha Bank stopped all online transactions according to its website on Friday night.
    If banks do just create money ab nihilo then this cannot possibly happen. There is no possibility of a bank ever running out of money, is there? But this is happening. Therefore it cannot be true that banks do indeed just create money out of nothing.

    The confusion comes from the way in which credit is created: this is indeed done by the banking system in a fractional reserve banking system. You or I go to borrow money and the money we borrow is indeed simply created, as a ledger transaction, by that bank at that time. So, to some that seems the end of the matter. But at 4 or 4.30 that afternoon, that bank has to balance its books. It must have sufficient deposits to fund all of its loans, and if it does not through its branches it must go out into the more general market and solicit some more deposits. So, that effortless creation of money only lasts until that daily point at which it must balance the books.

    And, of course, the same occurs in reverse when people are reducing their deposits at said bank. It must either claw back the loans it has made (something that takes time) or it must collect more deposits from the wholesale system or it must deny people the right to extract their deposits. Because, once a day at least, those books must balance.

    In a world where banks effortlessly print or make as much money as they wish banks runs cannot happen. We are seeing a bank run: therefore banks cannot effortlessly print or make all the money they wish. Monetary theory’s just great but even that has to be checked against reality occasionally.

    • chempo says:

      Karl there are so much nonsense in this article.It’s a juvenile product.

      1. Banks don’t print currency, not even the central banks. It’s the treasury dept for those with monetary sovereignty. For others, like EU, I’m not familiar with who does what.

      2. Bank’s create money by the process of bank credit expression or fractional banking. Banks do run out of currency notes in the ATM (simply not having stock for the day), and they do run out of currency notes (cash) if all depositors were to rush to cash out. That’s because no banks hold all depositors money in cash with them — they lend them out or use them for other transactions, just to spin some profits. They are solvent, but just don’t have cash with them, so its a liquidity problem.That’s where central bank comes in as a lender of last resort — to help out in such panic situations.

      3. “The confusion comes from …” The writer explains fractional banking starting from the lending part that’s why he ended up with the bank having to balance their books. This story is explained normally this way — you deposit 100 into your bank. Bank sends say 10 to the central bank to credit their reserve a/c, the 90 bank lends it out. So the bank has created 90 currency. At 5 pm the banl’s books are balanced, thank you very much.

    • Micha says:


      Lots of stuff to respond to but so little time.

      Quick response on Tim Worstall article: he used the Greek example on bank runs to belie money creation of private banks, forgetting altogether that Greece is not a monetarily sovereign country.

      Will respond more comprehensively on this topic tomorrow.

    • Micha says:


      Well, what do we know, the following video made it so much easier to respond to Tim Worstall’s misunderstanding of banking 101.

  50. karl garcia says:

    Modern Monetary Theory is all the rage these days. Slightly unfortunately it’s usually referred to as MMT which can and does also stand for Magic Money Tree. And that’s what the proponents think they have found. This Peoples’ Quantitative Easing that is talked about is only a variation of the basic idea.

    Which is, simply, government just prints all the money that it wants to spend and goes and spends it. Don’t worry about taxation, that’s not important. But, wait! say the monetarists. Won’t this cause inflation? To which the answer is:

    Kelton disagrees with Romer and Mankiw on economic theory. In fact, she disagrees with just about every economist Bush or Obama ever hired about economic theory. Kelton is among the most influential advocates of Modern Monetary Theory (MMT), a heterodox left-leaning movement within economics that rejects New Keynesianism and other mainstream macroeconomic theories.

    MMT emphasizes the fact that countries that print their own money can never really “run out of money.” They can just print more. The reason we have taxes, then, is not to pay for stuff, but to keep people using the government’s preferred currency rather than, say, Bitcoin. In some rare cases, consumer demand gets too high, so sellers raise prices and inflation ensues. Then, you need to raise taxes to cool the economy down. But the theory holds that this eventuality is pretty rare. James Galbraith, another MMT-influenced economist, once told me that the last time it happened was in World War I. The main takeaway from this is that you really don’t need to balance the budget over any time horizon, and attempts to do so will hurt the economy.
    So, in order to reduce the inflation brought about by government spending the newly printed money with gay abandon all you’ve got to do is raise taxes.

    At which point it’s very difficult to see what’s so new about the idea really. We can raise government spending by raising the tax level without the magic money tree. And if we do use the magic money tree then we’re going to have to raise taxes once the politicians apply MMT (of either kind) to their pet projects. So, what’s the difference? An expansion of government spending is accompanied by an increase in the tax level.

    So, what’s new about this?

    Presumably what’s different is that it’s a different argument to raise taxes and have more government spending. But perhaps a difference without much meaning and certainly one that we shouldn’t be stupid enough to swallow

    • chempo says:

      Karl, all this will become clear in my Nov 19 article.
      It’s frightening that many in the financial corridors of power in congress are not clear of the issues before them.

    • Micha says:


      Will respond to this tomorrow, Saturday evening ET.

    • Micha says:


      Wow, I thought Tim Worstall offered some very substantial argument in his article but I did bothered to click on the link, thinking that there was more to the article than what you have copied and pasted above, only to find out that that was just about it; that his main objection to increased gov’t spending is the imminent increase in taxation, forgetting altogether that taxation is just but one component part of the mechanism to control inflation and it might not even be necessary to impose more than the current rate. And that despite all the attendant effects of curing the last great recession, inflation in the US hovers in the vicinity of just around 2%.

      The only positive in Worstall’s article is that he, at least, seems to get the MMT concept. Only that, being a right wing conservative, he doesn’t want the gov’t to actually use it to benefit the larger population. He will have no problem though if his corporate buddies receive fat gov’t checks for contracts and corporate subsidies.

  51. karl garcia says:

    from one of my links above: this one is by Nathan Lewis

    A popular notion these days, particularly among the “Modern Monetary Theory” types, is that a government can finance itself simply by printing money, thus relieving itself of any need to raise taxes.

    For example–this, written in 2013: “Governments with the power to issue their own currency are always solvent, and can afford to buy anything for sale in their domestic unit of account even though they may face inflationary and political constraints.”

    Is this possible? Sort of. But, not really.

    A government can certainly make pieces of paper with politicians’ heads on them, in very large numbers. But, it does not take very much abuse of this ability before people are not particularly interested in giving valuable goods and services in trade for these bits of paper anymore. If we look at the history of all the currencies in the world since 1949, we find that “hyperinflation,” at least of the milder definition of the term adopted by the International Accounting Standards Board, is so common as to be near-ubiquitous.

    There is a certain profit inherent in producing money, known as “seignorage.” The word derives from the French seigneur, which means “lord.” Money is a useful good just like any other useful good, such as a lightbulb or an automobile. It is useful in monetary transactions, and thus we want to have some. Unlike an automobile, the cost of producing money is virtually nil, and the profit margin is near 100%.

    Today, this “seignorage” takes the form of the interest income earned on the reserves of currency issuers, which today are generally central banks. The reserves are usually government bonds, although other assets and direct lending are also quite common. These assets are purchased with newly-created money. You could consider the assets themselves (the “reserves”) as accumulated profit, but they normally need to be kept as reserves against the possibility of a decline in demand for base money, which would entail the sale of reserve assets to maintain currency value. So, they are not quite assets that one can do with as one pleases.

    Today, the seignorage income of the Federal Reserve is officially paid back to the U.S. Treasury. In 2013, these payments supposedly came to $77.7 billion. I personally doubt such payments are actually made, because those that set up the Federal Reserve were not in the charitable business of helping the Federal government fund itself—as documented in books such as The Creature from Jekyll Island, by G. Edward Griffin. And if that $77.7 billion doesn’t go to the Treasury, where does it go? But, those are just my own personal suspicions.

    If the Fed is actually making such payments to the Treasury, then the Treasury is already the beneficiary of all of the profits from currency issuance. In this case, the interest payments on the debt simply round-trip back to the Treasury. The real “profit” is the ability to issue what amounts to semi-perpetual no-interest debt. “Semi-perpetual no-interest debt” is a lot like free money. Recently, the Fed held about $4.45 trillion of debt, which is historically a very high number in proportion to nominal U.S. GDP.

    Thus, the Treasury has been able to “finance” $4.45 trillion of spending essentially by printing money, via the Fed. This is not $4.45 trillion per year, but $4.45 trillion cumulatively, in all of history. The practical per-year figures can jump around a lot, but, with considerable smoothing, might roughly coincide with nominal GDP. So, if we make a very large number of assumptions including nominal GDP growth of perhaps 5% per year, then perhaps this total monetary base could also expand by perhaps 5% without debauching the currency, which means about $223 billion per year.

    So, we can postulate that the Federal government could finance something like $223 billion per year essentially through the mechanism of money printing. That is a meaningful amount of money, but it certainly does not cover Federal spending of roughly $3.504 trillion in 2014.

    However, the Federal government used to be a lot smaller. In 1910, before the introduction of the Federal income tax in 1913, Federal spending was around 3% of GDP. Today, that would be around $531 billion. This is still more than $223 billion, but we can see that it is in the same ballpark. We could almost fund the Federal government of 1910 with seignorage income alone. So, you can see how these kinds of ideas would have emerged, in the nineteenth century.

    There is another sort of “money,” which is checkable bank deposits. This is not really money, I have argued, because it is not actually usable in payment. It is really a form of debt. But, it is commonly a non-interest-bearing form of debt, which is actually a lot like the money-creation methods of the Federal Reserve, and which might be of some interest to a government that wants to finance itself through these sorts of means. U.S. banking system demand deposits amount to $1.206 trillion today. Not enough to move the needle much, alas. Interest-bearing savings deposits (including small time deposits and money-market funds) come to an additional $7.888 trillion, which is a lot. However, the interest paid here is probably pretty close to the yield on shorter-term government debt, so there wouldn’t be much advantage to be had there in terms of seignorage income.

    The “Modern Monetary Theory” people don’t really have much to go on. I am intrigued that such ideas – which are hardly “modern,” and have been around forever — are popular today at all. People don’t embrace such things because they make sense, but because they want them to make sense. Otherwise, the very high levels of government debt today might be a real problem.

  52. R.Hiro says:

    Kindly read up on the introduction of the SDA from pages 35 onwards…and on the IMF/World Bank

    Click to access BSP_4a_paderanga_paper.pdf

    Click to access structural_adjustment_program.pdf

  53. R.Hiro says:

    As for the percentage of private money creation backed up by deposits and backed up by deposit insurance or state banks money creation is irrelevant since all are backed up by deposits and ultimately taxes…China is mostly state run banking institutions with a closed capital account. All forex goes to the state…Here in the Philippines BDO, BPI, Metor Bank, Allied/PNB and Land Bank manage almost 60% of banking assets…All are backed up by PDIC under the Finance department…Hence taxpayers are the ultimate guarantors of banking stability….

    Similarly FDR Jr.raised the price of gold to the dollar and banned the private ownership of gold bullion. An old form of capital account controls….Nixon then repeated the exercise and defaulted on the international debts that were to be paid on gold…Debt Rollovers…

    Government issuing paper money is not a modern issue…The French National Assembly issued assignats during the revolutionary period…They issued too much and hence it became worthless.

    The PRC owns all the land in China…and leases the same for agricultural and productive industrial purposes…Hence the State banks could issue credits vs lease payments for agricultural production with farmers keeping most of the harvest…That started the rapid growth of the Chinese economy….They concentrated on exports to earn forex and issued local currency vs the forex since they have forex controls…

    The command economy of China adjusted for private sector participation and they became the second most powerful mixed economy in the world…

    No government can simply issue new money unless it is backed up by an underlying asset…

    • chempochempo says:

      “No government can simply issue new money unless it is backed up by an underlying asset… ”

      Absolutely agree. Fiat money means not pegged to anything, so theoretically you can print any amount you want. But if you want to deal with the rest of the world, how’s one going to value the peso, how’s one going to trust the peso? The central bank need to have assets to back the peso, and that’s reflected in the Foreign reserve a/c in the central bank’s balance sheet. These would mostly be gold, the major currencies in the world.

  54. karl garcia says:

    Since I am the only non expert left in this conversation, I thank you guys for your expertise.This does not end here,because money makes the world go round.

    and Micha said she will be back in a few hours.

    • chempochempo says:

      That makes two of us. My only contribution is from the perspective of my banking experience. And common sense.

      • karl garcia says:

        That is more than enough Chempo.To add to that I have a degree in Hironomics because of reading RHiro for ten years now.I am glad he is challenged, before people just let him talk out of fear to be called ignorant. 🙂

  55. caliphman says:

    Karl, we are all non-experts here although some may know a little more than others in certain areas and topics in economics. Truth to tell, macroeconomics as a science is in a state of crisis as none of the mainstream or even emerging theories can explain adequately what is happening or what governments should do with their major economic problems facing them from a national, regional, or global perspective. On one hand, there is MMT which is really just a specialized limited theory focusing on the field of public finance that might work in the right situations. It does not have much to say on the dynamic interrelationships between the demand,supply, and pricing in the monetary and financial economy and the world of real goods and services. Then in this blog, the ideas of Keen are brought up and his ideas are even more limited and consist of criticizing macroeconomic analysis because its microeconomic assumptions and models are inaccurate, rendering the perfect the enemy of the good. I understand there is going to be a blog article on the the US debt coming up. As an avid student of macroeconomics, it would be of some interest to me but perhaps not as much if the topic was more relevant to the Philippine setting which is in a completely different situation. Case in point, we are sponsoring APEC which is committed to lowering tariffs and other barriers to trade between countries on the Pacific Rim, I would be interested in an article or discussion of how the lessons learned in the EEC might be applicable to the Philippines. Perhaps Mang Irineo can persuade one of his German or European economiists to contribute a joint article on that topic?

    • karl garcia says:

      Thanks for the feedback caliphman.I can ask Irineo to read this comment of yours.

    • chempo says:

      Calipman, the US debt article has relevance for Philippines. The reason I wrote that was because there have been, and still are, many postings in internet wondering why Pnoy admin is so stupid when we have monetary sovereignty and still borrowing externally, there was also some discussion on internationalising the peso. Many wonder why Philippines can’t do what US are doing, simply rely on deficit spending and print money to repay debt. My article try to answer these questions. The end part of the article, by implication, opens up the question what steps are being taken by Philippines to hedge against the impending demise of the US$.

      • caliphman says:

        chempo, two simple responses for now. The Phiippine government in fact has had a deficit spending policy during the Aquino regime and perhaps for the foreseeable future. Maybe Hiro has some up to date actual figures for 2015 and projections for 2016 but as I posted here previously that is not a concern given current debt capacity and debt burdens. Second, I am not convinced about an impending collapse of the US dollar as a primary reserve and international transactions currency that any country including the Philippines should be worried about and I question whether any diversification of reserves into Euros or other currencies will exacerbate rather than reduce risk. The US public debt situation is because of the dollar’s continuing unique role in the global economy is quite different from that of the Philippines and right now it is much more a political issue than an economic one. The US economy and employment is in growth mode and with the Fed talking about raising interest rates and discontinuing its quantitative easing policy, the continued growth of its 18 trillion dollar debt may for the time being be less of a concern. One thing that needs close monitoring is the growing interest rate risk and burden as this mountain of debt keeps rising. Unless managed properly, the international credit rating agencies may assess the risk and burden excessive and downgrade US government bond ratings further exacerbating the problem and possibly making these securities less desirable investments for very conservative US pension and mutual fund institutions which have been picking up the slack from countries diversifying their main dollar currency reserves.

        By all means, I encourage your publishing your US public debt article. If anything it will be interesting if nothing else by illustrating the various political, economic, and financial concepts and issues come into play in one of the most developed if not well managed economies in the world.

        • R.Hiro says:

          Firstly forget about issuing dollar debt… Right now our interest payments amount to 2-3 % of nominal GDP. Contrary to popular myth we are not really that solvent in dollar reserves…Total forex currency debt is $75 billion… Last year we had a massive outflow of dollars due to the changing landscape in U.S. monetary policy…

          Hence the peso is weakening making dollar debts more expensive…

          Issuing more debt in pesos to fund infrastructure investments is a safer bet…

          Numerator Debt as % of Denominator GDP will be most beneficial since GDP in the long run will grow more rapidly due to increased infrastructure.

          The rise in debt will be more than offset by faster growth….
          But you must have a competent executive for that…The present government has been under-spending…

          Even the so called inflows from BPO is more myth than substance since most BPO’s are foreign owned and their contracts are formulated overseas and surplus kept abroad and they simply pay for operations here…

          The BSP figures do not lie…

          Please note is what counts is debt service costs as % of GDP and if debts are creating more capital assets instead of simply paying for short term consumption…

          “Capitalism is the astounding belief that the most wickedest of men will do the most wickedest of things for the greatest good of everyone.”
          ― John Maynard Keynes

          “Education: the inculcation of the incomprehensible into the indifferent by the incompetent.”
          ― John Maynard Keynes

          • chempo says:

            All things equal, govt borrowing in the local currency is of course the best bet. We only need to make sure there is capital adequacy – enough domestic savings. Also, if we are talking massive infrastructure at the same time, there should be some concern for the money supply as the govt draw down on the peso loans and funds get stuck in the Treasury account until contractors get paid.

            Rhiro your inputs have been most enlightening.

            The capitalism quote — I remember something similar that goes something like this —“War makes good men to do that best to do their worst to the enemy”

          • caliphman says:

            Seems to me the increased surplus in the balance of trade and services and not the hot money exiting pesos for higher dollar yields is the really noteworthy news in that Times link.Expect these surpluses to grow rather than narrow due to continued oil and commodity price declines as China and most of the EEC economies continue to sputter. My net take without further analysis is that from a strategy standpoint, it doesnt make sense to let marginal interest rate differentials and short-term currency fluctuations drive how the 2016 deficit is financed and the really big factor swamping everything is who wins in 2016.

        • chempo says:

          Your comments make a lot of sense. But let’s not hijack Micah’s stage here for the time being.

      • caliphman says:

        Chempo, since you are in the process of writing up your US public debt article and perhaps even respond to Pinoy’s critics on his public debt strategy of issuing dollar denominated debt, I thought it would be good to point out there are many international economists and financial experts who believe that this was a great idea. One of the notable achievements of the Aquino administration is making the country much more attractive to foreign investors and creditors, so much do that international rating agencies raised the credit strength from junk to investment grade status. The beneficial effects of this include lowering the interest rate cost of Philippine foreign currency borrowings and to open up the market for Philippine dollar denominated bonds include US pension and conservative institutional funds which are prohibited from investing money in junk rated securities. By familiarizing investors in this market with the newly upgraded government dollarbonds, the Central Bank in fact strengthened the foreign currency reserves available to back up andsupport the peso.

        • Joe America says:

          His article, as we say in the biz, is “in the can”. You can raise the point during discussion perhaps.

          • caliphman says:

            Ugghh I do hate being repetitive and do hope the aforementioned critics read my post above. In case they do miss the point that developing a receptive market overseas for Philippine debt is a valid and sensible strategic goal which is what the SB’s issuance of dollar denominated debt is trying to accomplish.But should the question come up again, maybe I can reiterate this if I can find some time while “in the can”….hehehe.

  56. Micha says:

    How is money really made by banks?

  57. karl garcia says:

    Some stupid questions that hopefully won’t get stupid answers.So far i get brilliant answers.

    if the dollar remmitances gets converted in to pesos and is consumed by buying condos,katas ng saudi jeepneys,education,food,shopping,etc.

    How come the dollar reserves stays that way and it even rises?

    The SDAs came into existence because we ran out of government securities?

    that was the asian crisis time,if people cant be squeezed any more for money,how come those who are into Sdas are the high net worth ones.

    Fast forward to the present.

    Treasury often says nowadays that govt securities are over subscribed and they are too liquid. What the hell does that mean, Don’t we need govt securities anymore?

    • chempo says:

      Karl this is Micah’s stage, but allow me to share my views.

      OFW’s earnings are in local currencies of their country of work. They go to remittance agency/banks and remit back in pesos. That means the agencies/banks buy their currency and sells them pesos. Beneficiaries here receive in pesos. It will be foolish to remit in the foreign currency because the charges will be higher. What is the importance of this remittance to Philippines? It creates a demand for pesos thus helping to maintain the strength of the pesos.

      Philippines balance of trade with the rest of the world is negative. You buy more than you sell. Means you need to sell pesos to buy those foreign currencies to pay for net purchases. That causes a downward pressure on peso value. But the huge OFW demand for pesos helps to negate the downward pressure.

      The foreign currency reserves, mainly in $ and gold, are meant for 2 main purposes — to meet a countries short/long term liabilities, and to back the pesos value. It is often used to allow the bangko sentral to intervene in the volatile foreign exchange market to protect the peso exchange rate. The composition and level of the foreign reserves is dictated by the monetary policy of the CB. It is never a fixed quantum. A country with good economies over a sustained period of time can build up strong foreign reserves over the years, such as oil rich countries, and Singapore. In a simplistic way, you can view it as a country’s savings.

      SDA and securities. The treasury bonds serve as an easy mechanism for govt to borrow, as well as facilitate a securities market which has a liquidity function in the financial market. These debt instruments are bought and sold by banks and other financial institutions. View this as the wholesale market, it’s institutional business. The SDA is just a one-off mechanism of the Bangko Santral for Trust funds to deposit their money and earn special interest (which of course was more attractive than what banks were offering, otherwise who wants to bother). Central banks are not in the business of attracting commercial deposits. In this instance, Bangko Santral wanted to reduce money supply and specifically targeted trust fund money, so they came up with this SDA thing. Don’t be mistaken, SDA is not a commonality of central banks, you won’t find this in other countries.

      SDA and securities — To put it another way that adds comprehension. Bangko Sentral could easily have issued treasury bonds and forced trust funds to buy them. Of course there is the issue of quantums. Treasury bills are issued in certain denominations (100 mm pesos each??) so can thriff funds buy the exact sums? SDA a/cs you can deposit 12,345,678-99 pesos or any sum.

      Trust funds are managed wealth. Who are these people ? Bill Gates, Imee Marcos, Lopezes, Cojuancos, Lucio Tans etc. During financial crisis, the creators of trust funds may get hit, but trust funds are no longer their personal wealth. They are maintained separately. Trust funds may get hit too if they have not been managed well by the trust fund administrators.

      When the govt issues treasury bonds to raise funds, these are auctioned off. In a liquid market, there are too much money chasing for good investments — low risk high gain types. Banks are always in the market for various reasons as they manage their interest and fx books. But it does not mean that if demand outstrips supply, the govt should issue more treasury bonds. Govt issue bonds in accordance with their fiscal policies.

  58. karl garcia says:

    Definitely you think DAP is unconstitutional ,but if it is constitutional would it serve its purpose to accelerate spending? Wouldn’t it be a gamechanger?
    we know its dbm neda who comes up with the budget and congressmen are there just to put the stamp of initial approval.I think we have to many checks and balances going on then the SC interjects all the time.

    • Unconstitutional for some in the Philippines is almost the same as “haram” in Islam.

      Be careful, Imam manuel buencamino might pronounce a fatwa against you.

      • (begin MRP Simulation)

        Filipinos cannot separate showbiz and politics. They cannot separate learning and religion.

        Leftists, Nationalists, Constitutionalists. All more dogmatic than Pope Francis.

        Will Villanueva is only dogmatic when it comes to love and dogs.

        (end MRP Simulation)

    • RHiro says:

      Even the DBM Secretary himself admitted that the problem with the executive is administrative absorbtive capacity to implement…DBM is simply a consolidator for the allocation requests of state agencies and corporations. It is still the executive departments and their heads who are ultimately accountable and responsible…

      We never established political institutions to satisfy our needs.. We simply inherited our colonial institutions established by the first constitution in 1935 and amended to a bicameral system reverse engineered from the American federal system…

      Since the basic problem from the start was fiscal restraints and the lack of real economic and monetary sovereignty the State was always starved for funds…Thanks to the Marcos Imelda duo they deepened the problem by adding a monstrous foreign debt problem…

      We formally started the export of labor during the early days of martial law to enable this country to pay for oil and milk…Since the price of oil and other commodities rose in the early 70’s it was good for a resource base economy… But commodity markets are cyclical. We had to switch to export manufactures…The revolution in semiconductors started by Japan and the U.S. and the Plaza Accords in 1985 brought forth this new digital economy and hence the semiconductor industry came to town to be followed by BPO. But the economy’s failure to produce jobs made labor exports the main industry since the early 70’s. The OFW remittances became the source of savings in the country…

      The Philippine ship of state is still in dry-dock and has not yet set sail…The state itself does not have technical and technological capacity to run the country…

      Hence the failure of the executive to implement necessary physical projects. Why will the DA, DPWH and DOTC request for allocation if they know they cannot implement projects timely…That is the job of the agency heads.. What are they for? Decoration?

      Congress or parliament even under a unicameral system has the power of the purse and not the executive…That is set forth in the constitution…The GAA is the law…The rules contained in the GAA are the rules of the game…The SC is bound to follow those rules…

      If the executive does not like it and believes that in the present case the developmental needs require streamlining, form a centralized form of government like the democratic centralism of the PRC…Organize a national developmental policy program and organize a political party around it…Congress then could be controlled by a political party with a national democratic developmental policy platform…

      Economic efficiency, social justice and individual liberty for all should form the basis…

      At the height of the great depression FDR Jr. made the economic crisis akin to a declaration of war…

      GMA was charged with plunder for realigning PCSO funds… But there is no evidence that she profited from the realignments… At a minimum she should have been charged with technical malversation…Secretary Abad and PNoy face the same charges for their realignment of the budget…

      What is good for the gander is good for the goose…

      GMA operated for a number of years without having to pass a budget. It gave her big latitude and this became one the major causes fer her transactional form of governance…

      However she had Congress pass the E-Vat law that saved the country form another fiscal crisis.

  59. karl garcia says:

    In a financial crisis or a contagion. How come the whole world gets affected, where does the money go?Is ot just a matter of diversification,where you spread your wealth and win some and lose some?

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  1. […] This article will open up a discussion to further understand the MMT  concept Micha introduced in her blog, Money Matters. […]

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