On Treasury, Fed, financial stimulus, interest rates & MMT

The following article pertains to American financial systems and issues. These matters are fundamental to any national economy, and particularly instructional for Filipinos who expect sophistication from their government financial managers. J.A.

Analysis and Opinion

By Chemrock

The Treasury Dept and Federal Reserve Bank are responsible for smoothing economic cycles by managing economic fluctuations. Treasury oversees Fiscal Policies which deal with the management of government spending and taxation to achieve targeted aggregate spending. Fed handles Monetary Policies which primarily seeks to maintain price stability, ie inflation.

There are tools the agencies use to tweak policies during normal and crisis times. The mechanisms are somewhat complicated which leads to conspiracy ideas, claims of unfair bailout of fat cats, and blames on failing systems. Some claim that MMT (modern monetary theory) has in fact been partially practiced since the Fed is already ‘printing’ money, why not go full-throttle the AOC-Bernie Sander’s way (which is what, exactly?).

What I like to share here is the mechanisms Treasury and Fed use to pursue their policies, why certain aspects are critical, why the central bank balance sheets matter, and there is no MMT at work at the moment.

Treasury Department

The Treasury is like any consumer. It has a checking account and it makes all govt payments out of this account. This account is the TGA (Treasury General Account) with the Federal Reserve Bank of New York (there are 12 Fed banks).

Where does Treasury get the money to deposit into the TGA? From tax collection and debt. Treasury raises debts by issuing Tbonds, Tnotes and Tbills. These are govt securities of different terms. Let’s call them bonds collectively. These bonds are sold by public auction on a regular basis.

So what happens when Treasury wants to provide more financial aid, or free services, when needed, whether during normal or crisis times. Well, it can raise more taxes or dig a deeper hole by issuing more bonds.

Under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Treasury provides :

  • Economic Impacts Payment Program – Treasury pays to qualifying citizens $1,200 each.
  • Coronavirus Relief Fund — Treasury funds state, local and tribal governments for qualifying expenditures.
  • Paycheck Protection Program – qualifying SMEs can borrow from participating lenders to pay salaries and some other expenses.

(1) & (2) are paid out and borne directly by Treasury.
(3) Treasury uses participating non-bank lenders to lend to qualifying borrowers. These loans are guaranteed by Treasury. The loans are free of interest or fees. Lenders earn a fee from Treasury. Borrowers that use the funds for qualifying purposes have the loans forgiven (Treasury reimburses lenders).

These disbursements are borne by Treasury and impact its Income & Expenditure Account. Treasury pays out using its TGA checking account with Fed NY.

In addition, Treasury guarantees some loan programmes run by the Fed. In other words, risks and losses in these Fed financial assistance programs are borne by Treasury.

There is no money creation by Treasury because that is not their territory. Its cash outlays are all funded by tax and debt. That is, tax payers foot the bill. The US national debt is the aggregate of these bonds which now stands at a whopping $23T. Years of deficit budgeting prevented the govt from making repayment on these loans. The practice of rolling over these bonds and never paying on it (except during the Clinton administration), has made some Americans, and MMT crowd, believe this is really not a debt. These folks should try to explain to pensioners that the bonds their pension funds are holding are not really assets.

The Federal Reserve

The Fed does its job by managing its balance sheet. Let’s look at an abridged balance sheet to understand how it works.

The TGA is the checking account of Treasury Dept. The Fed is the govt’s banker, honoring payments when there are funds in the account. The Fed has nothing else to do with it.

The Bank Reserve accounts are the operating accounts of all banks in the US. All US$ transactions, whether local or anywhere in the world, through correspondent banks and clearing house systems, end with the Fed crediting one bank and debiting another in these reserve accounts. Each day, banks are required to maintain a balance in these accounts that is not less than 10% of their deposit base.

When a deposit is made with a bank, it gets credited into its reserve account, which it then lends out and trigger off fractional banking. A reserve requirement of 10% can cause a $1,000 deposit to end up creating $10,000 in the economy. Thus the Fed can create more money in the economy by reducing the reserve requirement, or putting more money into reserve accounts. Managing this liability influences money supply or liquidity and short term interest rates.

By simply crediting these bank reserve accounts, the Fed puts money into the coffers of the banks. So the ‘keystroke’ analogy is born. But that’s only half the story. If the Fed takes on the liabilities, where are the assets? The Fed puts money in Banks reserves and debits the following assets:

  • Fed buys Govt bonds in the market – it debits Govt bonds account
  • Fed makes loans in the Repos market – it debits Corporate bonds account
  • Fed loans to banks through the Discount Window – it debits loan a/c
  • Fed loans to banks under the Term Auction Facility in 2007 crisis — it debits loan a/c
  • Fed loans to banks / SVP under under the various special facilities – it debits loan a/c

Buying govt bonds and releasing liquidity into the economy is called Quantitative Easing which is an expansionary policy. With liquidity in the market, interest rates go down, lending cost is cheaper, business expands, and more people get employed.

When the economy overheats and there is inflation, the Fed does the reverse by selling bonds. Bank reserve accounts are reduced (debited) and liquidity is sucked out of the market. This is a contractionary policy called Quantitative Tightening.

Buying govt or selling govt securities to pump or withdraw liquidity in the market is called open market operation. It is not a Fed novelty; central banks in other countries do the same stuff.

Monetizing Debt

During a crisis, such as the present corona virus pandemic, what does the Fed do by way of financial stimulus?

The anatomy of a financial crisis is basically a liquidity crunch. Everybody in the economy is connected in a network of inter-indebtedness. Some entities within the network tank, causing a contagion effect. If you cannot pay someone, that person hasn’t got the funds to pay someone else. It goes up and down the line. Exacerbating the situation is a concurrent credit crunch as lenders pull back in the face of heightened risks. So the Fed tries to pump huge amount of liquidity into the market. It is more or less like QE.

Imagine you lend someone some money. You went into some financial difficulties and you needed the money back from your friend. Unfortunately, he cannot oblige and you have no one to borrow from because your credit rating sucks. An enterprising beer buddy, for a small cut, takes over the loan and gives you the cash you desperately needs. In legal lingo, this is debt assignment; in financial high fallutin, that’s monetizing debt.

Central banks are all monetizing their national debts in QE programs to manage the liquidity in the economy.

During a financial crisis, the Fed applies the same debt monetization across a wider risk asset spectrum. It purchases corporate bonds.

In addition, the Fed rolls out various special loan programs, each designed for a class of specific target borrowers, with different lending mechanisms, securitizations, maturity, rates etc. For eg, the Fed has established for coronavirus stimulus programs:

  • Primary Market Corporate Credit Facility (PMCC)
  • Secondary Market Corporate Facility (SMCP)
  • Term Asset-Backed Loan Facility (TALP)

These programs use SVP (Special Purpose Vehicles). The PMCC & SMCC will provide credit of $750B and Treasury will put in $75B in equity in the SVP. The Fed will loan the SVP to provide $100B credit lines for TALP, with Treasury underwriting $10B of losses. These loans are securitized, and often with guarantees by Treasury. When the SVP lends to a qualifying borrower or buys corporate bonds, it draws on these facilities with the Fed. By keystroke, the Fed credits the SVP bankers (say Citi) reserve account at the Fed, and debits assets (special facilities a/c). Citi credits the funds to SVP’s a/c and the lending vehicle disburses the loans.

The TALP facility came from the 2007 financial crisis playbook. It was guaranteed by Treasury’s TARP facility and collaterized with all sorts of mortgage securities. So the same mechanism is now used for the corona virus stimulus package.

Why guarantees by Treasury? Because this business of lending is not the Fed’s normal function. Losses are carried by Treasury. Not doing so is to put Fed’s equity at risk and with it the confidence in the central bank.

Is the public sentiment of tax-payers bailing out fat-cats a fallacy?

Treasury CARES support packages mentioned above are freebies, but they are not for fat-cats. They are meant primarily to ensure the working class gets paid, SMEs get some band-aids, and local govts can run some health programs. Are tax payers footing these? Yes because they are funded by debts.

Fed facilities are credit mechanisms that allow corporations to draw on the loans collaterized by various securities such as bonds or other mortgage instruments. This means when the crisis clears, the Fed can hold on to the securities till maturity, or sells them in the open market. Some of these facilities are guaranteed by Treasury, so tax payers foot the bill only to the extent of realized losses.

And here is the good news. The Fed did not loose a single cent on the disposal of their billions of $ of TALF 2007 securities. This is hardly surprising as bond prices had increased sharply since 2007. There were some abuses, but the reality is, no fat-cats got bailed out. No freebies were given to them.

Do you see MMT in all these?

In summary, stimulus packages in a financial crisis are the same as in normal times to the extent that Treasury funds itself from debt, whereas Fed creates money by ‘keystroking’ a credit to a bank’s reserve account and debiting an asset account for debts purchased.

This brings me to MMT. Proponents say money is free and the way the Fed is ‘printing’ money by a keystroke is the eureka. However, nothing above describes free money. Treasury took on debt to get the funds for its TGA checking account. Fed creates money to buy assets but corporations take on debt to get Fed funds via SVP.

MMT proponents are long on theories and short on details. Reaction to criticisms is condescension — you are ignorant, antiquated, you should embrace the new ideas. Requests for details are met with a dose of high octane theories, sans the info you are seeking. MMT proponents are in the same crowd as social justice warriors in social media. They decry status quo and say we should move to yonder hills where the shine shines bright, but will not tell you the steps to take. It matters, because the steps may be laced with mousetrap glue.

MMT is no universal theory; there are disagreements within the camp. I am in no position to posit on this, but there are a couple of points where they have been specific, and I will touch on these below.

Interest rates

“Our preferred position is a natural rate of zero and no bond sales. Then allow fiscal policy to make all the adjustments” (MMTer William Mitchell)

At the heart of an open market economy beats the interest rates. It is the wage of capital. Interest is the cost of using the $. And like all things sold in an open economy, the market decides what the price is.

Interest rate is the tool of choice by Fed to tame inflation. It fine tunes the interest rate to manage inflation to a preferred level which is about 2%.  Sounds contradictory here, since interest rate is a market function and yet the Fed can tweak it? Here’s how it works.

There are interest rates of all sorts of maturities out there – overnight, a week, a month, 3 months …. 30 years. This is known as the yield curve. There are interbank rates (banks borrowing and lending each other with no spreads) and Prime rates which are rates that banks lend to their best customers.

Then there is the Fed Funds Rate. This is the rate the Fed uses to influence the economy in the US. Without a doubt, the Fed Funds Rate is the most important interest rate not just in the US, but in the world. It is the benchmark rate for all spheres of business activities — credit cards, mortgage loans, banks’ prime rates and thus all consumer loans, etc and rate setting in international banking centres such as LIBOR, SIBOR, HIBOR, SHIBOR, EURIBOR. Last but not least important, it also impacts the yield curve. And when these rates move, it impacts foreign exchange, commodities, and derivatives markets all over the world. We are all inextricably tied together.

Remember all those bank reserve accounts? Each day cash flows through these accounts to settle deals done for the day with same-day values, plus forward-dated deals done in the past that have matured. At the close of business, banks must have balances that meet their reserve requirements. Excesses are lent out, shortfalls are covered by borrowing. Banks lend/borrow each other overnight in the Interbank Money Market. The rates are negotiated rates and its called the Interbank O/N Rate. If the market is tight, banks borrow from the Fed through the Discount Window facility which is more expensive.

The Fed computes a weighted average of these Interbank O/N Rates daily and posts it on their website. This is called the Fed Funds Rate because the depositors money lying in all those bank reserve accounts are called Fed funds.

Notice that the Fed does not set the Fed Funds Rate. It is market driven. What the Fed does is to set a Targeted Fed Funds Rate. To heat up the economy, they reduce the targeted rate, to cool the economy, they raise the rate. It takes about 12 to 18 months for the impact of rate change to be seen in the economy.

The Interbank O/N Rates always gyrate towards the Targeted Fed Funds Rate. Decades of practice have made the Fed an expert in predicting the economy and rate setting. It does this by using algorithms and all sorts of monetary aggregates, and managing those monetary metrics to get the economy to where it wants.

The FOMC (Federal Open Market Committee) meets 8 times a year. Market policy decisions are made and announced. This is when the Targeted Fed Funds Rate is announced. Investors and all financial markets and central bankers in the world pay great attention to what’s said here. Every word, every nuance, is studied carefully.

“… auction philosophy, …, are just arbitrary rules. Those are not etched in stones or, for that matter, obeying the natural laws of the universe.” ( Micha)

So the Targeted Fed Funds Rate impacts the short-term overnight rates. How about the longer term rates? This is the function of the auction of bonds by the Treasury. There are issues of market power, but generally, auction is one of the most efficient means for price discovery in an open economy. There is ‘no natural laws of the universe‘, but it bows to the truism that the market gets what the market wants.

Treasury sells its bond issues in the Primary Market by auction which the Fed, by law, cannot participate in. This is to ensure independence of the central bank and open market price determination. Treasury bonds have maturities ranging from 1 month to 30 years and its auction establishes the interest yield curve for a risk free asset. Long term deals are benchmarked to the yield curve. Without this, there is no valuation for all sorts of assets like futures, options, foreign exchange arbitrages, and other derivatives, there is no basis for pricing long term loans, there is no actuarial science, and a host of other application.

Interest rates lie at the very core of the economy, but MMTers wave them away and suggest it be done by fiscal policy adjustment. Exactly how, is the question.

Fed balance sheet matters

Interest rate was the tool of choice for Fed to manage inflation and promote full employment. After the 2007 crisis, the Fed Fund Rate dropped to near zero, which means there is very little room left to maneuver. It had to use more open market operations to pour more liquidity into the market. The purchase of govt bonds became so pronounced the QE term was born.

The Fed went on a buying spree of govt securities and corporate securities to generate liquidity and took on loan assets in the stimulus programs during the crisis of 2007 and the conora virus pandemic. To generate liquidity, the Fed has been building up its balance sheet. Just prior to the 2007 crisis, total assets were $870B. At about the time of normalization of the 2007 crisis, total assets had increased to $3.7T. Today it is $5.3T and still growing. It is predicted before the virus pandemic credit squeeze is normalized, the Fed’s balance sheet will grow to an astounding $10B, a frightening 43% of the US economy! Think about what each extra $1T will be after fractional banking and the scope of money supply after that.

The US is not alone in this. G7 central banks are in similar situation – near zero interest rates and a bulky balance sheet. G7 central banks are more precarious because they have also gobbled up the ETFs in equities market. The Fed does not purchase in the stock markets although there had been some talk about the possibility.

There are implications in the size of central bank balance sheets. The huge liabilities side indicates the vast sum of liquidity that impacts both short and long term interest rates which affect asset prices. The huge assets side puts central bank capital at risk when assets are marked-to-market. Deflating the books after the crisis is over carries with it a different whole series of risks for the economy because it is contractionary exercise on a massive scale.


I set out to show what the Treasury and Fed does both in normal times and crisis and hope to convey the view that there is method in their complexities and there is no MMT in play.

To those who ask, with all the national debt built up and QE of the last decade, why the liquidity did not bring about an inflation in the US, the answer lies in the Fed balance sheet. If you had been observant, I have already answered it. The increase in the money supply did not spill into the real goods and services and thus prevented real inflation. All the liquidity pumped into the economy has to go somewhere and it did. It went into the asset market. Just before the virus debacle, Dow Jones US real estate was higher than before the subprime crisis, Dow Jones Industrial index was 120% over 2007 heights. Decline in yields raised bond prices. Inflation in the asset market allowed the Fed to dispose assets acquired in 2007 crisis without incurring any losses.

The Fed fights inflation with interest rates as the main tool. Its Targeted Fed Funds Rate is proactive in nature as its impact is felt 12 to 18 months later. MMTers have consensus that taxation is their weapon to fight inflation. This is reactive, and imagine the legislative process it requires to reach implementation.

In it’s essence, MMT transfers monetary policy making to the Treasury. It throws to the trash bin the jewel in the capitalist open economy, the independence of the Fed. MMTer’s regard for the need for integrity of the Fed is summed up in Micha’s comment “central bank independence is exactly the narrative that the private banking mafia want to perpetuate.” I shall end with this poser:

Without actually understanding all the MMT theories, and you have to choose, would you trust the politicians to handle the intricate task of fine-tuning the monetary aggregates for a $23T economy, or would you prefer non-partisan, seasoned technocrats to run the show?

309 Responses to “On Treasury, Fed, financial stimulus, interest rates & MMT”
  1. karlgarcia says:

    As one who has invested more than five years of my time in this topic thanks to Hiro and Micha, I would like to point out some observations.

    Point of Contention:
    M: Fed buys ponds directly from the treasury.
    C: Fed buys from those (usually banks) who bought them from the Treasury.

    The Fed does this to control the interest rates. I think the FED does not directly get the bonds from the treasury.
    I will drop a link after I find it.

    • chemrock says:

      Karl, the Fed buys in the open market. This is called the Secondary market. The sellers, and also buyers, can be anybody — banks, governments, pension funds, big time investors, fund managers, other central banks, drug lords and mafias, etc.

      The Fed buys to pump money into the economy, or sells to drain the liquidity out the market. Liqudity affects interest rates, so it’s an indirect way to manage interest rates.

      The Fed does not buy bonds in the Primary market — ie directly from Treasury. It is forebidden by the Federal Reserve Act.

      • karlgarcia says:

        No need for the link because that is basically what is says.

          • karlgarcia says:

            Here are excerpts from a Q and A.

            Wait a minute. Don’t banks decide what interest rates to charge—like on business loans, home mortgages, car loans, or whatever? How would the government force banks to charge the interest rates that the government wants? And what does buying bonds have to do with it anyway?

            Those are all good questions. Let’s start with how the government influences interest rates.

            When we hear about government policies designed to change the money supply or influence interest rates (monetary policy), we are talking about the role of the Federal Reserve (or “the Fed”). This is the central monetary-policy making authority for the United States.

            The main way that the Fed influences interest rates is by buying and selling government bonds. It decides whether to increase or decrease interest rates depending on whether it aims to pump up or rein in overall demand for goods and services. When Fed policymakers decide that they want to raise interest rates, the Fed sells government bonds. This sale reduces the price of bonds and raises the interest rate on these bonds. (We can also think of this as the Fed reducing the money supply. This makes money less plentiful and drives up the price of borrowing.) When Fed policymakers decide they want to lower interest rates, the Fed buys government bonds. This purchase increases the price of bonds and lowers the interest rate on these bonds. (We can think of this as the Fed increasing the money supply, which makes money more plentiful and drives down the price of borrowing.)

            Usually, the Fed buys and sells short-term government bonds in order to change a very short-term interest rate called the “federal funds rate.” Now, the Fed is buying and selling longer-term government bonds, with the aim of influencing longer-term rates.

            When the Fed buys government bonds, does that just mean paper is shuffling back and forth between one part of the government and another?

            No, the Fed buys bonds previously sold by the U.S. Treasury to “members of the public” (to some extent to individuals, but mostly to financial firms, in the United States and abroad) and to the central banks of other countries.

            When the government needs to borrow, the U.S. Treasury sells bonds. (A bond is basically an IOU, the government’s promise to pay the owner of the bond a certain amount of money at a specific date in the future. In the meantime, the government can spend the money it received in exchange for the bond.) At any time, there are lots and lots (and lots) of bonds owned by people or institutions who have either bought them directly from the Treasury, or bought them from someone else in the “bond market.” Bonds may change hands lots of times after their initial sale by the Treasury. When the Fed wants to lower interest rates, it buys some of these bonds from their owners.

            You said that when the bond price goes up the interest rate goes down, and vice versa. Why do the bond price and the interest rate move in opposite directions?

            That’s a good question. Suppose that you can buy a bond today for $100 and it promises you $110 in a year. The interest rate is the difference between what you will get and what you paid ($110 – $100 = $10), divided by the purchase price ($100). That comes to 10%. Suppose the purchase price for that bond increases to $105, but it still promises $110 in a year. Now the difference between what you get and what you paid is only $5. Divide that by the purchase price ($105), and you get an interest rate of less than 5%. So when the bond price goes up, the interest rate goes down. (It works just the same in the opposite direction.)

            More demand for bonds (including demand from the Fed) means a higher bond price, and that pushes down interest rates. So when the Fed wants to push interest rates down, it buys bonds.

            OK, so the Fed can push down the interest rate on government bonds, but how does that push down interest rates that banks charge and consumers or businesses pay?

            Imagine a bank deciding to whom to lend. The bank can lend to the government (by buying government bonds), or it can lend to private businesses, to individuals, and so on. If the risk of lending to one borrower is the same as the risk of lending to another, the bank will make whichever loan fetches the higher interest rate.

            The U.S. government is a very safe borrower, so much so that government bonds are considered “risk free.” Let’s set risk aside for now, and assume that there are other borrowers that are just as safe as the U.S. government. Suppose that the interest rates on government bonds and these very safe borrowers’ bonds are both equal to, say, 2%. So the bank can buy either bond for $100 today and be promised $102 in a year.

            Suppose the Fed starts buying government bonds, and that makes the bond price go up to almost $101 (pushing the interest rate on government bonds down to 1%). Let’s think about what the bank will do now. Suppose that it had just paid $100 for a government bond that promises $102 in a year. The bank can hold onto that bond and still get $102 in a year. But it can also sell the bond for $101 and buy a private company’s bond for $100. The private company’s bond still promises $102 in a year, but the bank, having sold a government bond for $101 and bought a private bond for $100, also gets to pocket the difference of $1. If the bank were to sell 100 government bonds, it could buy 100 private-company bonds, plus use the extra $100 it pocketed to buy one extra bond. A bank that wants to make as much profit as possible, then, will sell the government bonds it holds and buy private-company bonds.

            If banks start buying private-company bonds (with the money they made by selling government bonds), then the price of private-company bonds will go up and the interest rate on those bonds will go down. In other words, private companies will now be able to borrow at a lower interest rate than before.

            So how low will interest rates for private companies go?

            If the risk on private-company bonds were the same as on government bonds, as we assumed in our example, then the process would continue as long as the interest rate on the private bonds remained higher than that on the government bonds. The two would eventually end up equal.

            In reality, however, the risk on a loan to a private company (even the most rock-solid) is greater than the risk on a loan to the U.S. government. When lending to a private company or individual (or, for that matter, to state or local governments, or national governments deemed less credit-worthy than the U.S. government), lenders insist on a higher interest rate to compensate them for the greater perceived risk. The difference in interest rate between a risky loan (like a business loan, home mortgage, car loan, etc.) and a “risk-free” loan (as to the U.S. government) is called the “risk premium.”

            If the risk premiums between different loans (to different borrowers) do not change, then lowering the interest-rate on a risk-free loan will lower the interest-rate on risky loans by the same amount. You can think of different interest rates, associated with different levels of risk, as being “stacked” on top of each other. The idea behind Fed policy is that, by lowering the interest rate on the bottom of the “stack,” the interest rates above it will also come down. In real life, the “spreads” between interest rates may increase, especially during a crisis, when investors are desperately looking for safe places to park their money. So the interest rates on top of the stack may not come down as much as the interest rate on the bottom.

            • chemrock says:

              Karl there are some factual errors in the description above. I don’t know the author and how authoritative he is.

              • karlgarcia says:

                Thank you for pointing that out and I would no longer disturb you by asking for specifics if there are plenty, but maybe I could ask for 1 glaring error and I would appreciate that very much.

                I just thought some jibed with your May 14 6:20 pm

                Like Fed buys from the secondary market.
                And your explanation about interest rates.

              • chemrock says:

                Karl, no problem

                QE is an expansionary policy whereby the purchase of govt securities increases money supply into the banking system . The objective of injecting liquidity into the market is to influence interest rate to go down.

                Text above describes it the other way. That Fed’s purchase of securities force bond prices to rise and when bond prices rise, interest rates fall. It’s the other way round. Interest rate movement influence bond prices, not bond prices influence rates.

                Generally, of course supply and demand affects prices. But in a given day, bond trading volume is very high. The Fed’s QE operations alone is not large enough to crowd out the market and thus affect prices. It is not like in some small stock exchanges, some big corporation can corner the market and control prices. And that is the reason why for capital markets to be efficient, we need liquidity. That is only achieved when the pool of players is very large and comprise of long and short term investors, day traders and speculators. Thus Wall Streeters play a very important role. Liquidity in the market means there are always makers and takers. So it is not easy to control prices. So the notion that Fed’s QE forces price of bonds up is wrong. Bond prices go up because the market sentiment is interest rates are coming down.

                Not to forget also that there are other forces pushing interest down, if that is the intention of Fed. Eg the Targeted Fed Funds Rate that sets the tone for interbank overnight rates.

              • karlgarcia says:

                Thanks, I will chew on it and digest it.

              • karlgarcia says:

                Please explain to me the rejection of all bids for example a 90 day T Bill priced at 100, 000.

                The way I understand it us that the banks or the bidders are asking for a very high rate?

                What happens next?
                What form of negotiations happens to have a win-win.

              • karlgarcia says:

                Do you mean this is entirely wrong?
                “The main way that the Fed influences interest rates is by buying and selling government bonds. It decides whether to increase or decrease interest rates depending on whether it aims to pump up or rein in overall demand for goods and services. When Fed policymakers decide that they want to raise interest rates, the Fed sells government bonds. This sale reduces the price of bonds and raises the interest rate on these bonds. (We can also think of this as the Fed reducing the money supply. This makes money less plentiful and drives up the price of borrowing.) When Fed policymakers decide they want to lower interest rates, the Fed buys government bonds. This purchase increases the price of bonds and lowers the interest rate on these bonds. (We can think of this as the Fed increasing the money supply, which makes money more plentiful and drives down the price of borrowing.)”

              • karlgarcia says:

                Purchases Affect Bond Prices
                When the Federal Reserve buys bonds through open market operations, the Fed is increasing the demand for bonds. If an individual buys bonds, it is not enough to move prices up in the market. However, the Fed may spend hundreds of billions of dollars buying bonds through OMOs. The result of the Fed’s open market purchases is an increase in demand that is large enough to raise bond prices. Existing bondholders wanted those bonds for various reasons, so the Fed must offer them higher prices to convince them to sell.

                How Buying Bonds Affects Interest Rates
                When the Federal Reserve buys bonds, bond prices go up, which in turn reduces interest rates. The direct effect of a bond price increase on interest rates is easiest to see. If a $100 bond pays $5 per year in interest, then the interest rate on that bond is 5% per year. If the bond price goes up to $125, then $5 per year in interest is only a 4% interest rate.

              • chemrock says:

                “Please explain to me the rejection of all bids for example a 90 day T Bill priced at 100, 000. The way I understand it us that the banks or the bidders are asking for a very high rate? What happens next? What form of negotiations happens to have a win-win.”

                You got it wrong Karl.

                For bonds, the price and rates is an inverse way of looking at the returns. Tbills is an IOU that carries no interest rates. It has a face value, which is what the investor will receive on maturity of the Tbill. It can be $1,000, $10,000 or whatever.

                Tbills are sold on a discounted basis. Some simple mathematics here to get you on board.

                The par value of the Tbill is always 100.

                So if you price it at par, means the price is 100. It means that you are buying a Tbill at its face value. If you pay $1,000 for a $1,000 Tbill, your yield is zero. You earn nothing. If you price it lower, say 95, means you will pay $950 for a $1,000 Tbill, so your yield is $5. How much is that yield in % terms, you have to annualise it according to the term of the Tbill. From this you can see, the lower the price, the higher the yield, or interest rate.

                So your price of 100 means you are asking for the max price and zero rate.

                If you price it at 100, why should the Treasury reject your bid. The higher the price, the more Treasury will collect in the auction. They want to have more buyers quoting a higher price.

                Let’s say the price for a 91 day $10,000 Tbill is 95.

                Yield = ((par value-price/par)/price) x 100
                = ((100-95)/100)) x 100
                = 5.0% This known as the discount yield

                In order for you to compare the rates with other investments, you need to annualise it.

                Interest rate = (360/days to maturity) x yield
                = (360/91) x 5.0%
                = 19,78% p.a.this is known as the investment yield

                (In annualising rates, note that US$ is computed on 360 days basis).

                There is no negotiation in an auction. For Treasury auction there are 2 types of bids.
                -Competitive bids — Treasury selects based from the highest prices down up a cut-off price. Those below that are rejected. The cut-off price is the auction price.
                -Non-competitive bids — Bidders are committed to whatever is the cut-off price.

              • karlgarcia says:

                Again many thanks.

                I just keep on reading this headlines


              • chemrock says:

                Do you mean this is entirely wrong?
                “The main way that the Fed influences interest rates is by buying and selling government bonds.
                Purchases Affect Bond Prices ………
                How Buying Bonds Affects Interest Rates ………

                Karl, the answer to the questions you raised in these 2 comments:

                The answer is partly right, but the whole idea behind it is wrong.

                To booster the economy, one way is to lower interest rates, and one way to do that is pump more liquidity into the market ie increase money supply. This is done through open market operations where Fed buys govt securities, now termed QE. It pays sellers by simply ‘keystroke’ credits into bank reserve accounts with the Fed. More money in the market has a downward pressure on interest rates, thus spuring business activities and employment.

                This part of the text you copied is correct.

                Talking about bond prices in isolation — yes bond price and it’s yield or rate, moves inversely (because they are transacted on discount basis). Price goes up, it’s yield goes down, and vice versa…. This part is also correct.

                What is wrong is the part that that says Fed buys securities and because of the increased demand, pushes the price of bonds UP, higher bond prices pushes interest rates DOWN.

                I know, in normal economics, price is a function of supply and demand. Demand for bonds goes up, prices goes up. That’s where the writer of that text says. And that’s where you are thinking. And I don’t blame you, It’s a logical thing.

                I told you, that’s the reverse way of looking at it. It’s not a case of bond prices affecting interest rates, it’s interest rates affecting bond prices.

                Let me explain it this way:

                1. Unlike other asset markets where you are investing in something intrinsic, when you invest in a bond, you are basically lending out money on which you want to earn some interest. So the basis for your pricing is interest rates (of course there are credit issues when it comes to corporate bonds, that’s where credit ratings come in. But for govt securities, its considered risk free).

                2. The buyer/seller determines what is a fair interest rates for the duration of the loan (date to maturity of the bonds). On what basis does he imput? Remember the yield curve that I wrote about? They will also take into consideration their sentiments of where interest rates are headed.

                3. The bond market is not like the stock exchange. There is no central place of trading. Players buy/sell through dealers. The Fed would be dealing through an investment banker.

                4. Both would-be sellers and buyers will not know who the counter party is. .
                5. There are market makers. These guys will quote 2 ways buy and sell so you do not know whether he is actually on the buying or selling side. But because he is a market maker, even though he wants to buy, but you click him for a sell, he will sell at the price he quoted.

                6. As I mentioned, the market is so big even the Fed cannot influence the price. So the rules of supply-demand affecting price is not valid. Even with QE, the Fed’s open market operations cannot crowd out the market.

                7. The Fed open market operation is monetary policy driven, they are not in it for profit & losses. They are not in it to drive bond prices up so that can profit.

                8, If buying up in the market the Fed can up prices and lower interest rates, then their job will be so simple, and inflation algorithm a piece of cake. Just go in today and do some buying and tomorrow, we have the rates where we wanted it. Dream on.

                9. Let’s say market sentiment for interest rates is x%. So when Fed buys (according to that writer) interest rates will go down to x-1% because bond prices are increasing due to Fed’s purchases. Then the next day, Fed’s purchases is over. No more the big demand in the market. But market sentiment remains at x%. Will other bond purchases be so dumb to buy at the height of low x-1% interest rate? If Fed buys in a frenzy, then yes there may be a temporary impact of supply-demand law. But Fed’s purchase is a programme, well spread out over a period.

                10. Now most importantly, the impact on liquidity comes not directly from Fed’s purchases. The impact comes from fractional banking caused by the money that Fed released into the market from QE. Fractional banking increased the money significantly to impact interest rates. But it takes some time. How long? I have no idea, but the think the Fed’s algorithm probably has an answer.

                So as you can see, the downward pressure on interest rates comes from fractional banking and several months after the Fed’s purchase of securities.

                The author looked at the cause and effect incorrectly.

              • chemrock says:

                Karl, if I may add to my above response:

                That’s the difference between understanding theory, and being the guy on the ground.
                Don’t mean to be presumptious, but I think that’s a good illustration.

                Everything in the book says the writer is correct. So he can be right, and yet he is wrong.

              • karlgarcia says:

                Thank you for your patience even to some “dense” questions.

              • chemrock says:

                Walang anuman.

  2. karlgarcia says:

    Now a link on MMT if you allow.


    The irony of it is: that a government can, in part, pay its bills with the printing press, but this works best when the government acts as if it cannot; for once a government goes too far down this road, the government soon finds that confidence in the currency or the government’s bonds has fallen so far that it can no longer use printing-press finance without disastrous and immediate consequences. In short: it is best if you act as if you can’t, even when you can.

    Historically, beginning with the Bank of England in 1694, central banks were private, for-profit institutions. By the end of the nineteenth century, this model had spread over much of the world. Printing money, as you might imagine, turned out to be very profitable. But, in time people complained about this arrangement. During the twentieth century, central banks spread still further, but they officially took on a more public aspect, in which the interest income on their holdings of government bonds were remitted to governments. The Bank of England was officially nationalized in 1946. The Federal Reserve remains a privately-owned entity, but it officially remits its income to the Treasury. I often wonder if this is really true. Since the Federal Reserve doesn’t seem to want to be audited, I guess we will just have to take their word for it.

    Recently, the Federal Reserve held U.S. Treasury securities amounting to about $2.2 trillion. The interest income from this is remitted back to the Treasury. (In 2017 it was $80 billion, more than any other private company.) The Treasury pays the Fed, and the Fed gives the money back to the Treasury. It is as if the Treasury paid nothing at all. In effect, the interest rate on these bonds is zero. If you issue a bond, and never pay either interest or principal (the bonds are typically rolled into new bonds upon maturity), then it is as if you made them disappear. The Treasury has, over the course of decades, managed to make $2.2 trillion of bonds disappear. This is functionally similar to if the Treasury simply ordered up $2.2 trillion in the form of $100 bills on forklift pallets, and used them pay bills.

    So we see that “printing press finance” has been going on for a long time, and at a relatively large scale. The reason that this works is because the Treasury doesn’t get to decide how many bonds the Federal Reserve buys, or, in crude terms, how much “money is printed.” Since the answer might be “zero”–and in recent months it has actually been negative: the Federal Reserve has been reducing its government bond holdings, in effect “unprinting” the money–the Treasury has to act as if it did not have this advantage. The Treasury never gets to say: “we want to fund this program so print us some money,” even though effectively the money is often printed and the program funded.

    (Read more by clicking on the link)

    • chemrock says:


      Funny article that you link. The title makes MMTers applaud. The ending says the same thing as all doubters.

      He also talked of devaluation of the Roman denarii which is a non-fiat currency. It’s debasement when the intrinsic value of the metal of the coin, in this case, silver, gets less and less.

      • karlgarcia says:

        Things I do not buy until enlightened.
        Taxes are only necessary to temper inflation.
        But if printing money will cause inflation then does that mean it is always necessary?

        Micha can correct me of course.
        She said taxes and debt do not fund spending.

        To make it applicable in PH
        Congress must use its power of the purse and fund public spending.
        Convert all foreign debt to local currency.

        Moon shots or star shots even but somehow doable if there’s a will there is a way.

    • chemrock says:

      “The Treasury has, over the course of decades, managed to make $2.2 trillion of bonds disappear.”

      Karl it is precisely this kind of general fancy comment without details that feed conspiracy thoughts. People are to lazy to learn the details (I took the trouble to write this long primer, but I’m well aware that few will actually bother to read). When one gets into the details, one understands this idea of making money disappear is hogwash.

      The details I have actually explained in some blogs previously, down to the debits and credits. But one word in this current blog tells you the $2.2T bonds never disappeared. The word is ‘rolled-over’. New bonds are issued and sold, money deposited to the TGA account, which is used to pay off maturing bonds.

      One of my purpose for this blog is to dispel general swiping comments like this.

      • karlgarcia says:

        I hope I am wrong that Micha will no show here and remind you about this sometime in the future.
        Happy to be wrong.

      • karlgarcia says:

        The previous sentence made mention of the roll-over.
        Unfortunately they still used disappear.

        I am sorry that Micha is not around to offer counter arguments and all you get is moi.

        • chemrock says:

          Nothing wrong to counter, Karl, or your ‘moi”.
          We are all learning and sharing.
          My problem with Micha is she does not want to go into details where answers are found.

      • karlgarcia says:

        Sorry for forgetting about Chempo’s law # 2

        Chempo’s Law #2: Every currency that has been created into existence remains in the system, it never goes away. (We’re talking of electronic currency here, tokens do get burnt or lost.)

  3. “Without actually understanding all the MMT theories, and you have to choose, would you trust the politicians to handle the intricate task of fine-tuning the monetary aggregates for a $23T economy, or would you prefer non-partisan, seasoned technocrats to run the show?”


    Will these non-partisan seasoned technocrats MMT’ers (off all shades), or same old same old system technocrats?

    Thanks, great read. I’m youtubing a bunch of stuff from your article and will hopefully return with more questions for clarification, chemp. Will also await Micha’s defense.

    The quote that i’m pondering vis a vis your article is this,

    • technocrats *be MMT’ers

    • NHerrera says:

      My idol Albert Einstein stated what seems like coming from a modern man of wisdom in this Pandemic. A timeless piece. Goes hand-in-glove with another one from him: imagination is more important than knowledge.

    • chemrock says:


      “New manner of thinking ” is not exactly like Nike’s “just do it” which is the MMter’s line/

      • chemp,

        it’s theory and application. MMT is the new manner of thinking and just do it, is just that. Implement it already.

        COVID19 not only exposed our flawed medical system, health for profit, it exposed other jobs as none essential as well, like teachers and strippers. Schools and strip clubs at least until August must remain closed.

        This pandemic also exposed the old financial system, this Jekyll Island system from 1910, has been rendered obsolete as well. think about it , chemp, Monetizing Debt is the basis of wealth creation in this system. it was exposed in the Subprime Crisis as inherently dangerous , slaps on the wrists all around, and for the financial sector this is still the main means of wealth creation.

        It’s a Ponzi scheme, chemp. fast forward to COVID19, when revenue is shot, what does Wall Street do? attempts to keep their con going. the Jekyll Island group sure may have been responsible bankers, but now that the genie’s out toss the jewel as well,

        This whole notion of Monetizing Debt is essentially about duping people , retirees, businesses, even unsuspecting 3rd world countries, time to cut our losses, chemp.

        That way of doing business is not sustainable , chemp.

        I’m sure as a responsible banker you’d agree, but let me stir yours and Micha argument to some thing more practical now, a few blogs back you opined that you’re now open to MMT these days,

        these days I’m assuming due to possible ramifications of COVID19 pandemic down turn.

        Let’s say, we’re tossing the whole Jekyll Island system, for MMT, my question is as a responsible banker, will it work and how can we make it better?

        To me it’s all magic , chemp, MMT and Debt Monetization , create something from nothing, MMT is more obvious print money while Monetizing Debt is wrapped with accounting talk, but in the end both processes is magic.

        MMT is a better form of magic because it gives money to people, what happens after that i dunno, inflation wealth creation who knows; but I do know that this Debt Monetizing is full of trickery & deceit, if I had to poo pooh one system over the other it’d be the old system, chemp.

        Let’s talk now how we can make MMT work. And render Debt Monetization obsolete. Bye-bye. How can we make MMT work, chemp?

        Money is printed, given out to people, now what?

        • Interesting question. How to fit the ideal of endless money into the pragmatic and heavily used banking system. Just print the money, give it to banks and have them hand it out to. . . to . . . to whom, exactly, and why? Just reverse taxes and have government pay citizens based on . . on . . on their looks? Fly helicopters over the city and dish it out? What will profits and costs mean, when it’s all free?

          • I have a feeling that when you built discipline back into the system, it would look and work a lot like what is done now.

            • chemrock says:

              MMTers seem to say with MMT, whatever that is, there will be no sinners.

              • Joe,

                My big assumption here is that due to COVID19 revenue will always be close to nil, i’m thinking people will just contract, no more big crowds, but more ‘small is better’ / ‘less is more’ thinking which isn’t conducive to the current system.

                ” Just reverse taxes and have government pay citizens based on . . on . . on their looks? “

                me, karl and Ireneo will be billionaires if this is done, Joe.

                But seriously UBI+ will just cause a more contracted market to get on going, thus rendering Wall Street obsolete. Mush of America will just be a series of Main Streets, w/out Wall Street now. or something like that , Joe. localized economy. I really don’t know, that’s why I’m paying really close attention here.

              • Things will change a lot, but I expect Wall Street will continue to be the place where corporate shares are traded and financial parties with various interests do deals.

              • LCPL_X, check out the https://en.wikipedia.org/wiki/Chiemgauer local currency.

                The idea of using local currencies to promote buy local (and thereby make supply chains more resilient, avoid transport costs and all of that) might have a future.

        • chemrock says:


          “a few blogs back you opined that you’re now open to MMT these days”

          I said I was open to talk about it, to listen to views, clarifications.

          So far, does anyone know MMT. Has anyone explained it other than one lines and out of context quote grabs?

          Explain to me how it works. Since no one has done so, I wrote a primer below. Pls go discuss there.

        • chemrock says:

          Can MMT work?
          My 2 cents worth, it can’t work. It will cause a huge gap in the Fed’s account and leads to bankruptcy of the central bank.
          See my explanation in comments below.

  4. caliphman says:

    That’s a pretty sizable economic controversy to bite on and chew on in this blog, chemrock.It begs the question as to what part of MMT theory in its many tenets and incarnations is it challenging? I myself am no authority on that and perhaps Micha can provide some answers. If it’s the view that the country like the US can just print money to fund its deficits ad infinitum, then in fact the US Congress by the lack of dispute or debate on this is issue seems to be acting out lately and in 2007 as if this was the case. To distinguish actual practice or policy from established and accepted macroeconomic theory is important in this discussion. I would tend to say that in 2007 and this pandemic crisis what the US congress did was to shelve the issue due to the need to incur huge deficits to deal with a national emergency. I believe the former or latter more academic perspective still remains to be resolved although the lack of inflationary pressures from the 2007 Treasury and Fed actions have undoubtedly provided some evidential support to MMT economists.

    • chemrock says:

      I do declare on the theory side, I’m out of depth.

      I’m only walking around the practical side of things, and it does not seem doable to me.

      The lack of inflationary pressures from the 2007 Treasury and Fed actions should not be a basis for evidential support without understanding for the price stability. In my opinion, prices were stable only in the real goods and services. The inflation were in the assets market. And that is the reason why Treasury and Fed could exit from those programmes without incurring any losses.

  5. NHerrera says:


    My understanding of the topic is less than paper thin. That said, is it reasonable to ask: if the FED is populated by the strong proponents of MMT, the FED will not be in such frenzy or panicky mode as it has recently displayed by its actions and pronouncements? In other words, would MMT have been a vaccine to a crisis almost bringing down the global financial system?

      • NHerrera says:

        karl, thanks for the feedback and the link.

        • NHerrera says:

          Seems to me the Stay-At-Homers have time in their hands to go into this topic in these coronavirus times. I note that Micha started a comment already. This seems like a prelude to the exchange between Micha and Chempo in this new topic. Stand aside and enjoy folks as we read the to-and-fro from them. 🙂

          • Haha. Stand back a safe distance!

          • chemrock says:

            Micha has an independent mind, something we can’t say of those Filipinas in that 16m side.

            I’m not against her ideas just for argument sake. It’s a status where she can’t convince me her advocacy, that’s all. Remember, I’m the guy that’s been counting money and making and receiving billions and billions of dollars for 30 years. My nose is right there on the ground. Takes a lot of convincing for new theories to be received by hardened people like me because my sense of responsibility to manage risk is in the dna.

            • Micha says:

              “Wall Street financiers and bankers are parasites in the real economy. They do not create real value – they, instead, extract wealth from the real producers of the economy. They are overhead cost.”

              “Like biological parasites, they also inject enzymes into the brain of their host to make it think it is also part of the host body. Profits (capital gains) by Wall Street bankers, mostly thru interests payments and fees, are being counted in GDP tallies when in reality it’s an overhead.”

              “That’s major part of the reason why we have great income inequality and workers who produce real goods get only scrap.” – Michael Hudson

    • chemrock says:

      “Would MMT have been a vaccine to a crisis…
      Best answered with a question — would you use a vaccine before it has gone its round of lab, animal, controlled group testing?

      “.. if the FED is populated by the strong proponents of MMT, the FED will not be in such frenzy or panicky mode…>

      I’m not quite sure there was panic. The numbers guys need some time to analyse the maths, then work out the vehicles. the rules and regulations, the congressional querries, the forms, the participants need to be taught, some systems got to be in place, the legalities, etc etc.

      I remember this very well. when I was very young, I read ad autobiography of Lee Ioccoca, the CEO of Chrysler. The car maker was headed for bankruptcy. Lee devised his plans, which included switching models and that meant hundreds of millions of $ of equiptment — moulds, assembly lines etc etc trashed and new ones in place. In those days $100m is something like maybe $10B. He had sleepless nights. Then the endless rounds of meetings with Congress. I remembered gosh, what it is like to make a decision that throws $100m into the bin!

      The magnitude of the decisions the people at Fed has to make is frightening.

      • Micha says:


        More bad news for your Fed “independence”.

        Jerome Powell, just yesterday, was begging congress to pass the second tranche of bailout bill with a warning that we could be in great depression territory if gov’t response is inadequate.

        Your Fed “independence” is like an adult child invoking “independence” while living in the basement of his parents’ home.

        • chemrock says:


          As I said, you always generalise without going into details.

          I believe Powell asked Congress for more FISCAL STIMULUS, ie more money for Treasury to dole out to the men in the streets.

          He has been careful not to advise outside his domain, ie MONETARY POLICIES. As he put it, Treasury doles out cash, which is what people needs now. He and the Fed can only give out LOANS.

          Cares Act for Treasury passed through Congress. More aids from Treasury? Please go to congress.

          All those credit programmes from FED? No need to go Congress.

          • Micha says:

            You don’t have Fed independence because it is part of the gov’t. It can only exist and act in consonance with other agencies of the whole gov’t. It cannot loan out money. It has no money to loan out. It only credits reserves. It’s the Treasury that spends those reserves into existence which then becomes injected new money.

            • chemrock says:

              It cannot loan out money. It has no money to loan out. It only credit reserves

              Apparently you never read my article, or you don’t understand my English, or you simply refuse to exercise.

              In crisis management, Fed do lend through SPV, such as TALF LLC. This lending appears in the asset side of Fed balance sheet that I purposely set out to explain in the article. When TALF LLC opens a banking account, let’s say Citibank. When TALF lends out to qualifying borrowers, it draws on this facility to put money into their Citi account so they can disburse to borrower.

              What does Fed do? You are right, Fed has no money. But it creates money. It credits Citi’s Reserve Account and debits a loan account (in this case the TALF a/c). Gosh you have forgotten your own favourite ‘keystroke’ analogy.

              In normal times, Fed has a Discount Window program. This allows Banks to borrow to fund overnight, especially to manage their reserve requirements. At close of business, banks with balances in their Reserve accounts in excess of the reserve requirements lendt out their excess overnight Iexcess funds are idle funds), banks with shortfalls borrow overnight to cover their reserve requirements (failure to meet reserve requirements suffer penalties). This is interbank overnight money market, the basis for computation of the Fed Funds Rate. At times there may be insufficient funds in the interbank overnight market, so banks borrow from the Fed through this Discount Window facility. Fed credits the banks Reserve account to cover the shortfall, and debts loan to banks a/c (in the Discount windows a/c). This is the Fed’s lender of last resort function in action.

              These are just 2 examples of Fed lending in normal and crisis times.

              I cannot present in any other way to make you understand.

              • chemrock says:

                Damn it, the html malfunction again. Sorry about the italics.

              • Micha says:

                To be honest, I’m getting sick of your banking gobbledygook in the same way I’m getting sick of all those mails I kept getting almost every day from loan sharks and shadow bankers promising the lowest APR rates for their credit cards and zero interest for the first 3 months if I sign up now.


              • chemrock says:

                It’s OK Micha, just ignore the flyers.
                Ignore my comments too if you can’t respond and explain yourself.

              • Micha says:

                Maybe it’s time to look at your dense banking shell for some cracks?

  6. Micha says:

    Bundling both crisis and the national gov’t response of 2008 and 2020 as the same is wrong.

    – in 2008, it’s the parasitic private banks which run out of cash so Bernanke, via TARP, had to bail them out by keystroking their accounts.

    – in 2020, the national gov’t is rescuing laid off workers, small businesses, hospitals, and local gov’ts. This is not your normal downturn of the business cycle.

    Why is it okey for the Fed to directly keystroke private bank accounts while going round-about for the Treasury? Conventions. Arbitrary, human devised rules that can be always be changed.

    Bottom line, the Fed can inject liquidity in both instances and those are not taxpayer money. Those are reserves from the ether. As far as the national gov’t and the Fed are concerned, taxes don’t pay for anything. This has been well-known for many years. As President Franklin D. Roosevelt said regarding Social Security (FICA) taxes,

    “With those taxes in there, no damn politician can ever scrap my social security program. Those taxes aren’t a matter of economics, they’re straight politics.”

    Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.”

    Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

    The US gov’t has no liquidity problem, period.

    All the bickering is, and has always been, induced by politics.

    Today’s federal “debt” (actually just deposits into Treasury Security accounts) is above $23 trillion. It has grown almost every year for 80 years.

    It has had no adverse effect on the economy, nor will it ever have. It’s actually a source of income for many pensioners and asset managers.

    The federal gov’t can, if it chose to, stop issuing bonds altogether and just mint the constitutionally legitimate trillion dollar coins instead of going with the charade of the Fed buying treasuries in the secondary market which, anyway, amounts to the same thing : keystroking the corresponding amount as needed.

    And that, dear chempo, notwithstanding your banking gobbledygook, is MMT.

    • chemrock says:

      Thanks for your comment, but I do hope you did indeed read the article.
      I’ll break my response into sub-threads.

      Bundling both crisis and the national gov’t response of 2008 and 2020 as the same is wrong.

      – in 2008, it’s the parasitic private banks which run out of cash so Bernanke, via TARP, had to bail them out by keystroking their accounts.
      – in 2020, the national gov’t is rescuing laid off workers, small businesses, hospitals, and local gov’ts. This is not your normal downturn of the business cycle

      The article is about what Treasury and Fed do in normal and crisis times. To the extent that crisis are different, the solutions are different. A careful reading of the article show that this was so.

      Your constant barrage on private bankers is reknown but I’m wondering if you really understood what happened in those tumultous months in 2007-2008. So let me share what I understand.

      Let me again go into details. We can’t explain something like this in 144 characters.

      Firstly, have respect that Treasury and Fed work within the constraints of relevant laws.
      – Treasury has no right to grant cash to failed institutions that end in tax payers bearing losses. Congressional approval is required.
      – Fed do not dish out cash, but extend credit facilities only, and on a fully collaterised basis. No Congressional approval required. (My point in above thread that your comment on Powell “begging Congress” is totally out of context)

      Secondly, you need to understand in the business of lending, there is a world of difference between SOLVENCY and LIQUIDITY. A company having solvency issues is one that cannot meet short and long term obligations. A company having liquidity issues is one struggling with short term obligations but it has long term viability.

      Let me go through what happended with Lehmah Bros, Bear Sterns and AIG back in 2007/2008. At the end of this, I hope readers will be convinced once and for all, this talk of parasitic bankers and Fed or Treasury bailing out fatcats are totally misplaced.

      What were their fundamental problems?

      These Lehmah Bros was a mutual fund company. AIG was insurance plus running a huge mutual fund. A mutual fund is a collection of investors pooling resources to invest in certain market segments. Eg if you want to invest in properties, instead of buying a condo unit, you buy a share in a Property Fund. There are lots of funds — REITS, Money market, Equities, Emerging markets, China markets, etc. All these funds hold the assets that they purchased.

      The sub-prime market crashed in 2007 (causing big problems for Fannie Mae and Freddie Mac) and the problems spilled into all other asset markets. The valuation of all those assets held by mutual funds all went south and their NAV (net asset value) tumbled. Fund shareholders panicked and big numbers of them put in their redemption requests.

      What is redemption? Shareholders who want out can file their redemption requests and the fund must pay them off. Fund managers have risk management framework that ensures they have the reserves to pay off redemption when they fall due. Just like if you bank with BDO, you walk into any BDO branch anywhere, it will always have enough cash at their counters for you.

      So in 2008 there was a run on redemption. In a run, it is impossible to pay everyone off. Just like in a bank-run, no banks can have the money to pay off their all their depositors at the same time. In the covid-19 pandemic, every country had a mask-run. All governments had stockpile of mask for emergencies, but none has enough for a whole population at the same time.

      Redemption run caused a liquidity crunch. At the same time, asset valuation continued to dive which eventually wipe out capital. Bankruptcy looms. And who are the investors in mutual funds? People from all walks of life – teachers, white & blue collar workers, businessmen, executives, govt employees. Fat cats? Just ordinary folks.

      Bear Sterns was an investment bank. It was the securities trading arm that was the problem. They bet the subprime market the wrong way. This kind of business was leveraged up to the neck. And worst still, they funded primarily from the repo market which are extremely short term funds. When subprime mortgage turned toxic towards end of 2006 their repo windows were shut and the cash crunch started.

      Was Bear Sterns scumbs of societies, milking the public? It was some people running a business but making some bad strategies. Actually those strategies were profitable for decades, until a systemic market collapse came along. Contrary to what you may think, these people has a useful function in the economy. They are the speculators which are needed to provide liquidity in any market be it commodities, oil, mutual funds, etc.

      Early 2007 the 3 companies sought the help of Treasury and Fed. Lehmah Bros was insolvent by then. Their asset values depreciated to a level it cannot cover liabilities. Lehmah filed for bankruptcy. However, Barclays Bank UK had wanted to buy out Lehmah Bros and was waiting for shareholder approval. They wanted Treasury guarantee pending shareholder meeting. Treasury was unable to provide that and the deal fell through. Certain quarters blamed Treasury for the collapse of Lehmah for not providing the temporary guarantee. The law constraints Treasury’s action to only provide funding where losses can be fully covered by shareholders, tax payers cannot foot the losses. It had became impossible for Treasury to offer assistance because Lehmah was already bankrupt.

      Stearns and AIG were solvent but faced immediate cash crunch. Their net assets were positive. So Fed was able to arrange credit facilities to support them, and some other troubled institutions.

      JP Morgan bought over Stearns in a fire sale, valuing the shares at $2 a piece. JPM bought Stearns for $246m. In order for JPM to rescue Stearns, Fed provided $30B credit facility for JPM, fully collaterised with Stearns’ assets. Fed had valued the assets at $31B and JPM had guaranteed to foot the first $1B asset losses. So the Fed had $2B safety net which they felt was sufficient. And nobody knows how much JPM actually tapped into the $30B facility. It could be just $1B, it could be the full $30B.

      The Fed set up the TALP (Term Asset-backed secirities Loan Facility) to fund the Special Purpose Vehicle called TALP LLC. Funds drawn on this facility were fully secured by assets of the mutual funds. These were all assets-backed securities.

      Treasury provided guarantees through TARP programme. To do this, Treasury tapped the ESF (Exchange Stabilisation Fund). What the heck is this? This fund was set up under the Gold Reserve Act of 1934. It allowed Treasury to intervene in the global exchange market in crisis situation. This is basically to assist foreign banks and central banks. Treasury can exchange this fund from Fed to cough out money from their reserves. Why is this important for Treasury? Because invoking the use of the ESF does no require Congress approval. So Treasury can act fast in a crisis. Market intervention is Fed territory, but in 2008, Treasury acted as the moment required.

      By 2014, the special purpose vehicle 2014 had disposed all the collaterised assets and closed shope. When all the dust was settled, TALP LLC returned net gains of about $750M to Treasury and Fed.

      In the aftermath of the subprime crisis, the Frank-Dobb Act was passed. One of the reforms now allows Treasury to support insolvent institutions provided that if there were losses, it must first be suffered by shareholders before tax payers.

      There were other more or less similar programs for other sectors, such as Money Market Mutual Funds. These 3 biggies just serve to illustrate my point. In reality, Bernake and Treasury Sec Paulson acted with great prudence and sharp financial acumen, with due care not to burden tax payers. Finance people distinguish between insolvency and liquidity problems. In the words of blog editor J.A., there was financial sophistication in handling what seemed an impossible situation. I would describe it as financial finesse..

      By the way, did I mention Bear Stearns CEO Schwarz had to exit for the JPM deal to go through.

      To therefore describe the situation of 2008 as “parasitic private banks which run out of cash” is totally misplaced and no Washington executives sold their ‘independence’ to Wall Street mafia.

      • chemrock says:

        Sorry, my attempt to italicise Mircha’s comment did’nt work.

        Bundling….business cycle” html did’nt work

      • Thank you, Chemrock. Best explanation of the crisis that I’ve ever read. I agree that ‘ad hominem’ arguments applied to complex institutions in complex settings confuse the issue. They do not provide any clarity or knowledge.

      • Micha says:


        Re-running the disaster capitalism of 2008 caused by unregulated banking casinos in Wall Street does not refute the fact that they all fall back on the resources of our national gov’t for support and rescue.

        What might be financial finesse to you is actually financial parasitism to the whole economy.

        • chemrock says:


          I have heard ‘casino’ applied a thousand times.

          Perhaps you can explain to us that analogy as it applied to the 2008 crisis? As detailed as you can so I can understand your views properly.

          Because casino means different things to different people. Some casinos have social responsibiltiy programmes that support some school kids, some folks need the jobs there be it a driver, a croupier, or the damn accountant. The city needs the taxes or licence fees to help fund services. The tourist dollars are ok too. Macau city survives solely on the casinos, it’s run by a local mayor (not CCP) and he never has a budget deficit, he has profit sharing for the people of Macau.

          “And they all fall back on the resources of national govt for support”
          — the beginning of my article states the national mission of Treasury and Fed.

          “What might be financial finesse to you is actually financial parasitism to the whole economy.”
          Well if folks who invest in mututal funds are parasites, then hey, you are spot on.

          • Micha says:

            Casinos = house always wins.

            Parasitic financiers/bankers gambled and took irresponsible risks because no matter what, they know they will win. Even if the subprime loans and the alphabet soup of CDO’s, MBS, CLO’s, etc. they invented crashed, and did, spectacularly, they still are gonna win. Uncle Sam to the rescue. Clear?

            • chemrock says:

              But everybody who walks into a casino knows the chances are stacked against them, right?
              They also know the meals and the drinks and the rooms are free. I heard sometimes the women also.

              That means a smart competitor who opens a casino where the stacks are against the house will surely have fantastic business, right. Why did’nt anybody think of that.

              • Micha says:

                The economy is not a casino. You should not operate your economy like a casino. Because there are actually honest hardworking people out there making a living producing useful stuff, in case you don’t know.

            • chemrock says:

              Very true Micha.
              I don’t see Treasury and the Fed run any casinos.

          • Haha! I’m a parasite and have made good money on my growth and tech funds, not so much on international, and a little on income. I’m a diversified parasite, I suppose. The companies whose stock I own love me back. There are probably govt bonds in there somewhere, but I leave the details to more accomplished risk managers, or parasite herders. The companies use my money to make products that their customers love. Customers are so pleased they pay more than the product costs so the company can make a profit. It’s a very good relationship for everyone. None of us understands MMT, or cares to.

            • Well, many of the risk managers understand, I suppose. But they are watching different indicators.

            • Micha says:

              Stock market is a corrupted system. It’s been propped up by share buybacks using debt money.

              The corruption of the entire capitalist system is one of the main reason why we have Trump and Duterte holding court today.

              Enjoy what you have gained from this corrupt and predatory system. It’s not entirely your fault of course. You’re just a bit player. But this parasitic way of doing things is not gonna last. The whole thing is unstable.

              • Share buybacks have increased the value of some of my stocks. They are a legitimate investment for companies that believe their shares are under-valued. Why invest in something that might not return as much, or why keep cash that is not doing any work. Sure, there are all kinds of one-off exceptions or abuse such as insider trading. But the concept of dividing ownership lets more people into ownership, whether for the spills and chills or the earnings. You prefer barter? Or what system to build product, technological innovation, and wealth? You want to sit at home watching the stars while government prints money and sends you some? I’m with Chemrock on this. Markets are fun, dynamic, productive, and open to anyone with a little cash to put at risk. US markets have made America productive and rich. The system could do better at equalizing the distribution of wealth. But until you explain how the practicalities work, you are in the cosmos and we are on the ground.

              • Micha says:

                Stock market is not the economy, Joe. Only folks like you with moolahs to spare can play the game. Millions of Americans don’t.

                I’ll repeat myself, enjoy the gains you have had playing it because it’s not gonna last. The system is bound to crash.

                US markets have made America productive and rich until it couldn’t. The idea of infinite profitability and growth on a finite planet is madness. At some point we have to come to that realization and devise a system for a more sustainable habitat otherwise we’re heading towards dystopia.

                If that’s the ground you’d be comfortable walking on, fine.

                Lots of folks think this is a good time to invest on a handful of self-loading, magazine feed automatic rifle.

              • chemrock says:

                On share buy-back:
                There are pros and cons. But I believe it is wrong for a company to take on debt (just because it is cheap) to buy-back shares UNLESS they are retired, so the benefits go to all shareholders. It is wrong if it is used for executive benefits. That’s why some regimes do not permit share buy-back funded by debt.

                @ Micha — “The idea of infinite profitability and growth on a finite planet is madness” Fancy you talking about “finite” and champion the infinity of MMT $.

                On your developing a system for sustainable habitat — I do agree with you. But I don’t it is necessary to go about wiping out Wall Street..

              • I agree with Micha here , Joe… how many in the Philippines could afford to play in Wall Street even E-trade, with just $1,000 bucks, not many i’m sure.

                Goes back to all this Debt Monetizing magic by simply keeping the ruse going, yes it creates money from thin air, but post-COVID19 world, is that gonna be sustainable? i think not.

                You’re not public sector, but gov’t employees will be the first to go, none essential first, then essentials, then first responders, no money anymore, that means all these big pension plans plugged into the very stock market you love, will also take a hit.

                Sure maybe your stock market can help it afloat, but if the worst case scenario happens, i gotta feeling you’ll be stuck in the Philippines, probably having to teach English to Koreans, but i doubt Koreans too will remain in Mactan island.

                So you’ll take your chances back here instead (that’s if you can get a plane ride back), but at such age what will you do?

                That’s the worst case scenario i’m envisioning, and since the Jekyll Island stuff is already standing on shaky ground, i’d rather take my chances with UBI+ first (plus meaning something other than just handing out checks, meaning expand this concept), then all of MMT.

                I don’t think everyone’s picturing worst case scenario yet, here’s a good article, people are taking money out of Wall Street already, https://www.nytimes.com/2020/05/10/business/401k-rollover-faq.html

                “Tens of millions of Americans have lost their jobs as the coronavirus ravages the economy, bringing the unemployment rate to a Great Depression-level 14.7 percent — and many are looking for emergency lifelines to meet living expenses.

                Retirement accounts will be a tempting option. Last year, about 63 million households had defined contribution plan accounts, and 46.4 million households owned I.R.A.s, according to the Investment Company Institute.

                The CARES Act signed into law in March provides flexible hardship withdrawal options for 401(k) and individual retirement accounts. But people who have lost their jobs and don’t need to tap their retirement account early still have a decision to make: Leave the savings in the former employer’s plan, or roll them over to an I.R.A. In the event that a former employer goes out of business and terminates the plan, your choice is a rollover or taking a direct distribution. The best choice will depend on a number of factors.”

              • I’m not “stuck in the Philippines”. I’ve chosen to live here. I’m a middle income American with a pension. Not a fat cat. Not a parasite. Just a guy trying to live a family life that is good for all in the family. If worst case develops, junior will learn to climb coconut trees and we’ll plant the yard, get some chickens, and I’ll return to my roots. So don’t worry about us. You just deal with the civil war in America as the haves and have nots take America apart with all the guns y’all have been gathering over the years.

              • I agree coconuts are healthy and ubiquitous. Sounds like a good plan, Joe. But my point is start thinking worst case scenarios.

                (i’ve always prefered the initial milky colour prior to them adding the reddish hue from another bark of a tree, i’ll imagine you up in that tree making palm wine, Joe 😉 )

              • The wine is called ‘tuba’ in my area. My father-in-law used to peddle the stuff, so he has contacts and I don’t have to climb the trees. I do have to buy the coke mixer he likes though.

      • karlgarcia says:

        👍 Thanks.

    • chemrock says:

      Micha: “Today’s federal “debt” (actually just deposits into Treasury Security accounts) is above $23 trillion. It has grown almost every year for 80 years.
      It has had no adverse effect on the economy, nor will it ever have. It’s actually a source of income for many pensioners and asset managers.”

      What do you mean By ‘just deposits into Treasury Security accounts’?
      I assume you mean the Treasury Security account in the Fed’s book, the one Government Securities account shown in the abridged balance sheet in the article.

      You are correct in that respect. The Fed bought them bonds in the open market, paid for them by ‘keystroke’ money into Bank Reserve account and debit the asset bought in Treasury Security account.

      But for the life of me, why do you always tell only one side of the story?

      Treasury issues bonds which are sold in the Primary market by auction. These bonds are purchased by all sorts of investors – pension funds, mutual funds, US local governments, overseas businesses, MNCs, foreign central banks etc. I’m sure Bangko Sentral has a sizeable portion of their $ reserves in US Treasury bonds.

      So the Treasury Security account in the Fed’s books is only a tiny fraction of outstanding treasury bonds. Of the $23T, only a tiny fraction is held by Fed. The Bank of Japan is one of the biggest holders today, much more than China.


      Micha: ” It has grown almost every year for 80 years”

      Due to persistent deficit budgets.
      It is not due to MMT because there is no MMT. Budget deficits are funded by bonds which are IOUs, in other words, debts.


      Micha : “It has had no adverse effect on the economy, nor will it ever have.”

      The verdict is still out there.
      Debts have to be repaid. You utang, you pay up, one way or another.

      As long as confidence in the $ remains, we can all live happily under the status quo. There are 2 things to watch out for going forward. China’s growth in the last 40 years have sucked out a vast amount of $ inflation with huge demand for the currency in their growth phase. Their economy has peaked and thus don’t expect this foreign vacuum to suck up the same amount of $. If oil prices don’t return to the $100 per barrel level, you loose another vacuum to suck up excessive $.

      • Micha says:

        LOL..Your debt is not MMT simplification is truly laughable. That means you don’t actually bother to understand what MMT had been saying all these years. Let me recap it for you. A sovereign government’s decision to issue bonds is a policy option and that debt denominated in the same currency that the sovereign is a monopoly issuer does not matter – the sovereign cannot ever face the prospect of default or insolvency. Clear?

    • chemrock says:

      Micha: “The federal gov’t can, if it chose to, stop issuing bonds altogether and just mint the constitutionally legitimate trillion dollar coins instead of going with the charade of the Fed buying treasuries in the secondary market which, anyway, amounts to the same thing : keystroking the corresponding amount as needed.”

      To finance deficit budget, instead of borrowing by bonds, Treasury can mint currency — that’s your point. Technically, of course that can be done. Why is it not done? For 2 reasons:

      – Firstly, that is money creation. Issuing bonds is debt.
      – Secondly, Let’s talk juvenile — can you contemplate $4T worth of currency notes and coins? The printing cost, the shipping cost, the insurance cost, the storage cost, the replacement cost?

      – “.. the charade of the Fed buying treasuries in the secondary market which, anyway, amounts to the same thing : keystroking the corresponding amount as needed.”

      So the Fed ‘keystroke’ the amount as needed by Treasury, is that what you are saying?
      If that is your point, then you are simply refusing to understand the mechanics of ‘keystroke’ I took pains to clarify in the article.

      The Fed ‘keystroke’ money to Banks reserve account when it buys the bonds. Yes it creates money. But it does so not because the Treasury needs the money, it does so because it is an open market operation, QE, putting liquidity into the economy. In any case, the money thus created goes to the bank for account of their customer, the seller of the bonds, it did’nt go to Treasury.

  7. Micha says:

    “In it’s essence, MMT transfers monetary policy making to the Treasury. It throws to the trash bin the jewel in the capitalist open economy, the independence of the Fed.”

    The Fed, dear chempo, is an agency of the federal gov’t. It works for the agenda and vision of the federal gov’t.

    Your capitalist open economy no longer exist. What we already have is Wall Street socialism. The financialization of the US economy is being carried out by the banking parasites. Where have you been all this time?

    • Ancient Mariner says:


    • chemrock says:

      Trump says he can fire Fed’s Powell; it’s not that simple

      “The Federal Reserve Act says a president can only remove a Fed chair “for cause.” Historically the courts have not interpreted that to include policy differences.”

      “I think the law is clear that I have a four-year term, and I fully intend to serve it,” Powell said after the Fed’s June policy-setting meeting.


      It cannot be any clearer.

      What is wall street socialism?

      • Micha says:

        The Fed’s existence is contingent on Congress’ power to make laws. If there are enough legislators agreeing to revoke or reform the scope of Fed’s function, they can definitely do so. Stripping away the vested interest of private banking cartel on it would be a good start.

        “What is wall street socialism?”

        If Wall Street banking casinos were not bailed out none of them would no longer exist today. Your free market principles no longer hold sway in that section of Manhattan. It’s socialism for Wall Street, capitalism for Main Street.


        • chemrock says:

          I agree Congress’ power to pass laws. They hold the ultimate card. Meanwhile, Powell has his way.

          There you go about bailing out and Wall Street again.

          There was no bailing out, just credit facilities to asisst in a liqudity crunch, not propping up insolvent companies. It was a systemic crash, not assisting one will cause a domino event. Do you know how many institutions needed assist?

          There were many assistance programmes, one for each sector. Just the Capital Purchase Program of Treasury alone — 747 institutions. Here’s a link to the list

          When all the assistance programmes are accounted for, who knows how many thousands of institutions were in jeopardy?
          Should we let them fail, kill jobs, and let these thousands fail which then in turn knock off others not in the lists?

          And you keep barking up the wrong tree at Wall Street.

          Who was the actual villian? Do you know?

          Ground zero was Fannie Mae and Freddie Mac. And here the story is very familiar. It’s about POLICY DISTORTION in the previous blog.

          The culprit is the Washington political elites. The HUD policies during the Clinton admin that allowed the GSEs Fannie Mae and Freddie Mac to take on the lowest segment of the public that don’t qualify for housing loans. The so called Affordable Housing Program – the seed of destruction was planted in 1997. Took 10 years to explode . So the 2 GSEs swallowed up all the toxic mortgages (the NINJA loans — No Jobs, No Income, No Assets loans). All efforts by conservatives to reign in the GSEs were blocked. Go check up the 2 GSEs’ political contribution recipients and you understand the story.

          Fannie May and Freddie Mac is ground zero. Collapse of the sub-prime market triggered the systemic melt down. Washington elites practiced policy distortion, NOT THE WALL STREET BANKERS, were to blame.

  8. karlgarcia says:


    Can governments afford the debts they are piling up to stabilise economies?
    Two experts debate the long-term impact on inflation of the Covid-19 rescue packages

    Yes — It poses no inherent danger to states that issue their own currency
    The Covid-19 pandemic has forced governments around the world to spend large sums in an effort to stabilise their economies, writes Stephanie Kelton. Gone, for now, are concerns about how to “pay for” it all. Instead we are seeing wartime levels of spending, driving deficits — and public debt — to new highs.

    No — This dangerous monetary practice ensures inflation is around the corner
    How to pay for the fathomless costs of fighting a pandemic? All the state’s expenses, whether a Green New Deal, jobs-for-all or the economic lockdowns, can be met simply by printing money. That is what modern monetary theory claims, writes Edward Chancellor.
    Adherents of this unorthodox school of economics would have us believe, like Alice in Wonderland, six impossible things before breakfast. Governments can never go bust. They don’t need to raise taxes or issue bonds to finance themselves. Borrowing creates savings. Fiscal deficits are not the problem, they are the cure. We could even pay off the national debt tomorrow.
    As theory, MMT has been rejected by mainstream economists. But as a matter of practical policy, it is already being deployed. Ever since Ben Bernanke, as governor of the US Federal Reserve, delivered his “helicopter money” speech in November 2002, the world has been moving in this direction. As president of the European Central Bank, Mario Draghi proved that even the most indebted countries need not default. Last year, the US federal deficit exceeded $1tn at a time when the Fed was acquiring Treasuries with newly printed dollars — that’s pure MMT.

    • Micha says:

      If even the Financial Times – that literary depository of capitalist oomph – has acknowledged the reality of MMT, that means only our dear chempo is still clinging to the last decaying straws of the old narrative.

    • caliphman says:

      “To distinguish actual practice or policy from established and accepted macroeconomic theory is important in this discussion. I would tend to say that in 2007 and this pandemic crisis what the US congress did was to shelve the issue due to the need to incur huge deficits to deal with a national emergency. I believe the former or latter more academic perspective still remains to be resolved although the lack of inflationary pressures from the 2007 Treasury and Fed actions have undoubtedly provided some evidential support to MMT economists.”

      I think someone posted the above comment above. That what the US Congress or Treaury/Fed did to prevent the collapse of the US economy or its financial system is neither a validation or rejection of MMT. Chempo’s narration of 2007-8 events is mainly factual given that I was at Wall Street, which was at the epicenter of that crisis. Whether any insidious intent was behind congressional or agency actions to rescue greedy bankers is rhetoric that should not advance or detract from the validity of MMT as solid macroeconomic theory to base national monetary or fiscal policies on. The jury and evidence is still out as to whether there is a limit to which ‘printing money’, unabated deficits, and gargantuan national public debt will trigger hyperinflation or continued acceptance of the US dollar as a a medium to store value, use as a medium of exchange, or as investment asset. In my opinion, rhetoric and reason pitted against each other is not a very logical or enlightened way to clarify or resolve any issue in this blog or anywhere else.

  9. NHerrera says:


    My engineer’s mind offers this analogy to the on-going conversation: Newtonian Mechanics was and still is a solid tool for the engineer. Until later proven on solid ground, Einsteinian Mechanics — valid for both low speeds and particularly valid for high speeds approaching the speed of light when NM fails — had a lot of skeptics too.

    MMT, an Einsteinian Mechanics analog? 🙂

    • sonny says:


      You read my mind (along the same lines), NH. Your Classical Mechanics (low speeds)/Quantum Mechanics (Einstein, speed of light) is true & deeper analogy.

      Since I can only handle QM basics, I resort to Computer analogy to try to understand MMT & Banking models being discussed by Chempo & Micha. So here goes.

      Our economy is a single, closed system generating information. We can follow the information flow either by Hardware (physical components/binary signals) or Software (logical components/languages). MMT model = Lang A. Banking model = Lang B. Input data (A) = Input data (B); Output data (A) = Output (B); User (A) = taxpayer, User B = shareholder; User C = vested interests/politician/obfuscator) 🙂

      • NHerrera says:

        Sonny, I like your use of QM concepts relative to the on-going exchanges between Chemrock and Micha on the [traditional] Banking Model B, and MMT Model A. Reminds me of particle-wave duality. Especially as you indicate the commonality in the Inputs and Outputs of the two models. Very interesting that you conclude with the Users [Critical Contributors/ Beneficiaries]:

        – A, the Taxpayers
        – B, the Shareholders (haha, Joe, you belong here as well as in A)
        – C, the Vested Interests, Politicians, Obfuscators.

        It seems to me Models A and B may be reconciled without great difficulties if only there is less of C, which are mainly Beneficiaries.

        • chemrock says:

          There is no Banking Model — it’s the good old fashioned Keynesian / Monetarist ideas. There is Banking systems, if you like, the engines of the those economic ideas.

          You cannot reconcile the 2. It’s not about C. It’s about good old fashioned way of living — work hard, save and invest for your future Vs neo-something way of just spend your future away.

          • NHerrera says:

            Hehe, it shows Quantum Mechanics does not easily mix with these banking/ financial discussions. Also, I may have erroneously misrepresented then extended Sonny’s thoughts in my comment above. Thanks for the note.

            • sonny says:

              NH, I think Chempo best describes the analogy of understanding economics via computer systems. It’s like “a fish trying to understand the water that it swims in” (if this is possible). 🙂 And you’re so right that the language of QM/Physics does not easily mix with “banking/financial discussions.” For example, I admit that I cannot escape thinking of liquidity & money in terms of kinetic energy nor can I disengage the analogy between real estate & other forms of wealth in terms of potential energy. Physical scientists find facility in describing physical phenomena through algebra & calculus with the same elan that Economists use repeated additions and subtractions into sophisticated T-accounts and financial instruments. Oy vey. 😦

              A note on the physics of economics: I think it is possible to use Economics and the methods/language of Physics because both use the rigorous accuracy of Mathematics as do computers. Realizing too that the actuator/user of these tools is the human brain, the intersection of all knowledge.

              There. I have managed to say my own gobbledygook. 🙂

              • You have said that exceptionally well, nailing why we practical bankers are nailed to our conventions. The theorists have not explained how things will actually work. We see gravity working, they propose magnetic levitation but don’t say where the magnets will be.

              • NHerrera says:

                The kind of gobbledygook that I like. 🙂

              • chemrock says:

                👍 👍 👍

                Thanks guy, I’ll remember that. People think in the mould they came from.

  10. chemrock says:

    Micha: ” you don’t actually bother to understand what MMT had been saying all these years. Let me recap it for you. A sovereign government’s decision to issue bonds is a policy option and that debt denominated in the same currency that the sovereign is a monopoly issuer does not matter – the sovereign cannot ever face the prospect of default or insolvency. Clear?”

    “As far as the national gov’t and the Fed are concerned, taxes don’t pay for anything. This has been well-known for many years. As President Franklin D. Roosevelt said regarding Social Security (FICA) taxes, “With those taxes in there, no damn politician can ever scrap my social security program. Those taxes aren’t a matter of economics, they’re straight politics.”

    “Alan Greenspan: “A government cannot become insolvent with respect to obligations in its own currency.”

    “Ben Bernanke: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”

    And that, dear chempo, notwithstanding your banking gobbledygook, is MMT.”


    And that about sums up Micha’s explanation for MMT.
    I wish, Micha, you can write some MMT goddledygook instead of quotes here and there and one liners.

    E = mc2.
    Now I understand that. It means Energy equals mass times the speed of light squared
    Everybody knows that.
    But let’s be frank. Does anybody really know what it’s all about? Do you understand the quantum physics in there?

    It’s the same as MMT and what you have been saying. I hear your. I know what you are saying. But I don’t understand the quantum physics behind your one lines and MMT theories.

    Since you are shying away from telling me what it is, let me describe here MMT on the practical side of things, not the theories. Tell me if I get it wrong.

    1. Tsy does not issue bonds. No need to borrow. No need tax. Simply create the money to spend. So it can never go broke.

    Means : Treasury does the fiscal policy — government spending
    Treasury does also monetary policy – create money

    2. Tsy takes care of inflation via tax. If there is too much money, impose tax to suck out the liquidity.

    Means : Tsy does the fiscal thing — taxation
    Tsy also does the monetary thing — fight inflation.

    And oh. by the way, tax is actually necessary. So that people will want to use the money created since they need it to pay taxes.

    So there Viola. US is monetary sovereign so it will never go bankrupt.
    It is unlike an individual, it can print money.
    So when the government spends, it is creating the money as it spends. It spends money into being.
    If there is inflation, tax, tax, tax. All is fine.

    That is the E=MC2 of MMT..


    Now let me illustrate with an analogy. John is a rich bum. His dad is the first trillionaire in the world. For his 18th birthday, dad gave him a credit card. He said son, the credit line is practically limitless. Just go ahead and spend. Money is free.

    So John lived it up. He did’nt know that each time he zaps his card, he is creating money into being. The money is deposited into the merchant’s bank account which triggers off fractional banking. John is spending money into being. When the card statement arrives, he does not pay. The bank is happy. It is within limits and they earn hefty interest.

    It seems like there is no debt. But he is spending his dad’s resources each time he zaps the card. As long as daddy O’s resources are there, the bank is cool. As the credit card debt build up, dad’s business associates took note. Prices they quote to him for their products went up because they saw risks. When the last trillion is zapped away, day of reckoning comes.


    What is wealth of a nation? Many say it’s GDP. No it is not. Looking at GDP is just like looking at the Income statement of the country. It’s just cashflow. To see the country’s wealth, we look at it’s balance sheet. I remember Joe tried this before in a blog some time back. A country’s wealth is it’s untapped resources — the oil or shale beneath, the minerals, the forestry, the infras and all capital producing structures, the fishes within its maritime waters, etc. Ok some may want to include intangibles, the human capital, patents, etc.. The foreign reserves the Fed is holding. So there is a notion of nation’s wealth.

    GDP is the effect of transferring from wealth into income. We spend and use resources to create GDP. So deficit spending is spending tomorrow’s wealth today. The $23T national debt represents tomorrow’s wealth. One generation spending the wealth of a future generation.

    Now with the silly current out-dated economics, Tsy spending is by debt, the issue of bonds, or IOUs. So we can point to the $23T and say you have spent away the future. Here comes MMT. There is bonds, no debt, so no $23T. Is this a ‘charade’, to use Michas word, to show you that we have not spent tomorrow’s resources today?

    As sure as the earth you stand on, resources have been spent away. But hey, there is no $20T to show. You can fool some people some of the time, but you can’t fool everybody all the time. Americans may be fooled, because the fish can’t see the water it is swimming in. But foreign countries are like the business associates of John’s dad, they know resources are depleting. So a Mcdonald’s burger may still cost $1, but it may end up costing a Japanese guy maybe 10 Yens.


    The two scenarios show the individual John is like a sovereign, and the US sovereign is like an individual.

    Do sovereigns and individuals have the same mentality. I mean, John has a blank check, so he threw caution to the wind. Are sovereigns better behaved, despite the fact they are made up of individuals. Will they just do their fiscal and monetary thing or will politics be an issue?


    Let’s come to the mechanics. The book-keeping that Micha can’t handle and throws out in exasperation.

    So I will help and let the Fed balance the books.

    After Tsy has say $4T budget approved, Fed will create the money for them . Remember Tsy uses the TGA account at the Fed NY. The Fed will ‘keystroke’.the money and credit TGA with $4T. Thus money is created. There is no issue of bonds or debt for the deficit budgets.

    For the sake of balancing the books, lets ask Fed to open an asset account called MMT account. There is no debt, so this is a meaningless suspense account.

    Now let’s watch what happens. As I indicated in the article, the Fed does the monetary policy thing by managing its balance sheet. The liabilities side impact money supply thus interest rates and inflation. Tsy $4T in the TGA is not a problem until Tsy spends it out. From then, fractional banking takes over. The Fed is no longer in control. It is the Treasury.

    Now on the asset side, with each year’s budget deficit, the debit goes into the MMT account. It is perpetually built up year after year. This is not an asset, it does’nt represent anything to the Fed. OK we know it is cumulative figure of years of deficit budgets or govt spending.

    In the case of Securities account with govt bonds, it is a reversible amount. The Fed can expand or deflat as it wishes in accordance with monetary policy. With the MMT account, it is a non-reversible sum. When this ‘asset’ MMT account is built up over time, how does it impact the balance sheet?

    The Fed’s books will simply grow bigger and bigger. The assets side will grow as the MMT account is built up. But assets always equal liabilities. The mirror built up on the liabilities is in the TGA which will funnel into Bank reserve accounts as the Treasury spends away.

    What does this mean? The liabilities side are real obligations. The assets side has a huge MMT account which is not a real asset, just a suspense account. So total assets take away the MMT account is the net asset which comprises of real assets. There is now a huge hole, because the net assets will be very small.

    The Net assets (ie real assets) will be less than liabilities.


    MMT theory — the sovereign country that prints its own currency will not go bankrupt. But the Fed goes bankrupt.


    Now I’m just a practical guy, I can’t debate theories. I can only see things from the practical side and how things will play out in reality.

    Let me quote one theory:
    ” The government should run a deficit when the desired saving of the private sector exceeds the sum of private investment expenditure and the surplus with the rest of the world.”

    Now this is real goobledygood. The reality is the government will run a deficit as long as it can get pass Congress.

    On taxation, MMT wants to suck out liquidity by raising taxes. Yeah try raising taxes at a time when inflation is hitting the people.

    I’ll welcome anyone who can point out my reasoning is wrong.

    • chemrock says:

      With apologies for the length.


    • Micha says:

      Hey chemp, no need to belabor the point. We’re going circles here with plenty of mischaracterizations. If at this point you still do not understand MMT, maybe it’s time instead to look at your dense banking wall for some cracks.

      • chemrock says:

        There you go with your one liners that explains every thing.

        So you disagree with what I wrote about MMT?
        You disagree with yourself?
        Because all that I said what MMT is, is from you.

        • Micha says:

          Hahaha, in that case I am not a good teacher. But I am not here to teach you. I am not interested in teaching you anything. It doesn’t matter.

          There’s real world out there.

          If your not sold on MMT, does it even matter?

          • chemrock says:

            What a graceful exit.

            • Micha says:

              Look chemp, I know where you’re coming from. You’re trying to defend an industry where you’ve worked for maybe your entire adult life. It’s given you a livelihood and that’s fine. I’m not interested to wring you out and force you to see things from a different perspective. What you think and what you believe does not matter because you’re not a policy maker.

              MMT proponents have been around for maybe over 20 years now. Changing paradigm takes time. Scholars have managed to convince important folks and encountered nasty resistance as well.

              Developing events such as this public health crisis have validated what MMT literature have been saying all along. A number of hedge fund managers in Wall Street have acknowledged its validity. Articles in publications like Forbes, Bloomberg, WSJ, FT, The Economist, NYT, etc. have featured favorable views.

              Continue doing what you do best. The world is not going to pause just because you’re not sold on MMT yet.

              • Micha,

                You’re not utilizing this forum properly,

                think of it as we all want to be MMT’ers, I do, chemp does, but because chemp ‘s got this background in banking he’s not just gonna jump, it’s like jumping out of a plane, chempo likes the plane, me and karl don’t like the plane anymore thus are willing to take the plunge into MMT,

                chempo has to take the plunge too, i don’t wanna leave him behind, because the plane is crashing. Your ‘the world is not gonna pause for you’ may work as reverse psychology but chemp is no dummy, so you have to convince him with your words, Micha. explain MMT and alleviate his concerns re balance sheet. I agree with chemp you’re just quoting and offering one liners, not very convincing,

                although to me , i’m convinced but not the nuts and bolts stuff, i just want

                some light, because from where i’m sitting, post-COVID19 is gonna be a real nasty world, if we can right now do more UBI’s get people who have nothing something, then its a start at least, i don’t really care right now how that’s explained in the balance sheet.

                I’m just concerned about the downward spiral we’re just at the top of now. The descent will be quick real quick once theres momentum.

                E=mc2 helped explode the a-bomb, but when physicists pulled the trigger on the very first one, they really didn’t know what was gonna happen. they could’ve exploded the whole world. or created a black hole. But they pulled the trigger.

                I’m just asking once we pull that trigger to MMT, how can we manage it? So get your thinking cap on and pull your weight, Micha, we’re not debating theories now, we are IMHO gonna go thru with MMT.

              • Micha says:


                Come on corporal, people in this forum don’t have policy making powers. MMT scholars have done tremendous work explaining the concept to folks in Washington with varying degrees of success. The theory is impeccable, it’s the politics we need to work on. Although I agree with you that this pandemic might just force the hand of policy makers to move in our direction.

                Stephanie sits as adviser in the senate committee under Sen. Sanders but even she has difficulty getting the concept fully embraced by the senator. In the primary debate with Joe Biden, Bernie couldn’t get a straight answer to the how-to-pay-for question. If he had said something along the lines of “we’re gonna pay for my M4A program in the same way we are paying for the trillions we allocate to our military industrial complex” then maybe that’s a hint that he finally has healthy grasp of what Stephanie had been trying to tell him.

                Steve Keen and Bill Mitchell in Australia also have varying degrees of success explaining the concept to their politicians. Ditto with Sir Adair Turner in Britain with the Positive Money folks.

                If you want to get MMT rolling, private banks need to be reformed. That explains chempo’s adversarial stance to the concept.

                It’s futile to expend time and energy engaging people like him because, one, he’ll oppose it no matter what and, two, as I said he is not into public policy making. He might even be retired by now as a bank consultant or whatever, for all we know.

              • I just thought you’d have schooled chempo on all these issues he’s raised, Micha. Engage! me and karl are cheering you on here!

              • Micha says:


                Hahaha, didn’t you post the other day that Mark Twain quote about truth having a way of becoming self-evident? Chempo already knows the fundamentals of MMT. He just don’t want it fully adopted because it threatens the cottage industry which has been the source of his means of living.

                On the other hand, why is your favorite man in the West Wing now set to veto the $3 trillion second tranche of corona bailout proposed by Miss Nancy?

              • chemrock says:

                “we’re gonna pay for my M4A program in the same way we are paying for the trillions we allocate to our military industrial complex”

                Is this not talking in circles? Military purchases are funded via budget via debt. So the M4A program of Bernie is gonna funded by debt?

                “If you want to get MMT rolling, private banks need to be reformed.”

                You and Lance have the same idea. Somehow, when MMT is implemented, there will be no sinners. As Irineo said somewhere, socialism under communist regimes failed because it never factored in human motivation. Similarly, MMT will fail because it never factor in human nature. Not seeing 2 steps ahead on human nature is the cause for a lot of policy distortions.

                This is the difference between academia and practical people on the ground. And that’s the reason why of the few economic crisis in the past, guys who foresee it were almost all people who worked on the ground. I’m not dismissing academia. They are great when they come in post fact and do all the analysis to explain the cause and effects.

                ” That explains chempo’s adversarial stance to the concept”

                I’m not your adversary. I just don’t believe MMT can work and I set out to explain why. Your problem is you are looking past me, you are not examining what I have written and tell me where I am wrong. A few few things I have laid out that is core to my thinking. One of it is it will lead to a situation that the central bank is technically bankrupt. Hit back and explain why I am wrong. But pls don’t say the sovereign that prints its own money won’t go bankrupt.

                Micha, you will note that I’m doing my explanation. I took pains to go into details because those who have no finance, banking or accounting background may not understand. You are simply quote grabbing and throwing it here. The fact that Prof so and so is pro MMT means what? It is definitive? For every pro-MMT character you can throw here, I can if I wish, throw an anti-MMT character. .

              • I share your perplexity that there is no process to MMT. Like, how do we stop having existing Treasury and Fed functions and move to MMT? Do bank reserves go away or are they retained? Is MMT a new agency that replaces the Fed but Treasury remains as the funding allocator and discipline? What will happen? In the absence of a roadmap and system that can be tested and proven, why should we agree to something that is sure to be chaos? And how does insulting people who are wary help implement any roadmap? It falls to the idealists to outline the roadmap, not the people who don’t see the benefit, and Micha has not done that. Generalities and insults do not a roadmap make. The argument ‘why explain when TSOH will never implement it’ is a huge cop out.

              • Micha says:

                Hey chemp, how dense can you be? MMT is categorically saying that even in the current scheme of financing expenditures, the level of debt issued does not matter as long as those debts are denominated in dollars. It will not bankrupt or force the government into default. Every single bondholders will get paid when the terms of their treasuries mature. Have you heard of any instance when this is not the case?

                How hard is this for you to understand?

              • Your personal insults are in violation of blog policy. Discuss the issues, please.

              • chemrock says:

                :”Chempo already knows the fundamentals of MMT. He just don’t want it fully adopted because it threatens the cottage industry which has been the source of his means of living.”

                Thank you to think that I know a bit of MMT, but that’s contradictory to the opinion yo have in an earlier comment.

                Just because I came from an industry means I champion it and all the good and the bad with it? I did’nt milk that system. I toiled and made my living in the system, just as would an economist or a doctor or a maid. I just happen to agree that the kitchen sink is choked, but I’m not gonna pull the house down because of it. I fix the kitchen sink.

                If it’s broke, fix it.
                If it’s not working and you have something new, show me.

                So the way I see it, enen though we have lots to fix, but it’s still working. You think you have something new, but you can’t show me how it works.
                Skelton et al can’t get all the legislators on board. Could it not be they are not convinced, not that they do not understand?

              • “You and Lance have the same idea. Somehow, when MMT is implemented, there will be no sinners.”


                To be clear, i’m not saying no sinners, this is a manna from heaven situation, so of course free stuff will create its own set of pros/cons, i’m simply saying something wicked this way comes and before everyone goes hungry (which is usually when people do stupid stuff) let’s abate it with UBI– actually when people are already hungry is when theyre the most docile, but before that when fear sets in food still in stomach, they get dangerous. The rest of MMT i dunno.

    • chemp, I get this primer and i agree Micha’s not really pulling her weight in this blog.

      But my concern here is apparent in the these two assumptions, that post-COVID19 is just more of the same no change, thus we’re just waiting to get back to normal again ; while the scenario i’m trying to push is post-COVID19 or the world wide Great Depression it’ll create will see a totally different world.

      Your E=mc2 analogy, it’s the c2 that’s magic, this whole notion of light by itself, and speed requires time-space yet that’s not shown in the equation, nor do we even understand gravity yet. Thus Debt Monetizing is magic, MMT is magic… both systems require the population to engage in some form of leap of faith. MMT looks wider because its less familiar.

      Let me rephrase my question above, say i’m Trump or Biden or whoever wins the Presidency, AOC is my bet considering most in DC is 70 plus, and COVID19 can keep attacking previously infected.

      I’m the President, the SCOTUS now has a pattern of backing me, thus SCOTUS too is on board, there’s a bigger depression one we’ve not seen before, all we have at our disposal is how Main Street banking works and MMT. no more of this Monetizing Debt crap, there’s no revenue, all over the world.

      How do we make MMT work? I grant you the ability to be magical, but within your own sense of practical, chemp. if you have something better than MMT even better, but those are your parameters to the scenario.

      Instead of just repeating the same debate, let’s make this into our own little Jekyll Island convention and attempt to create a better system. We have two Stanford alum, engineering and economics; you and Joe are bankers; Micha is MMT; me and karl can Google; sonny is also engineering; Ireneo can talk systems; all we need is popoy’s videos. Let’s subtract Debt Monetization out, and see what we can do to keep some semblance of life going post COVID19 (not gonna get any better is the assumption).

      • I’d add that sonny was NASA where their engineering was all about worst case scenarios.

      • chemrock says:

        I’m back from my morning 7 km jog. All seems well. Streets are cleared, few folks walking around, as it should be. stay home and stay safe. Those outside are all wearing masks.In times like this, just listen to the government.

        But not the Americans, and now the death toll is 86,000.


        You are asking for a reset scenario.
        Guess what the scene will be post covid19.
        Then what economy there will be.
        What will be the best economic system in that scenario.

        That may be entertaining and it covers everything under the sun. It will be as out-of-the-box as anything anyone has heard. Is there utility, I’m wondering.

        Let me gather my thoughts.

        But before we even proceed, I thought it’s been said, when the kitchen sink chokes, you don’t need to pull the whole house down.


        “Thus Debt Monetizing is magic, MMT is magic… both systems require the population to engage in some form of leap of faith. MMT looks wider because its less familiar.”

        Debt monetising is understandable, practical, doable, meaningful. I’m not saying it’s THE solution to anything, all I’m saying it is something that is real. MMT is not real because there is no free lunch.

        There’s no magic in monetisation — there is real debt behind it. There is blood sweat and tear of human effort behind it.
        There is no leap of faith in monetisation, it’s acceptance.

    • Thanks chemrock. Relatively simple analogies that explain basics to laymen like me.

      Of course the wealth of a country is limited per se. Keynesian stuff I do get.

      You basically pump money into the economy to stimulate growth by gov’t projects.

      Or you pump money into the economy via social welfare to stimulate consumer spending.

      In both cases, added value is created which matches the money spent to make it exist.


      If you create more money than what the country can create as added value => inflation.

      It gets even worse if your country is highly dependent on imported raw materials / goods.

      In that case, your money may sink in value towards other currencies => their price rises.

      You may sell more though if the value of your finished goods goes down => more export.

      What I also get is that high central bank interest rates means tighter money in general.


      That would be if the economy is going strong and the central bank tries to control things.

      Low or even negative rates mean the economy is relatively weak so you stimulate stuff.

      MMT would effectively mean what? Political economy means setting priorities.

      Socialism mostly failed because of the lacking profit motive. People are not just altruistic.

      Fixed exchange rates (socialist countries and Philippines in 1970s) lead to black markets.


      Money originally was based on scarce materials, like gold. Scarcity meant value.

      The loose money around since 2008 is driving real estate up like nuts in many a place.


      Money based on CO2 used might be the future. That is a limited resource. My 2 cents.

      • chemrock says:


        Every line is in consonance with me, except this :

        :”Low or even negative rates mean the economy is relatively weak so you stimulate stuff.”

        The cost-effect is the other way round.


        “Money based on CO2 used might be the future”

        You are ahead of the times.
        This is actually already in practice — it’s called carbon credits.
        But I guess you are thinking further than this.

  11. karlgarcia says:

    If we stop engaging because we can not reach policy makers then what is the purpose of taking amongst our selves?

    No blog is an island, Even it is an Island or group of Islands there might be oil deposits or treasures and the powerful will covet them.

    • Exactly, karl! What if AOC reads this blog, we already know Mar and Bam Aquino do, so why not put out your best explanation. if it gets shot down, so what. Live and learn.

      This quote’s for Micha. Engage already!

      • chemrock says:

        AOC can’t see things further than her nose.

        I guess New Yorkers are happy Amazon did not set up their regional HQ there.

        • I enjoy AOC myself. She’s sharp, funny, humanistic, and is an idealist struggling to do what Micha has not done, fit her idealism into the established system. She’s a force that shakes up the crusty old men of both parties who don’t know how to deal with a strong, independent woman. The Republicans have someone just like her as press secretary, only the two women’s policy frameworks are different. Amazon is an issue that warrants understanding before fallaciously attaching the whole person’s reputation to it.

    • Micha says:

      Hahaha, you folks never fail to amaze me but don’t delude yourselves too much. If anyone of you here can actually influence policy makers, please show your armpits.

      • Joe’s been to the Malacanyang Palace , Micha. And had dinner with the President there. You can’t get anymore boss than that.

      • Here, sniff my armpit. I’ve dined with Aquino, Roxas, Hilbay, Trillanes, written the forward to Senator De Lima’s e-book, and consider Sec. Locsin to be a friend. I am followed on social media by lawyers, journalists, legislators, educators, entertainers, businessmen and other ‘influencers’. Will has interviewed the VP and a host of other notables. Chemrock’s MRT article is frequently referenced as an authoritative background on rail issues. Karl has a direct line into the generals. All these people read the blog, some often, others when it means something to them. I doubt they place much value in your huffy opinions though.

  12. Micha says:

    Starting a new thread here because chempo insist I should educate him.

    Let’s start by going Socratic.

    chempo, the US debt has now ballooned to $23 trillion with additional $3 trillion in the pipeline if the Orange Man does not veto Miss Nancy’s proposal. Will this gargantuan amount bankrupt the federal gov’t? Will there be a possibility of default?

    • chemrock says:

      1. Calling a spade a spade. The US is already bankrupt, not considering untapped resources. It has been unable to retire the Treasury bonds for years due to perpetual budget deficit.
      2. The world has to oblige the US because the $ at this point, is too big to fail.
      3. Trump has already broached the idea of reneging on debt obligations to China. But I understand this is not economics but politics. Sabre rattling.
      4. There will be no default into the foreseeable future. Because US knows the world needs the $ and so it can continue rolling over Treasury Bonds.
      5. The $ eschatology is when US cannot export its inflation any more. This happens when the world does not need the $. In what way can this happen? :-
      – Price of oil remains in the doldrums (oil prices is dead now. Will it return to $100+?)
      – China’s growth is over (it’s happening now)
      – World trade slows down (this is also happening)
      6. When demand and confidence for $ drops, there will come a time US Treasury auction will fail. there not be enough takers.
      7. Then it’s bye-bye deficit budgets, unless MMT kicks in.
      8. But as I said, MMT can only fool Americans, not foreign countries. Your Mcdonald burger remains at $1 (if possible) but it will be 10 Yens to a Japanese tourist.

      • Micha says:

        And therein lies your problem chempo, you have difficulty understanding MMT because you are not prepared to accept its basic premise which is,

        A sovereign gov’t that issues its own currency can never fail to met its payment obligations as long as those payment obligations are denominated in that same currency.

        Internalize that for a moment before jumping into your erroneous claims about bankruptcy and default.

        You’ve been predicting doom and bankruptcy within 2 years when the federal debt hits $20 trillion 5 years ago.

        It’s not debt or lack of dollars that will doom the US economy. As we are seeing now, it is its productive capacity that has been practically grounded to a halt by this pandemic.

        In any case, there is going to be no default or bankruptcy for the Federal gov’t in any foreseeable future, period.

        If we have to come to that event, then MMT cannot be validated and America as we know it will have ceased to exist.

        • chemrock says:

          Ah that Fab line that explains everything.
          OK than. FAQ here, indulge me.

          Q: Who prints the money and where is the money?

          • Micha says:


            In the current scheme, printing money is a misnomer because the whole Fed/Treasury operation is being done by electronic transfer.

            After congress had passed the spending bill and the President signs it into law, the Treasury and the Fed coordinates to auction treasuries in the open market which can be a convoluted process involving Primary Dealers and repo operations. But at the end of the day, after the dust has settled, it is the Fed that creates reserves and swaps it for treasury securities.

            Treasury General Account at FRB New York gets credited and Treasury Dept disburses the money thru member commercial banks where the payee/recipients of that particular federal spending get their payments.

            • chemrock says:

              “…printing money is a misnomer”
              Gosh Micha, you have been missing in class. Of course everybody knows it’s a figurative way of speech.

              “…auction treasuries in the open market which can be a convoluted process involving Primary Dealers and repo operations…”
              You are getting confused. “Repo” has nothing with treasury security auctions. A repo is a repurchase agreement. It is a very short term, mostly overnight, borrowing transaction securitised by the securities. Borrower needs overnight funds so he does it by repo. He borrows securitised by the securities. It’s like he sells and then buys back next day.

              “But at the end of the day, after the dust has settled, it is the Fed that creates reserves and swaps it for treasury securities.”
              You got it wrong with the settlement for securities auction.
              That’s the problem of not bothered with my details.
              I have explained already, every $ transaction, whether in US or any country in the world, ends up, through the process of correspondent banks and clearing house systems, with a debit and a credit entry in bank reserve accounts at the Fed. The buyer’s bank debited, the seller’s bank credited. In this case the seller is Treasury, so their TGA gets credited.

              It has nothing to do with Fed. They are just acting as banker to the governemt’s and banks.
              There is no reserve creation, no money is created.
              It’s just the Treasuryb borrowing through the sale of securities by auction..

            • chemrock says:


              If you don’t mind my saying so. I’m not your adversary. I’m not here to put you down. I’m only countering your points.

              All of us come from certain backgrounds and can share in one way or another. Even asking questions for clarification, like what Karl does often, is helpful because it opens up for discussion. None of us are here to show off anything.

              I declare I’m not an expert in anything. Least of all economics. My background covers many areas — accounting, taxation, systems (as specifier and owner), commercial law, trade finance, middle and back office management in international banking, public accounting, administration, applications developer, consultant, and also dabbled in some small business. But I am a master of none, I readily admit. What I want to put across is I come from multi-disciplinary background and this has allowed me to view things through multi-faceted lens.

              I write for the pleasure of sharing, especially when I know I am writing from angles most people do not approach from. That’s why I take time to get into details.

              What I am trying to say is have a little more faith in me. Engage me, don’t repudiate for the sake of repudiating. Of course I can get things wrong. You are free to expound on it. That’s what LcplX has been doing. There is nothing wrong with that. It can also make me better in my own understanding, or better in my explanation.

              But your problem is you don’t even read my details. A typical illustration is this comment of yours. We have gone through this many times. I have explained in details, probably in ways no other people has described. And you return with this comment that contains so many errors. To be honest if you submit this to other forums you may get laughed at because you obviously copied from somewhere without understanding what it is. Your mention of “repo’ for example, is totally wacky to the issue on hand.

              I apologise if I sound condescending.

              • Micha says:

                Hey chemp, before going any further in this conversation, I would like to know if you have actually personally participated in this transaction that you describe. If so, in what capacity? As buyer? Primary trader? As accountant for the Treasury? For the FRB?

                Also, if you don’t mind, what banking institution are you currently working for?

              • chemrock says:

                I left banking 15 years ago. So some of my details may be a bit off although I don’t think that is the case here. Even if I’m off in terms of new regulations or practices, the core of my points are still current. I remember in the Central Bank of Bangladesh heist article, a smart Filipino banker pointed out certain aspects of my comment on SWIFT was outdated, (the system does updates almost every month, a tweak here and there) but even then, he did comment that the point I was getting at was correct.

                I work for a Singapore branch of an international bank doing wholesale banking in the region. I managed the middle and back office which means I was involved with all sorts of international banking transactions at the operational level. I am not a trader or dealer, that is done by the Treasury Dept. I’m operations, so part of my job is to support Treasury as well as monitor compliance of all risk parameters. So I watch out for things like liquidity risks, credit risks, interest rate risks, foreign exchange risks, country risks, product risks, etc. I don’t do the risk management, but I police them so I needed to be on top of world affairs — politics, economics, global trade etc.

                There are other responsibilties — systems, accounting, tax, loans, trade finance,

                I feel like I’m sending my personal resume to you. But if it helps you to understand where I’m coming from, I don’t mind.

              • Micha says:


                “I left banking 15 years ago. So some of my details may be a bit off although I don’t think that is the case here. Even if I’m off in terms of new regulations or practices, the core of my points are still current.”

                There you go chemp, that’s the source of this circular discussion.

                MMT sources, on the other hand, are currently working in both the Treasury and the FRB. Their previous jobs include stints at private banks like UBS and Citibank handling primary dealers in these treasury auctions.

                Warren Mosler himself is a hedge fund manager whose portfolio include treasuries, so he knows this operation like the back of his hand. He is now a multi-millionaire living the good life in St. Croix. He has rubbed elbows with State and Treasury department officials.

                So between your account of these operations and the account of MMT sources, it’s a no-brainer which one is more accurate. I am sorry to say but you are not a credible authority on this subject.

              • chemrock says:

                Thank you Micha, boy am I glad you did’nt compare me to you, otherwise I’ll be relegated to a road sweeper.

                Please do me a big favour.
                Can you please forward my response to Caliphman’s comment…re “Main issues on the table”…

                Can you please convey these issues to your clever friends Mossler and Kelton and whoever, and ask them to respond?

                If they have an answer, I’ll carry your blank straps.

                Or maybe you can answer them. Well actually I know your answer… SOVEREIGN GOVT CAN’T GO BANKRUPT.

              • chemrock says:

                Geee Micha, Warres Mossley a successful hedge fund manager living the good life. Is the evil parasitic wall streeter now your hero?

                “MMT sources, on the other hand, are currently working in both the Treasury and the FRB. Their previous jobs include stints at private banks like UBS and Citibank handling primary dealers in these treasury auctions.

                So it’s a no brainer the Jerome Powell should be listening to them. Just wondering why it’s not happening.

              • chemrock says:

                The truth of the matter is, Micha, you cannot engage me, so you resort to ad hominem, quote grabbing, one liners that only you understand.

                I laid out those issues which are absolutely honest, meaningful, rational, intelligent, critical solution-seeking questions.

                All you have to do is respond to that. No need to compare met to the King and Queen of MMT.

                The truth of the matter is you can’t respond. Well actually unlike you, I’m not going to diminish you. I believe you are a very intelligent woman. The truth of the matter is MMT can’t respond.

                I repeat, I’ll carry your blankstrap if you can have a solution to those issues I raised.

              • chemrock says:

                So Mossler to you is not only the King or father of MMT, but God of MMT, because he can’t be wrong because of his experience.

                I remember one great man, one of the Greatest in our human history.
                His name was Mr Aristotles.
                His whole Aristotelian Physics Theory were all wrong.
                He said quite a few things, one of which was “The heavier the object, the faster it falls”. Mr Newton rebutted that. Bet if you were living during Newton’s time you would have asked Newton for his resume too.

              • Micha says:

                As I kept on saying chemp, what you were describing here are arbitrary human devised conventions. They could and can be changed by folks who are actually running the show to adapt with the times, so some of the stuff that you knew 20 or 15 years ago may no longer be accurate.

                Even computers need an upgrade every now and then.

                This quote supposedly attributed to Mark Twain can be a useful guide : “It ain’t what you don’t know that gets you into trouble, it’s what you knew for sure that just ain’t so.”

              • chemrock says:

                Don’t talk and stray. Don’t divert.

                Just give me the solutions to the concerns I raised in the response to Caliphman.

                I told you, I’ll carry your blankstrap if you have the solutions for those concerns.

              • chemrock says:

                There you go again Micha.
                Is the issue about conventions or systems cannnot be changed?

                The issues are those 5 or 6 concerns that I indicated in my repond toCaliphman’s comment.
                I repeat again. I’ll carry your blankstraps if you have a solution to those concerns.

                And I say again, in my lenghty clarification to Karl’s question on an excerpt of an article he posted here, someone may be right about something based on everything he has read in books, but he could still get it wrong with the situation on the grounds.

        • NHerrera says:


          That premise

          A sovereign gov’t that issues its own currency can never fail to met its payment obligations as long as those payment obligations are denominated in that same currency.

          sounds like an axiom in Euclidean geometry. A language this engineer understands.

          • chemrock says:

            Is that premise cast in stone?

            If the obligation is another currency, say Yen, what is there to stop you from printing peso and converting it to Yen?

            • NHerrera says:


              Let me phrase that premise supplying items as it relates to the US:

              A sovereign gov’t (US) that issues (prints) its own USD currency can never fail to met its payment obligations as long as those payment obligations are denominated in that same USD currency.

              The equivalent statement as it relates to the PH is:

              A sovereign gov’t (PH) that issues (prints) its own PHP currency can never fail to met its payment obligations as long as those payment obligations are denominated in that same PHP currency.

              This is far from a defense of MMT. It is only my exercise of Euclidean logic starting from a premise — whether cast in stone or not.

              • NHerrera says:

                It is implicit in the logical statement above that Japan will lend to the PH in PHP currency — whether or not Japan will actually do so.

                By the way you know that plane euclidean geometry, useful as it is, fails in some respects that spherical geometry does not. But within the premises or axioms in that geometry it is consistent.

            • chemrock says:

              I know you are trying to grapple MMT with your Euclidean thoughts. It is my hope that my writings here will be the parallel postulate for us to meet eventually.

              MMT is simply the idea a government can just print and pay for anything it wants. Period. Of course technically that’s true. It’s the ramifications that needs to be addressed. And these ramifications I think I have articulated here repeatedly. No one has been able to adequately address the concerns raised.

              The idea of printing it’s own currency and paying off debts in it’s own currency is an implicit suggestion, a clear Euclidean straight line, that MMT cannot pay of foreign debt. This is utter rubbish. Is that the impact of normalisation of Micha’s repeatition of her lines? There is such a thing called foreign exchange market. But when you bring foreign exchange into the equation, MMT wobbles. That’s the point I made about a Mcdonald’s burger may still cost $1, but it will be 10 Yens to a Japanese tourist.

              • NHerrera says:


                Please, do not put MMT into this. I am using logical statement issuing from a premise. I am not grappling at all about MMT and foreign exchange realities, whether applicable or not. I lean towards your argument on that subject rather than the others. OK?

              • chemrock says:

                Got it.
                No bean counters dare to go where engineers go. I’ll step off your cantilevers, lintels and chajjas.

              • NHerrera says:

                And my thanks to the bean counters. I need them to count correctly the few beans I still have, or as sonny puts it lights out for me. 🙂 Take care.

  13. chemrock says:


    OK I’m willing to entertain Lance’s request on his Ketyll Island scenario. Let’s kick off in this thread. We are in zombie land. What will the economy be like and what will be the best economic system to have in place.


    I just want this preface.

    You guys here are more Darwinian than Divine, so here’s my take on SAR-cov-2. The virus will mutate to a milder form. It’s all down to Darwinism. It will soon learn that killing off the host is not in their best interest as they too will be killed off. So it will mutate to be less aggressive to allow the host to survive. That’s what happened to the Spanish flu strain. Same with MERs and SARs.


    Irineo has offer two ideas to dwell on.

    1. Money that has CO2 reduction is useful. As I indicated, there is already carbon credits in place.
    2. Chiemgauer currency — this is interesting, although I suspect in many other countries, there will be legislative blocks, and it will be hijacked by crooks.

    • karlgarcia says:

      Carbon engineering, CO2 capture is already on the to-do list of Bill Gates.

      • karlgarcia says:

        Micro currencies?
        Irineo, any history on the Chemgauer currency?
        Reginonal-Local Currency

        • karl,

          Something akin to Ireneo’s chiemgauer are Tencent & Ant Financial,

          China’s Ant Financial, Tencent stake their claim on Europe’s payments market

          Ant Financial Services Group’s acquisition of a stake in Swedish fintech Klarna Holding AB is the latest sign that Chinese fintech firms are hungry to capture a slice of Europe’s lucrative payments market.

          Ant Financial, whose mobile payment app Alipay has more than a billion users, and fellow Chinese tech Tencent Holdings Ltd., the parent of so called “super-app” WeChat Pay, are eager to serve Chinese tourists who spend many hundreds of dollars each on shopping trips in Europe — and to potentially draw in European customers too, industry experts say.

          The deal to buy a minority stake in Klarna, best known for its buy-now-pay-later solutions for shoppers, builds on an existing partnership between Klarna and Alipay whereby customers of the latter can use Klarna’s pay-later product.

          Alipay is increasingly accepted by merchants in Europe, although at present it caters only to Asian expats and tourists. It struck a deal with French payments firm Worldline SA in November 2019 that lets customers with Alipay digital wallets pay at any Worldline card terminal in Europe, and in January this year it announced a partnership with London-based WorldRemit Ltd. allowing Alipay users to access WorldRemit services in its app.

          Most recently, it partnered with U.K. online money transfer service TransferWise Ltd. to allow for instant transfers, and it has also been partnering with businesses in areas popular with Chinese visitors, including restaurants in London’s Chinatown.

          WeChat Pay is also bullish on Europe, saying at a recent event in London that the continent is its “next key market.”

      • chemrock says:

        I don’t know much abt this. I have heard of carbon capture and lock away in subteranean caverns.

        Irineo’s idea is a currency that is tied to anything that use neutralised CO2. As I mentioned, carbon credits is one way.

    • chemp,

      Thanks for obliging me.

      I agree Ireneo’s chiemgauer is the most promising fruit that popped out of this blog. I’m still reading up on it. Carbon credits looks like it won’t be necessary now with all the staying at home, now and later.

      Here’s a good Economist youtube primer of things to come,

      • chemrock says:

        The renmenbi can never replace the $ as long as the CCP is there.

        The reason is a central planning regime never understand the rules in an open economy. At the first sign of financial crisis, the CCP planners will revoke to their old game play — capital controls. It is obvious the will impose capital controls because China does not believe in the concept of Unholy Trinity in international economics. Capital control is the enemy of open economy entrepreneurs.

        A while back the NHerrera-Sonny talked of the way people think depends on the mould they came from. CCP may be immersed in the capitalist world, but old world socialism is embeded too deep.

  14. karlgarcia says:

    A debate between a Pro-MMT (Randall Wray) and an anti-MMTt(Gerald Epstein)


    • karlgarcia says:

      For Heterodox economists and MMT economists to meet eye to eye, all MMTers have to do us to tell the Orthodox economists how they manage the constraints to funding huge programs like the New Green Deal.

      For numerous times, I gave been dinged by Micha on the funding source and the show me the money plead.
      But that is what the critics are asking for after-all, in addition to the valid concerns raised by Chemrock and Caliphman, regarding the macroeconomic implications.

      Well this is true, but it doesn’t really tell us what are the macroeconomic implications of printing a lot of money to finance a very large and expensive program like the Green New Deal. It doesn’t talk about how that traces through our whole economy and what financial and other complications it might cause. What we need, I think, is a broader macroeconomic theory that allows us to understand the impacts on inflation, the impacts on exchange rates, the impacts on capital flows. And I know that Randy is aware of all of this, but the Modern Money Theory doesn’t really help us in understanding this.

      Now, so Modern Monetary Theory is neither necessary nor sufficient for understanding the implications of funding a policy like this, and it also is misleading. I think when advocates of Modern Money Theory say we can afford it, they’re using a technical term meaning “we can print the money and we’re not going to go bankrupt.” But people listening to this, political activists, progressives, think, “Well maybe what they’re saying is that we don’t have to worry about inflation, we don’t have to worry about the exchange rates, we don’t have to worry about anything,” and that’s not true. And Randy suggested in his interview also that that’s not true.

      So what I would like to see is the Modern Money Theory people be a lot clearer when they talk about policy issues like funding the Green New Deal, of all the constraints that would appear in funding such a huge program and how they propose to deal with these constraints. And once we start talking in real terms about how to deal with these constraints and how to manage them, then I think there’s a lot more common ground between the MMT people and other heterodox economists who think about these things about how to move forward. And this would be a lot more helpful for progressives, understanding these nitty gritty kinds of aspects of dealing with these problems than just thinking, “Well, we can afford it, we don’t have to worry about it.” So I’d like to see a much more elaborate discussion on these pragmatic issues.

  15. chemrock says:

    I don’t mean to sound like a grumpy school teacher, but I thought we are here to share and learn, and enjoy some banter, there is a point I like to stress before the curtain is pulled..

    I touched on the importance of the independence of the central bank, in fact I did say it is the jewel in an open market economy. The independence of the Fed is unfortunately taken too lightly by some.

    The Fed was born in 1913 and from its birth it was never insulated from Executive pressures. During the Second World War, in order to support the war effort, Fed bowed to Treasury strategies to peg interest rates low to spur production of armaments. Fed had preferred tax. After the war, inflation had to be contained with higher interest rates. Truman and his Treasury Secretary preferred to peg interest rates low in order to protect the price of war bonds (price of bonds move inversely to interest rates).

    All efforts by the Fed to lower interest rates were vigorously opposed by Treasury. There was a long running feud. 1950 US entered the Korean War and inflation sored to 21% in 1951. There were many disputes, conflicting reports, false news, (of which Truman himself was accused of being guilty of) of Fed/Treasury direction, and it created a period of uncertainty in the market at which way interest rates will go.

    Treasury knew it had to refund or rollover debts and the uncertainty on rates had to end. Finally Fed and Treasury negotiated an end to the dispute. That was known as the Fed-Treasury Accord of 1951 which established the separation of fiscal and monetary policy making to this day. This has stood the test of time for 79 years and Fed has ran monetary policy outside the realm of political powers that be.

    MMT seeks to unravel an established fundamental order of being by putting both fiscal and monetary policies under political control.

    • caliphman says:

      Chemmy, let me thank you for your blog and subsequent commentary explaining quite clearly and comprehensively your understanding of how the Fed and Treasury works together and separately in implementing US fiscal and monetary policy. My rudimentary understanding of MMT if one strips the rhetoric demonizing key actors comprising part of the traditional US financial system and more established macroeconomic theories that have guided practices and policies to keep the economy and its financial system healthy and to avoid depressions and hyperinflation. So one primary recurrent theme echoed on MMT writings and again in the posts above is that the US can and should resort to ” printing money” to achieve full employment as well as other national objectives leaving aside concerns about excessive deficits, public debt, or hyperinflation. In my opinion, the role of taxation which MMT primarily relegates to reducing excessive money supply ignores that in addition to trying to balancing the national budget also has other traditional key objectives including more equitable distribution of income and wealth.

      It seems to me that from a practical as opposed to an academic or theoretical point of view, the mechanics of an unfettered “printing of money” can be accommodated within the existing setup, operation and roles of the US Treasury and Fed. That being said, there remains that if overdone, too much public deficits,national debt, or money oversupply can lead to hyperinflation or other economic disasters whether or not the Treasury/Fed organizations and roles are revamped along the lines suggested by MMT.

      The difficulty with MMT is that as a theory and as a macroeconomic model, it has not been developed and is not comprehensive enough to to credibly explain what happens in such scenarios. It is not enough for MMT economists to point out that established theories have been incorrect in projecting about the risk of inflation during the significant and extended quantitative easing pursued by many economies in the last decade.

      • Micha says:


        It seems to me that you are now in agreement to the money creation part vested on our sovereign gov’t. That at least settles unnecessary back and forths on whether that is true or not. We’re making progress here.

        Of course the often cited critique then coming from this reality is the problem of inflation. On this part, MMT had been quite very clear : it DOES recognize the constraint of inflation if there are not enough real resources (e.g. materials, equipment, labor) to met the demand resulting from that new legislated spending.

        I don’t see why we cannot agree on this.

        • caliphman says:

          Micha, I should not nor can I speak for our friend Chempo, but for all practical purposes the US now as it did in WW II has no choice but to print money in order to remainviable in the face of a national emergency. The greatest danger at the moment is that of a huge recession or another great Depression than that of hyperinflation. To go to kindergarten macroeconomics that the the most diehard MMT economist would agree with, when C and I is collapsing from Covid necessitated lockdowns, G or government spending has to be greatly increased for GNP or GDP to have a y chance of recovering. Regardless of whether or or not established economic theories or MMT is valid or not with regards to inflationary limits or other nuances associated with it.

          • chemrock says:

            WWII was funded by war bonds, that means debt, not money printing.

            • chemp,

              This part i know from Captain America: the First Avenger, where he had to go around in his outfit to sell war bonds, and Johnny Cash’s Ballad of Ira Hayes, also covered in Clint Eastwood’s “Flags of our Fathers”.

              But now that you’ve brought up war bonds, I’ve always wondered who bought ’em. And did it really bank roll WWII. seems dubious at best. That’s why i side with caliphman/Micha’s “printing money” here.

              Further, who is exactly buying the bonds now, during COVID19.

              • chemrock says:

                “But now that you’ve brought up war bonds, I’ve always wondered who bought ’em. And did it really bank roll WWII. seems dubious at best. That’s why i side with caliphman/Micha’s “printing money” here.

                Those were retail bonds, so moms and pops bought them The war bonds tugged at the hearts of Americans — their patriotism and conscience. I supposed if similar appeals are made today, they won’t be able to sell anything. Those Amercan values are gone.

                Seems dubiuos? — Do I sound like a snake oil salesman to you? I’m not from Wall Street, I’m from old banking fraternity where integrity is everything.

                “Further, who is exactly buying the bonds now, during COVID19.

                There is something people not in the treasury related profession don’t understand. I don’t say it in a condescensing way, I mean it factually.

                There is something called interest rate ladder. And there are 2 types of books. Trading book or investing book. Trading is basically speculating. These people has to manage their interest rate ladders. A ladder is basically maturity bands. They need to manage their exposures at each band, whether they are long or short. How they want to position themselves depend on their sentiment on the interest rates across the maturity spectrum.

                Their ladder is dynamic because of daily transactions coming in and going out. Bonds is one of these interest rate instruments. So they can use it to plug the gaps where they want. You may think with covid19 everything comes to a stand still. Far from that. In treasury transactions, in fact all financial market transactions — bonds, fx, money market, commodities, futures, options, etc, the wheels keep churning. On their books are thousands and thousands of contracts entered into months ago. They all have maturity dates. Their books are still running come typhoon, war, or virus. (Yours truly experienced this during the Gulf War). So their interest rate ladders keep on changing. It’s dynamic. So these are the people still out there wheeling and dealing. People get the bonds for various reasons — to manage interest risk, for hedging something else, etc..

              • The whole process is dubious, chemp. Not you!!!

              • chemrock says:

                Of course I know you were referring to the process.
                What I mean was I’m not so dubious to promote something dubious.

              • karlgarcia says:

                They say that almost full employment happened during WW2 due to the conversion of factories to factories for war, many people who were able yo work had something to do but as Chemrock said, there is no such thing as full employment.

                What was perplexing for LCX was his could the citizenry buy the bonds when the Great Depression happened less than a decade hence, well money was created and because fiat money was still the thing, money was printed and minted and maybe enough people had savings or their businesses recovered before WW2.

                MMTers is using WW2 as a prime example, and now they say that will be replicated during this crisis.
                Again only our grandkids can tell eventually if MMT will work or not.

              • chemrock says:

                Not quite sure how you place the ‘fiat’ in your comment. Great Depression and WWII the $ was still on the Gold Standard.

                And on your grandkids not able to tell whether MMT will work or not —
                If you mean functionally, will it work. As I have said, the mechanisms are in place. A piece of cake. Just credit into that TGA is all it takes.

                The concerns are as I indicated in that response to Caliphman.

              • karlgarcia says:

                Oops did not come out well.
                Gold standard was the thing until Nixon’s time where Fiat money entered the picture.

                And yes the concers are noted, I noted them too I’m my comment about Gerald Epstein somewhere in this thread.

              • karlgarcia says:

                Why did Nixon entered my mind?

                The Gold Standard was abandoned by FDR in 1933.
                That is a fact in the library of congress.

              • karlgarcia says:

                Call it information overload.

                Nixon Shock
                The Nixon shock was a series of economic measures undertaken by United States President Richard Nixon in 1971, in response to increasing inflation, the most significant of which were wage and price freezes, surcharges on imports, and the unilateral cancellation of the direct international convertibility of the United States dollar to gold.[1]

                While Nixon’s actions did not formally abolish the existing Bretton Woods system of international financial exchange, the suspension of one of its key components effectively rendered the Bretton Woods system inoperative. While Nixon publicly stated his intention to resume direct convertibility of the dollar after reforms to the Bretton Woods system had been implemented, all attempts at reform proved unsuccessful. By 1973, the Bretton Woods system was replaced de facto by the current regime based on freely floating fiat currencies.[2]

              • karlgarcia says:

                Of course there was the Bretton Woods system (1944)which is the gold standard in steroids.

          • Funding World War II

            On Dec. 7, 1941, Japanese warplanes attacked Pearl Harbor, marking the beginning of the United States’ entry into World War II.

            The nation spent nearly four years at war against the Japanese and Nazi Germany, requiring the services of millions of soldiers, and the manufacturing of countless ships, aircraft carriers, tanks, weapons, and other equipment and supplies.

            This was an expensive undertaking for the country. According to an analysis by Norwich University, World War II cost $4.1 trillion, adjusted for today’s dollars. Obviously, the United States did not have this money sitting in a piggy bank. It needed to raise funds quickly, and did so largely by selling War Bonds.

            During World War II, Americans purchased $185.7 billion in war bonds. The bonds came in denominations as small as $25 and as large as $10,000, had a 10-year maturity, and were sold at a 75% discount. They were also referred to as Series E bonds.

            By contrast, more recent wars, including the conflicts in Iraq and Afghanistan, were primarily financed by increasing the nation’s foreign debt.

            The Current Value of War Bonds

            War bonds from World War II, or Series E bonds, were supposed to have a maturity of 10 years. But they were granted an interest extension of as long as 30 or 40 years, depending on the size. The final round of Series E bonds stopped earning interest in 2010.

            Those who still held Series E war bonds in 1960 were able to swap their original bonds for Series H bonds, thereby deferring any tax liability until the new bonds matured. Series H bonds stopped paying interest in 2009.

            If you happen to possess Series E War Bonds, you can go to the bank and redeem them for cash. The U.S. Treasury Department has a helpful calculator to help you determine how much your Series E bonds are worth today. According to the calculator, a $1,000 Series E bond purchased at $750 is now worth $3,623. A $1,000 war bond issued as late as 1946 is worth $4,691.

            Again, bonds this old stopped earning interest long ago. So if you happen to own war bonds, there’s no reason to delay cashing them in.


            chemp, which begs the question if the US didn’t sell war bonds, or no body purchased bonds, how would it fund wars? Which begs another question, whose money was it then that we were giving away by the truck loads in Af-Pak and Iraq, not to mention other places post 9/11???

            • chemrock says:

              “chemp, which begs the question if the US didn’t sell war bonds, or no body purchased bonds, how would it fund wars?”

              You do what communists do — confiscate assets, exercise eminent domain, take over by force. Call out your brown or black shirts, seize your Ferraris.

              Or you can print your dollars to a banana republic.

              Or if you don’t have money, don’t start a war. (if you are defending, it’s a different story)

              ” Which begs another question, whose money was it then that we were giving away by the truck loads in Af-Pak and Iraq, not to mention other places post 9/11???

              All those money are in them $23T national debt.
              The US is the most stupid country to take on all those debts to give away in USAid to countries who don’t appreciate them. To fund UN CHR and other agencies which are hijacked by Islamist or dictatorial countries who then support policies that are anti-US views.

              Then along came Trump….

              • Since, the rules to all this Jekyll Island stuff was invented here, between stupid or genius, i’m gonna have to say genius— although I hate these big bank/corporate types.

                It’s like we (America) are at the top of this pyramid scheme, and all else holding our bonds are all like oooooooooooohh, i got me some green backs! pull the carpet from under them, wooooof! Trump says we ain’t paying you guys back, default! and what happens?

                We’ll just play another game, that’s what, with different rules, again set in America, we dictate the rules to be played.

                (chemp, thanks for that info about the two different books above, I’m Googling these two processes, i’m even more convinced that America is Bernie Madoff just making stuff as they go, but who’s gonna put the US in jail??? everyone assuming we know what we are doing)

              • chemrock says:

                “….everyone assuming we know what we are doing)

                Haha there is more truth in that than anyone cares to admit.
                I once attended a conference in Kuwait. So we’ve all had our turns giving our presentation. There was this banker from US and it was his turn next day. the night before, something strange happened. There thunder and lightning, it went on for a while. It’s a rarity for Kuwait. Next they the guy presented a rather shoddy piece of work. Over drinks he admitted. He said “you guys did a great job. I did’nt prepare and didnt know what to expect, so on the final night I stayed up to do the presentation.The thunder & lightning freaked me. I thought it was somebody up there telling me off”

                Nixon screwed us big time when he reneged on the gold standard.
                Before Trup say Default, he better do some accounting on the debits and credits by country. You guys got lots of assets overseas.

              • chemp, that’s scary to hear!!!

        • chemrock says:

          It seems to me that you are now in agreement to the money creation part vested on our sovereign gov’t. That at least settles unnecessary back and forths on whether that is true or not. We’re making progress here.

          We have to be very clear in this.
          I think by government here you mean Treasury.

          I think Caliphman is saying here let’s put aside these issues :
          – inflation or hyperinflation
          – whether it’s Treasury or Fed who does fiscal or monetary or bother policies (independence issue)

          let’s not address the consequences or the ramifications of these 2 issues

          Just looking at MMT as a tool to achieve national goals of full employment

          If it can serve that purpose, then it can be accommodated under existing mechanics.

          Caliphman can correct me if I am wrong in this interpretation of his thoughts.

          So his focus is on the premise that I profess present mechanics cannot cope with the workings of MMT.

          But that has never been my view, nor the elaborations in my article. All it needs, from the mechanics point of view, is simply for Fed to keystroke the money into the TGA account. It’s simple book-keeping.

          All I was saying is the accounts mean only one thing, the Fed is bankrupt. And that is not gobbledygook. That’s a fact. I know what’s in your mind? How to be bankrupt? Just put more money into the TGA. Then you need to face up to the inevitable, the problems that hyperinflation that Caliphman precisely left aside in order to contemplate the possibility of the mechanics of MMT.

      • So MMT would not entail a recasting of government’s management mechanisms, which are needed as brakes, clutch, and gas pedals are needed, but would simply slide debt to the asset side of the balance sheet offset on the liability side by “need”. Steps would be taken to manage need for social harmony and health. I’m starting to like the idea.

      • chemrock says:

        You discuss this issue at a much higher intellectual level than most.
        I need to digest properly your words before I revert to further the discussion.

      • chemrock says:

        Caliphman, I’ll break up my response.

        “So one primary recurrent theme echoed on MMT writings and again in the posts above is that the US can and should resort to ” printing money” to achieve full employment as well as other national objectives leaving aside concerns about excessive deficits, public debt, or hyperinflation.”

        The US has been printing money all the time, and so has all other central banks. The printing is done at the Fed that handles money creation. Each time they buy securities, they ‘print’ when they pay into the banking system by crediting the bank reserves accounts.

        With MMT, Treasury will also ‘print’ money. There is no more issuing of bonds to borrow from savings for the national budget. This will be done by Fed crediting the TGA account. In much the same way as when Fed credits bank reserve accounts, money is created. So Fed credits TGA, money is also created.

        To achieve full-employment as an objective — all well and very good. So the point of MMT is just print the money for Treasury — just spend, govt create lots of jobs etc etc. I get this, I’m not dumb. So, as you said, let’s leave aside the issues of debt and hyperinflation. How can this play out with MMT. Which is why we should bring this into our discussion, and Micha should explain how MMT can do it. So if it can create full employment, inflation may be a lesser evil, and perhaps, other than taxation as MMT’s only tool, maybe we can discuss and see if there are other tools.

        So my question here is how can displacing debt with printing money create jobs.

        1. Full-employment is a fallacy. We know there is no such thing right? People too lazy to work, unable to work, there is frictional unemployment etc.

        2. So let’s just say the govt aims for low unemployment rate. Question of how low is low. Is below 4% good enough? That’s where it was before covid-19. And there was no MMT.

        3. MMT implies the govt with spending power now, can create jobs. So it’s a govt function now — to create jobs. Are we into central planning? Well one thing is for sure here. Parkinson’s Law will rule — job expands to fill the time available for it’s completion. Socialism’s disease of the old days.

        4. At the moment, 16% of the workforce is in public service. This talk of govt creating jobs in public sector concentrates on increasing the 16%. So MMT leaves private enterprise job creation to their own designs, as it should be. But I understand, public service increased employment also increases demands for private goods and services, so it will be positive. But the elephant in the room is private sector employment.

        In my humble opinion, as far as employment is concerned, the govt’s role is to manage the endogenous factors that promote economic growth — price stability, fair tax rate, good infra, good capital markets, education, savings, law and order, etc etc… we have been through all these. MMT can print all the money in the world, but without these fundamentals in place, it would not be conducive for business and thus employment.

        • chemp,

          Let’s say i enjoy just French kissing and sipping wine and eating bits of different types of exotic cheese all day long. So i can be a gov’t worker, hell let’s say continue my roll as staying home and being a hero, because 1). i love being a hero and 2). i love staying home. so that’s my heroic job.

          My point , if MMT is in place now, does the gov’t paying me to French kiss all day long , as a professional hero/stay-at-home guy, hurt the over all economy? no, right? because we’re printing money now.

          But let’s say , karl, doesn’t like staying at home, thinks staying at home is for losers and people that just want to French kiss all day long, neither does he think its really heroic. So he wants to play the stock market and make a business selling wine and cheese, and maybe herpes test kits for people who like French kissing all day long,

          thus karl, I assume he also gets some UBI, but he wants more, won’t settle for gov’t work, will have a path to make more money, and that’s where the Fed interest rates come in. And your peeps, chemp.

          But me, i don’t need to drive a Ferrari, like karl does. So i’m content.

          The elephant in the room is karl will have a come up with a business that’s interesting and higher paying, because i’d assume most humans are like me and would just want to French kiss all day long. no slave labor for karl.

          Screw dignity of work! i’d rather French kiss.

          So for karl as the guy that wants more, will have to figure out who to screw over so he could get rich— that’s actually the elephant in the room here. Slim pickins now, becuz of MMT, so I assume he’ll make goods and services alone and hike up the prices, some boutique bs, but that’s karl’s problem.

          • chemrock says:

            First thing-
            If the government wants to helicopter drop money to you, it does’nt matter to you if it comes from ‘printing’ or from loans, you get the same greenbacks.

            Second thing-
            If the interest rate is low, Karl takes the opportunity to go into business. He finds there are no workers because everyone wants to stay home and french kiss and screw.
            Being a smart man, Karl switches to selling wine and pizzas, jacks up tripple the time the prices, no deliveries, personal collection only. And not in view of his wife, Karl will run a prostitution network to supply the girls since the demand is there. You want the girls, come and pick her up, because Karl has the monopoly.

          • karlgarcia says:

            Who are you calling elephant? 😉

            • The elephant in the room is karl will have a come up with a business that’s interesting and higher paying, because i’d assume most humans are like me and would just want to French kiss all day long. no slave labor for karl.”

              LOL! sorry, karl… i didn’t mean to call you an elephant.

              • karlgarcia says:

                We must use the forum properly or we will be locked out during and after the lockdown.

      • chemrock says:

        “In my opinion, the role of taxation which MMT primarily relegates to reducing excessive money supply ignores that in addition to trying to balancing the national budget also has other traditional key objectives including more equitable distribution of income and wealth.

        BINGO !

        If you have been following MMT discussion chronologically, the use of taxation to drain liquidity was an afterthought, after they had been clobbered left, right, and centre with the issue of inflation and hyperinflation.

        As I already mentioned, try raising taxes during an inflation as your campaign logo.

        With only taxation to fight inflation on the one hand, and the use of taxation for other national objectives (which MMT ignored) there will be policy conflicts aplenty.

      • chemrock says:

        Caliphman : “It seems to me that from a practical as opposed to an academic or theoretical point of view, the mechanics of an unfettered “printing of money” can be accommodated within the existing setup, operation and roles of the US Treasury and Fed. That being said, there remains that if overdone, too much public deficits,national debt, or money oversupply can lead to hyperinflation or other economic disasters whether or not the Treasury/Fed organizations and roles are revamped along the lines suggested by MMT.

        The mechanics that you referred to is the debits/credits in my explanation. Accountants are’nt dumb. Despite that accountant is the only profession where being creative can lend one in jail, some sophistry can make things happen. In my time, I have devised ways to handle ‘nominal’ (faux) currencies in multi-currency books, to take care of islamic/non-islamic currency settlements over different public holidays, to reflect exposures in the actual risk currencies instead of it’s booked currencies, etc. Accordingly MMT is a no issue. I have already explained this in another thread.

        We all understand about the inflation. So do MMTers. But I have added concerns no one has picked up here although I have addressed it. And this concern is easily shown in the debits/credits.

        Balance sheet 1:

        – Government Securities / – Corporate Bonds – Loans (Repos/ Discount window)

        – Bank reserve accounts

        * The Fed creates money each time they put money into the banks reserve accounts (credits, or keystrokes, or prints money).
        * Fed gives the bank money for purchase of securities or loans to banks. So the 3 asset accounts are debited correspondingly.

        Assets = liabilities, we have no problems with that, I’m sure.

        Fed manages the liabilities because that impacts money supply, liquidity, interest rates, inflation.
        Fed manages the assets side because there is issue of asset valuation (impacts capital), yield curve (depends on the bond maturities they accquire), crowding out the market, handling lender of last resort responsibilities.

        These assets are REVERSIBLE, meaning Fed can get in and out of the market. Thus it can have QE which increases the books, or QT (quantitative tightening) which decreases the books. Thus it inflates or deflates its book to manage the economy.

        Balance sheet 2

        – Government Securities / – Corporate Bonds – Loans (Repos/ Discount window)

        — Bank reserve accounts
        – TGA account

        With MMT, the Fed is now required to put money into the TGA account (by printing, keystroke, credit the account). But there is no corresponding debit account. If it comes to that, of course I know how it can be devised. But I was pulling Micha’s legs in previous blog — you have a credit, where is the debit. This drew Micha’s irk to which her response was Fed is not a normal company, GAAP don’t apply.

        Balance sheet 3

        – Government Securities / – Corporate Bonds – Loans (Repos/ Discount window)
        – MMT account

        — Bank reserves account
        – TGA account

        The accountant simply creates an account, for want of a better name, call it MMT account. This is a dummy, suspense, faux, meaningless account to mirror the credit entry to the TGA account. So now the Fed’s book can balance and the bookkeeper can go home. There is no gobbledygook. Just basic accounting.

        So for each year’s budget, or any other out-of-budget funding programme, Fed keystroke the money into TGA and debit the MMT account.

        The money in the TGA account is funneled into the bank reserve accounts when Treasury spends.

        On the asset side, the MMT account is continuously increased with each printing of money into the TGA.

        The money that has been created for TGA over a period of time is mirrored in the MMT account. Save for taxation which claws back some of the money spent by Treasury back from the economy, this MMT account has only a one way movement. UP up and away. And this portion of assets in the Fed’s balance sheet is IRREVISIBLE. Means the fed has no control.

        Now, looking at the balance sheet, MMT is a fake account. It’s not a loan, it’s not an asset. So just ignore it. That means Assets is less than liabilities.

        Means MMT leads to bankruptcy of the Fed.

        What is the implication of bankrupt central bank? Maybe nothing to Americans. But not to foreigners. The consequences? — figure it out!

    • chemrock says:

      If I may add further here :

      In the article I went to some length to talk on Targetted Fed Fund Rates and the yield curve of which the Treasury sales of bonds is fundamental. In the pre-1951 feud between Treasury and Fed, I wrote of uncertainty in the market of the direction of interest rates.

      Some people are nonchalant about interest rates, what’s the big deal. Some are not critical but do not appreciate why I am fixated with this.

      Understanding the intention of monetary policy is fundamental to the market. That is why the Fed chairman always give a full account after each FOMC meeting. And that is why Fed do not want to pull surprises. They always give hint of what’s coming up next. Why is this so very important. BECAUSE BUSINESSMEN CANNOT PLAN WHEN THEY DO NOT KNOW WHICH WAY INTEREST RATES ARE HEADED.

      • chemrock says:


        When the Fed and Treasury take conflicting stands on the interest rate, it strains the market.

        • chemp,

          In Stephanie Kelton’s view the Fed’s role re interest rate is simply to keep ’em low. Trump ‘s Fed Reserve chairman, Powell, has been his whipping boy since at least last summer, maybe more but Trump’s mean tweets became noticeable then. And the Fed seemed to have capitulated under Trump’s tweets, keeping interest rates low, per his request.

          That ‘s pre-COVID19. Now it’s on full MMT mode.

          If for MMT to happen , we relegated the Fed to simply keep interest rates low, ala Powell and Trump. Like caliphman suggests, then MMT could still unfold as theorized w/in the existing framework. Your jewel of American capitalism just becomes an over-rated hall monitor in this scenario, pretty much for portfolio managers, loan managers, insurers, traders, etc. won’t affect Main Street because regular folks will have a cushion now straight from the teets of Uncle Sam.

          thus, interest rates (kept low) for your peeps; and tax policy for the rest of us bottom feeders. Kinda like separate but equal, chemp. I’m assuming with money just flowing we’ll be more like France and Canada, holiday and enjoy wine and cheese and just French kiss all day long. not too bad.

          • chemrock says:

            Just to be in the right frame
            Can you explain what you mean by “If for MMT to happen”
            Let’s say you got the green light. MMT now.
            So what is going to happen? Indulge me. Whats gonna change?

  16. Micha, chemp, caliphman… so the Sink Stopper = Tax Policy would be where interest rates would fall in , if Fed Reserve continues its role, no? If not, then in that same metaphor, interest rates would be embedded somewhere in the faucet mechanism.

    • karlgarcia says:

      I have a problem with that.
      Taxes tempers inflation?

      Sin tax to lessen demand on alcohol and tobacco.

      The tax made alcohol and tobacco more expensive but consumption did not stop.
      (Don’t take my word for it)
      So how does this temper inflation or lessen demand?

      • I stopped smoking, karl— maybe a cigar for special occasions. I’m not gonna buy $5 or $6 bucks per pack. I never thought about e-cigs, steam just seems gross. When gas was like $5 per gallon awhile back, people decided to go with mass transit. I can see tax as a drain. hell, if taxes don’t work, just have another pandemic, karl, COVID20 ; COVID21; COVID22, and so on.

    • chemrock says:


      Do you mean MMTers are so bankrupt of ideas, no IS-LM or AD-AS models?

      Interest rates prevent the water from overflowing. Proactive.
      Tax catches the water when its overflowing. Its proactive.

      I know one government that is very proactive.

    • chempo: “Just to be in the right frame
      Can you explain what you mean by “If for MMT to happen”
      Let’s say you got the green light. MMT now.
      So what is going to happen? Indulge me. Whats gonna change?”

      chemp, sorry while I was pondering that metaphor of the sink and faucet and the drain, the “What’s going to happen?” I ended up posting in the 2 above comments, as i was reading other comments, but its the karl= businessman; me = French kisser analogy, chemp.

      I still don’t understand how low interest rates work, but we know Trump was able to man handle Powell/the Fed into keeping rates low.

      So to answer karl’s question about bars, I did stop going to bar/pubs awhile back too when they hiked up their prices, i guess for ambience, i don’t pay for ambience, chemp. I go now and then, when invited, but I don’t order expensive drinks i can mix or buy myself at Walmart or Target.

      I stopped smoking, stopped going to bars, but since beer is still pretty cheap, I still drink. When the gas prices spiked, I adjusted my driving, so did everyone else. so this taxation as drain I know it works, at least for adjusting spending habits of individuals…

      how it will work for say an inflation, i dunno, I don’t even know how inflations develop really, i get that prices rise, etc. that’s all.

      But the jewel of my thinking as I pondered that sink last night, was that karl as businessman would be hard pressed to screw other people over. if MMT were fully adopted. That is the main issue , i think.

      Now we’re in futurist, human behaviour, terrority, which we’ll need to be because getting paid to stay home as a French kissing expert on gov’t pay roll is pretty revolutionary thought, MMT i don’t think has gone down its own logical end.

      I see you’re already comparing it to communism and such, but for your part chemp, how can low rates set by Feds keep innovation and progress moving amidst MMT; I gotta feeling too with all the staying at home French kissing all day long i’ll get pretty creative as well, but un like karl

      I’ll not need to screw other people over. chemp, the LCpl_X vs. karl analogy are two ends of a spectrum, i’m sure you’ll have people that enjoy French kissing at home and driving Ferraris.

      But the premise here is caliphman’s MMT with the Fed, and chemp’s interest rates. I’m just playing it thru.

      • chemrock says:

        ” karl as businessman would be hard pressed to screw other people over. if MMT were fully adopted. That is the main issue , i think.”

        Karl as businessman would seek to optimise profits whether it’s Keynesian or MMT economics. It has nothing to do with him. MMT basically is just giving the Treasury a free hand to spend, that’s all. Caliphman’s interjection is only about whether it can be accommodated under present system, which I have explained is a no issue, just keystroke into TGA at Fed NY. Micha’s advocacy is go for it, it will revolutionise everything, it will screw and kick out the cabals of Wall Streeters and oligarchs, sovereign govt won’t go broke.
        It has nothing to do with Karl. Life goes on as normal. Whether he will do business morally or immorally has nothing to do with the economic system.

        And it also does’nt mean freebies for everyone. You still need to get your ass out there to work. I suspect lots of public services will be free to get your votes. That’s about all. But eventually everything will cost more by the double whammy of inflation and tax. Yes the tax on your beer will be raised.

        “… but for your part chemp, how can low rates set by Feds keep innovation and progress moving amidst MMT”

        That is a non-question.
        Under MMT, Treasury determines monetary and fiscal policies. Don’t go ask the Fed. They will be just book-keepers.

        MMT with unrestrained spending and too much money supply, spikes inflation. Low interest rates encourage spending and business leads to growth but will also lead to heating the economy if not controlled. So MMT and low interest rate is a double whammy to violent overheating. I suspect under MMT there will never be a low interest rate regime.

        • sorry, chemp… several of my responses didn’t meet Joe’s quality control standard, so wasn’t published. I’ll have to back track here a bit, less metaphors.

          But if the goals of the Fed is shared by MMT: full employment; economic growth; stable prices , then much of the funding will go to job creation correct?

          https://en.wikipedia.org/wiki/Skilcraft for example isn’t just for the blind, but also for the mentally slow, they have several facilities that have now closed due to COVID19, most of its “workers” are now suffering from depression because they are cooped up.

          So i do understand the “dignity of work” notion; my point in these metaphors that’s caused editorial consternation is that gov’t funding full employment (under MMT) isn’t shooting for “dignity of work” but for economic growth, like right now giving us money to spend.

          Now i understand that that will lead to prices not being stable, as you’ve said.

          My point was that stability of prices was dependent on the old economics of buying cheap stuff just for the hell of buying cheap stuff, which is tied to full employment, which is tied to karl not being able to hire cheaply people to make cheap stuff.

          I hope you got that, because w/out my metaphors i don’t operate so well, chemp.

          But my retort is that MMT has everything to do with karl and his business. Thus tied to innovation.

      • chemrock says:

        ” Trump was able to man handle Powell/the Fed into keeping rates low

        You see manhandling, they said they say a risk and acted. I’m none the wiser.

        So if you don’t know what MMT is then what are you discussing?
        And what is Caliphman’s MMT? What is Caliphman’s point?


  17. NHerrera says:


    Sorry for the interruption of the life-and-death financial-monetary discussion, but here is a bit of good news for oldies like Lance and me. Got this from nytimes.

    The first coronavirus vaccine to be tested in people appears to be safe and able to stimulate an immune response against the virus, its manufacturer, Moderna [of Cambridge, Massachusetts], announced on Monday.

    The findings are based on results from the first eight people who each received two doses of the vaccine, starting in March.

    Those people, healthy volunteers, made antibodies that were then tested in human cells in the lab, and were able to stop the virus from replicating — the key requirement for an effective vaccine. The levels of those so-called neutralizing antibodies matched the levels found in patients who had recovered after contracting the virus in the community.

    The company has said that it is proceeding on an accelerated timetable, with the next phase involving 600 people to begin soon.


    But here is a caveat: U.S. government officials have warned that producing a vaccine that would be widely available could take a year to 18 months. There is no proven treatment or vaccine against the coronavirus at this time.

    For the PH we may add more months to that timeline, aside from the cost.

  18. caliphman says:

    As I stated above, MMT has many nuances and themes a lot of which are theoretical rather than immediately relevant to economic and political issues the US and other countries have to deal with currently. Educating others about the many facets of MMT is too time consuming and something zi am not particularly qualified for. But if delving beyond MMT’s main common theme of “printing money” without fear of deficits or bankruptcy is of interest here, then the article below may be useful.

    It lays out MMT thinking on the role of taxation, interest rates, monetary and fiscal policy, among its key proponents over the decades. More importantly, it discusses the main critiques of MMT. One of which is that MMT is not proposing anything radical from and can be embraced within established macroeconomic theory. For instance, printing money during national emergencies within the existing Treasury/Fed scheme. On the other hand, there is an MMT school that demonizes greedy corporations and bankers as a source of inflation not due to excess money supply and espouses the need for government regulation. Finally, it’s important to keep in mind that for many of us, this is a learning exercise (even for me) but because MMT is complicated and is still evolving, it’s important to focus on what is practical and relevant.

    Thing is with the pandemic and economic shambles left in its wake, there are so many other priorities we may have to attend to. But this blog was an interesting break. Thanks to chemmy.


    • chemrock says:

      That vox article is one of those sensible ones on MMT that I have in my reference collection. I think Karl also referenced that.

      For me, the status is very clear. There is no issue with mechanism. Piece of cake. Simply put money in the TGA account. No more bond sales. Viola we have MMT.

      Main issues on the table are :

      1. The money thus created in the TGA is not reversible (except for withdrawals by taxation. Is there a way to deal with the inflation from the built up of money supply from years of keystroke money into the TGA? Is taxation sufficient? I am absolutely certain its not enough because of fractional banking that multiplies those money coming from the TGA.

      2. How is the yield curve going to evolve? Without this nothing else works.

      3. As I explained in the comment on Balance sheet 1,2, & 3. How can the bankruptcy of the Fed be solved. MMT will cause a gap in it’s balance sheet. Assets less than liabilties. Theories are fine, but the devil is in the details.

      4. How can inflation be controlled with taxation but at the same time continue with creating money for the TGA? Its policy distortion with a capital PD.

      5. If Fed’s status quo remains, that is, still looking after monetary policy, then it’s back to pre-1951 Fed-Treasury Accord status. Back to policy disputes and keeping the markets in limbo as to the direction of the economy.

      MMT need to be able to show how their theories can satisfactorily address these concerns.

      That to me, is where the matter lies.

  19. I was re-reading some old blogs here, and came across a good discussion on innovation and progress, and creativity.

    I think, IMHO, MMT will free up people to do more creative, thus innovative stuff. But i’ve not thought thru this really, i’m just thinking out loud why we would now so easily label French kissers who get paid to stay at home and continue being heroes, why that is so morally reprehensible, if MMT is in full effect, they shouldn’t be.

    https://joeam.com/2015/12/16/lamat/#comment-152980 (scroll up and down from here, but I just wanted to post another Einstein quote to be consistent, but its a good discussion).

    • NHerrera says:


      This is a trivial comment in this blog, but it is prompted by that quote from my idol Einstein. In a lot of instances I admire the quotes from him, but this time, I believe he has engaged in a bit of hyperbole.

      Skyscrapers, suspension bridges spanning long distances , dams, power plants; satellites, smart phones and computers that power the digital age have lots of creative engineering in them.

      Haha, the above comment is a reflex defense in behalf of engineers. Seems indirectly related to some of the blog discussions — engineers are on-the-ground guys compared to some theoretical physicists [not my idol Einstein though] who spout MMT-like concepts. That last phrase a joke, Micha. 🙂

      On second thought, Einstein’s statement that I belabored is probably focused not so much on the engineer and creativity but on the fact that some engineers do get substantial capital gain from their profession [not this writer]. I differ with him in his characterization that that is the engineer’s goal — capital gain that he finds loathsome and unbearable.

      • chemrock says:

        No one is blaming you. An engineer, whether creative or not, needs to earn a living. Even under MMT, he still needs to labour.

        • NHerrera says:

          Yes siree! We mostly have to earn a living, not all of us are inheritors from rich relatives. Even the MMTers. 🙂

          • “engineers are on-the-ground guys compared to some theoretical physicists [not my idol Einstein though] who spout MMT-like concepts.”

            NH, this is exactly what Einstein is saying. engineers are on-the-ground; scientists high falutin’. theory and practice. Though the borders aren’t sealed.

            Scientist discovers X-ray; Engineer makes contraption that makes X-ray; Technician performs function of said technology. Ideally, all three can be found in one person.

            All engineering is military engineering, NH, why most officers in the military are engineers, other military officers tend to be Classicists/philologists. Then when they do their Staff/Field grade officer education, usually its a Masters in Diplomacy or something or other. So it’s reversed on-the-ground to high falutin’.

            • NHerrera says:

              Yep, then the high falutin’ military guys serve the likes of Trump, who, if he is in boot camp, will be barked on relentlessly from Day 1 by the Drill Sargent. But they get high falutin’ salaries and perks while they are insulted by T. Now I get what Idol Alberto E was referring to — I know there was something missing in my critique: Military Engineer-Officers who get to be high falutin’. 🙂

              • NHerrera says:

                I yield back. No more of these trivial comments.

              • NH, without the benefit of actual stats, I would say all US military officers, 50% would be Republicans; 50% Democrats/independent , but once you break it down farther, you’ll see a big gap with 90% of the officers in combat arms as Republicans; while non-combat arms you’ll see more Democrats/independent.

                The enlisted though will be more 80% Republicans across the board, but also because 4 year enlistments who leave the military are 18-24 year olds who don’t generally vote (thus no party), so the majority who do stay are Republicans.

                My point here is that the military officers, aside from that combat arms/non combat arms skew, are representative of the US population; but the enlisted seem not so— but since the majority of those who are enlisted are Republicans, tells me most Democrats leave the military after spending 4 years, 6 years, there.

                So with that knowledge , i’d say enlisted personnel are like technicians, officers are engineers, whilst civilian staff (RAND types) are the scientists. But unlike the Philippines, enlisted folks can be officers (there are several paths for this within the military, there should be more IMHO), or leave the military and return as RAND types.

                IMHO, for innovation to occur which is connected to what I’m trying to hammer with chemp, you’d want for people to fluctuate from technician, to engineer, to scientist— seamlessly. And if you ‘ve watch all three Ironman movies, that’s basically what Tony Stark does in every movie– get hands dirty. Engineers in the Philippines tend to see themselves as scientists,

                how many engineers there have workshops in a shed or garage? and how many just have an engineering degree they hang on their wall as status. That’s innovation, why shed/garage/workshops are important, which connects to my talk with chemp on the benefits of paying folks to stay at home, look at youtube now with an uptick on how to videos.

              • p.s. — NH, i’m interpreting Einstein’s “more refined” as repetitive, as in how many times can you distill this process , the opposite of innovation. Opposite of creative.

              • sonny says:

                🙂 NH, we can’t stop now. At least me, anyhow.

                Social note: T spent his formative years in military school. As they say, the child is father to the man, thus he has an idea how the chain of command works and, horrors, he holds supreme executive authority now and to all appearances channeling Theo Roosevelt and his ‘big stick.’ Of course I wish he would also channel the citizen/soldier non pareil, the late Pres Eisenhower and Gen George Marshall.

                Also, LCpl is historically correct, engineering has military roots, e.g. the Roman armies built aqueducts and infrastructure in the settled lands & enemies they conquered. Another example closer to home, the US SPQR immediately set up a Civil government only after the Military pacification of the Philippines: health and sanitation infrastructure, equal access to education for all, a unifying lingua franca, an indigenous Civil Service Commission, a surrogate Commonwealth to introduce and develop self-governance.

              • NHerrera says:

                sonny, thanks for the info.

              • sonny says:

                “Skyscrapers, suspension bridges spanning long distances , dams, power plants; satellites, smart phones and computers that power the digital age have lots of creative engineering in them.”

                No matter whatever high-falutin theories are drawn, either of laboratory or economics, these have to wait for the engineer’s say so to come to reality. Else, might as well be lights out.

              • chemrock says:

                I salute to that. Did’nt we say pack them engineers in the cabinet Mt Duterte.

  20. Thanks for the article Chempo.

    • chemrock says:

      Thanks for the link. A long read, but refreshing.

      A few things stick out for me.

      On radical reforms, it said:
      “Governments will have to accept a more active role in the economy. They must see public services as investments rather than liabilities, and look for ways to make labour markets less insecure. Redistribution will again be on the agenda; the privileges of the elderly and wealthy in question. Policies until recently considered eccentric, such as basic income and wealth taxes, will have to be in the mix.”

      I don’t think there is anything radical here. Perhaps in US and one or two EU countries. But countries all over the way have been doing all these to varying degress of success.

      ” “The problem with socialism, is that you eventually run out of other people’s money.”… Magaret Thatcher

      Inequality has always been there, and it has a purpose in human affairs. I look at it from the positive side as providing the drive for achievement. However, the disparity has grown impossibly wide. You can’t have a situation of 1% cornering 90% of the world’s wealth. A more equitable redistribution is required. But equally important, is understanding how this situation happened. Knowing how the problem got here, therein lies the solution.

      Simply taxing the rich to smithereens is not the solution. How to do it without killing the goose that laid the golden eggs. I just saw yesterday, Mayor Cuomo warning that he is collecting only 30% of estimated taxes and the reason is all the billionaires, the business class, are leaving New York City. In the era of high technology services industry, these business class don’t need factories. They take their laptops and leave. This scenario is being played out in many blue states and cities. They are all going to Texas, Florida, Seattle….

      Those that condemn folks like me who do not advocate punitive taxes (by the way, I belong to the working class) do not appreciate that collection of taxes is not the solution. It is what they do with the taxes. If the macroeconomics are not well managed, all the money in the world and MMT can’t help.

      ” “The reason progressives often lose the argument, is that they focus too much on wealth redistribution and not enough on wealth creation.” Mariano Mazzucato

      That’s the nail in the coffin for MMT as far as I’m concerned.

      Mazzucato’s idea of the ‘Entrepreneurial State” is simply brilliant. Many of us have some concept of this all they while but we just did’nt know quite how to articulate it.

      I first heard of this word ‘entrepreneurial’ when I was a kid. Mr brother was CEO of small company. He proudly told me he was an ‘entrepreneurial manager’ and I asked what’s the difference with an ordinary manager. That difference I learnt early. Not long ago I made a proposal for electricity supply for a building with monthly consumption of more than 300kWh per month. The executives took almost one year to act and instead of simple quotations they went for public tender. BY then time they got round to it, market rates had risen, so they shelved the idea. Had they jumped to act about the time of my proposal, savings would have been S$500,000. An entrepreneurial manager would have jumped and acted. An ordinary manager sees it as an extra job and risk for him.

      Mazzucato saw the amount of govt funded R&D as socialising research cost and privatising R&D profits. Trillions and trillions of $ have been poured into R&D but the patents go to private companies. You will be amazed from Nasa R&D alone, how many thousand patents came out of it. In fact, my brother had the agency to one of these years ago — the velcro tapes. They used these on the walls of the spacecrafts that astronauts stick anything to the wall, like their coffee cups, or else they will be floatsams. Mazzucato was right. The govt ought to have a policy of seeing successful products return the R&D investments plus interest.

      But then, intelligent as Mazzucato is, some of the successful countries in the world have been doing just that — having a return on their R&D investments.

      And then we have Mazzucato’s friend Stephanie Kelton jumping in to say “governments can print extra money if needed to fund their ambitions – and not to worry about national debts and deficits. You can’t liken governments to households. After all, households can’t collect taxes or issue credit in their own currency.” (sounds so familiar) I wonder what Kelton thinks of bitcoins.

  21. karlgarcia says:

    Chemrock I need your correction here because I am sure there is a lot, but I am not afraid to be wrong unless it will surely be a fatal error.

    Anyways even without. neoliberalism, globalization, the dollar, renminbi we can not survive on the peso alone.

    Full vertical integration supply/ value chain is next to impossible to achieve.
    Sure WW2 made Americans used their resources to not only fund but also toto arm them selves etc.
    No one can repeat that, ever.

    Even food security does not mean zero imports.
    Even if the oligarchs or local banks eliminate our foreign debt today by converting all foreign denominated loans to local by some sort of magic wand, tomorrow they will be replenished because the local banks after getting a risk free iOU the government, they too have foreign obligations so back to square zero.

    Our generics are controlled by China. Yes it is India who makes them but they source the active ingredients from China, because they can not replicate a mega API factory because they won’t do MMT and they are afraid to be bankrupt.

    Cheap medicine is impossible with the current supply chain setup, will that ever end? Only our grand kids can tell.

    • chemrock says:

      I don’t want to come across as conceited or patronising. Those are your opinions and you are sharing with us. We can all comment as we like to expand out minds.

      I guess your point is, can a nation unplug itself and live in isolation. There is only one place I know in the world where they are doing just that — the North Sentinel Island in the Bay of Bengal. No foreigners are allowed to go there. They are still catching fishes with their bamboo spears and drinking from streams.

      The last nation that tried to live in isolation was Japan. Norkor is not in isolation in the true sense. They are cutting their people off form the rest of the world, but the country still barters for some stuff, especially the fine wines for the boss.

      Wealth is created in the exchange of goods and services. A country should make full use of areas or products where they have competitive advantages, whether natural or created. Unfortunately, in the agricultural and industrial sectors, PH has no competitive edge. In the services sector you have, but that is on the back of cheap labour, not technology or productivity.

      “we can not survive on the peso alone.

      Technically you can. Trade by barter. But that would be cumbersome.

      “WW2 made Americans used their resources to not only fund but also toto arm them selves”

      During WWI, all those who did’nt go out to fight, were harnessed to produce all the armaments and war machineries. End of war, millions of soldiers returned, and millions of people worked in defence factories. What you gonna do? Stop production and have the Mother of all unemployment? Of course not. Keep on producing more weaponries. Thus the military complex was born.

      “..the local banks after getting a risk free iOU the government, they too have foreign obligations “

      Yes, there is national debt and private debt. You don’t want the private sector to have foreign currency debts? Then implement martial law on currencies — Capital Controls. Be prepared for full capital flight after that.

      “…Our generics are controlled by China.

      Every country has generics controlled by someone else, one way or another. The past 40 years, China has been the factory to the world, on the back of their cheap labour. That era has come to a close.

      In the last 10 years, relocation out of China has been going on. It was just trickling. Covid-19 is hastening this process.

      In our region, Vietnam and Thailand, and to some extent, Indonesia, have been the beneficiaries of this relocation of manufacturing out of China. Singapore is not competitive as a manufacturing base, and it’s been building on a vision of the next big wave of the way corporations do business. It’s called hubbing. Corporations use a regional hub to manage their far flung overseas branches. This is a services, high technology end of business supported by very open markets, good communication infrastructures, supported by capital, financial and commodities markets. We have been building this for a while and now boasts of hundreds of hubs of all sorts of international companies. Philippines is still in a slumber and can’t see what’s happening.

      “….India.. …can not replicate a mega API factory because they won’t do MMT”

      I reiterate again. MMT is not the panacea to a country’s economic problems. Not US, not India, not anyone else.
      MMT is the noise, the distraction.
      A country should solve its economic problems the good old fashioned way — infrastructures, education, resource management, good judiciary system, law and order, anti-corruption, good money managers not scumbags, etc etc ….. build on your areas of competitiveness, have visions, etc, etc. Most important of all, get yourself a proper leader.

      • karlgarcia says:

        Copy, noted and appreciated.

      • karlgarcia says:

        Indonesia is expropriating and purchasing what they could not expropriate to accommodate the expansion of US companies and also guise that will leave Chna.

        While the Philippines almost leased out 10 percent of its agricultural land to Chna back in the time of Arroyo.
        And now Chna would not settle for almost they want the whole nine yards, but all Roque said its fake news,(Province of China)

  22. Micha says:

    Here’s today’s New York Times channeling MMT :

    “A decade ago, the Federal Reserve was instrumental in keeping the banking system from going bust. This time around, the Fed’s actions are far more sweeping, and it has essentially propped up entire financial markets with its bottomless ability to buy assets with freshly created money.”

    “Jerome H. Powell, the Fed chair, has signaled that the central bank will continue to do so. On Monday, the stock market closed up 3.2 percent, bolstered partly by comments from Mr. Powell, who said there was “really no limit” to what the central bank could do with its emergency lending facilities.”

    How nice of Mr. Powell propping up the financial market.

    “The one thing I can absolutely guarantee is that the Federal Reserve will be doing everything we can to support the people we serve,” Mr. Powell said during a television interview broadcast on Sunday.”

    MMT for financial markets because Mr. Powell wants to serve “his people”

    • chemrock says:

      I’m betting you really still don’t understand up to this point the core issues I have laid on the table. I spoke in the blog and clarified again in my reponse to Caliphman they one with Balance sheet #1,2,3.

      Nobody is saying there is any limit to the Fe’s power to create money by keystroke. You are just too dense to think I’m too stupid to think I don’t understand this.

      Just read my words here carefully.

      Powell’s creation of money in the bank reserves account firstly, has a real asset (securities purchased) and a real liability. Secondly, it is reversible. Powell can take back all those money created by doing a QT. Meaning he can control the money supply that he created.

      Whereas the money created under MMT for Treasury by keystroke the TGA, firstly, is IRREVERSIBLE. Powell has no control to contract that money created. It’s a one way train to inflation. Secondly, there is no asset. If you have a liability and no asset, you are bankrupt.

      I know you are very intelligent. Your response, like all MMTers’ response to inflation is, TAXATION. Taxation can indeed take back some of the money created for Treasury. But like what I told Karl, when you read in text books, you are absolutely correct, and yet you can be wrong. Since you are too dense to figure this out, let me lay this out for you. Treasury’s budget is say $3T. After it’s been spent, the $3T is in the market, fractional banking will multiply that to $30T. Now Treasury spends $3T, you wanna tax Americans $30T to contract the money supply?

      • Micha says:

        “Nobody is saying there is any limit to the Fed’s power to create money by keystroke.”

        Congratulations chemp, you’re finally coming towards the light. Chalk one up for MMT. We’re making some progress here.

        MMT : 1
        Chempo : 0

        You can’t contain the truth chemp. It has a way of manifesting itself. No matter how you flail about your ridiculous assertions about the nature of sovereign debt and inflation, the truth will bear itself out.

        Which brings me to update our scorecard here since you are wrong about sovereign debt and inflation too.

        MMT : 3
        Chempo : 0

        • chemrock says:

          You have displayed an incredible inability to understand what you are dumping here.

          I’m beginning to think you don’t really understand MMT.

          You are adding nothing to the discussion.

          Let me teach you how you could have responded to one of my concerns.

          I said $4T MMT money printed is for the Treasury’s TGA itself may not be the real problem, it’s the $40T that fraction banking will create that’s the real danger.

          You could have said, oh in that case, then we should be looking at the real problem and find a solution, how to curtain the multiplier effect. That would have been a brilliant point to kick off a real discussion.

          Instead, what did we get from you?

      • chemrock says:

        You are really very very dense Micha.

        Powell’s printing of money is buying debt. It has nothing to do with your MMT. Is any single dollar of this money printed by Powell going to the Treasury for the government to spend on goods and services? I’m sure you are intelligent enough Powell’s money is going to investors who own sold debt instruments, yeah all those evil wall street people and fatcats and oligarchs.

        Gosh this is so basic and you cannot understand !

        You cannot respond to my concerns but continue to dump links and cuttings and quote grabs without even understanding them.

        I’m thinking that you don’t really understand MMT other than “Sovereign government cannot go bankrupt….blah blah blah….”

        • Micha says:

          Hahaha, your logical contortions and somersault is, as always, ridiculous, chemp. As I said, no need to belabor the point, we’re just going circles here. Believe what you must, it doesn’t matter. Truth will bear itself out. Policy makers will formulate policies based on reality.

          You, on the other hand, can continue to flail about what you believe. It doesn’t matter. You don’t get to decide policies (thank god!).

          Stop being so smug and over confident in your illusions.

    • “Treasury’s budget is say $3T. After it’s been spent, the $3T is in the market, fractional banking will multiply that to $30T. Now Treasury spends $3T, you wanna tax Americans $30T to contract the money supply?”


      “Mazzucato saw the amount of govt funded R&D as socialising research cost and privatising R&D profits. Trillions and trillions of $ have been poured into R&D but the patents go to private companies. You will be amazed from Nasa R&D alone, how many thousand patents came out of it.”


      chemp and Micha, no body’s dense here, we’re just in disagreement. So long as we can type/talk we can get to the bottom of this disagreement. chemp i don’t know any further of what caliphman means by the Fed and MMT can exist together, only that they just may very well be able to exist together, maybe a lesser role in matters. i dunno.

      awhile back into the discussion I stated that Debt Monetization was magic, i’ll expand that now to fractional banking, and your “multiplier effect” (and the curtailing there of). R&D also is close to my heart which is what that whole karl=businessman & LCpl_X = stay at home hero analogy was about, and Einstein not wanting to be an engineer. Nor a patent evaluator.

      Now, hopefully we’re finally going to take the discussion to uncharted territory, so please try to refrain from insults (especially ones lacking in imagery) so these comments which I’m closely studying becoming easier to read (for others too). chemp, Micha, unlike dudes seems to be using insults as a defensive reaction, thus there’s no need for you to follow suit.

      Two analogies,

      1. I have a pet rabbit, I’m gone for awhile, so i get her to a pet hotel. after a week i come back I come to get her, I pay the balance of their services, and that’s that. Unbeknownst to me, the pet hotel while I was gone, cloned her (from $3T to $30T).

      2. Same rabbit, I pluck her out of a top hat, then another one, then another, until there’s 10 of them. Magic!!! (“multiplier effect”).

      For the purpose of these two analogies, lets say cloning is still magic, focus on the whole concept of 1 become so many, like what Jesus did to the 5 loaves and 2 fishes. chemp, your balance sheet is just the top hat, that’s the thing you show to people and say, look here, it’s just a top hat, but the actual magic is in the “multiplier effect” . Voila!

      So my argument here is to not only curtail the “multiplier effect”, but to put an end to it. Because MMT, why have two engines of wealth creation, when only one is necessary. Given the first magical enterprise’s history, ie. Subprime Crisis, etc.

      Now going back to the karl=businessman; LCpl_X=stay at home hero , w/out banks having the power to perform said magic, can innovation / R&D still transpire? Basically, banks in this scenario will be like banks of old, when they were just there as vaults, a place to safeguard money & valuables. No magical feats, just a brick and mortar facility, that’s safe. I guess for today virtual place with all the hooplas to keep hackers away.


      pet hotel is just a pet hotel and top hat just a top hat.

      The question then is , is innovation and R&D dependent on banks having magical powers? Yes, IMHO, just one more think to curtail, I think the issue is the patent/copyright/trademark laws, which Einstein was a patent evaluator,

      This tells me patent offices are pretty boring places, not really necessary , I like Newton sitting on a tree and an apple falls on his head much better imagery than a patent office. So do away with patents (and copyrights and trademarks), i know JK Rowling would disagree, but my concern are corporations’ ability to patent or copyright things into existence.

      Then forwarding all that wealth into a magical engine creating more wealth.

      Going back to karl=businessman, his money making enterprise will be curtailed greatly now, right chemp, because no more factories really; no more finance industry; no more patents. He’ll be force to run a business where the point was to screw people over, on top of making cheap unnecessary items.

      Where as LCpl_X=stay-at-home hero, I’m planting Prickly Pear cactus in my backyard, happy with my hero pay, but i’m writing about how to cultivate all sorts of varieties of these cacti, posting youtube videos, writing online books, after generating demand then print out hard copies, by passing need for copyright, i’ll do a podcast just all about Prickly Pear cactus and why it represents life, deep also.

      All that because the Treasury was able to keystroke my hero salary for staying at home into my WeChat Pay/Ali Pay (I’d call it HeroPay , trademark pending), a bunch of other heroes pay into my HeroPay account, I get rich from my book deal, comparatively, inspires others to do the same or similar, say for Pomegranates, rhubards, etc.

      Because corporations cannot tap into banks magical powers, nor can the heroes, thus we’ll have to be content with the wealth we can create w/out the use of magic, ergo “multiplier effect” curtailed.

      The kicker here is without big corporations, like karl=businessman producing superfluous items for us, a new relationship between individuals develops, we all produce goods and services for each other. There lies innovation and creativity, chemp. Something untapped because corporations (with the help of “multiplier effect” to crush competition) effectively stamped out.

      • karlgarcia says:

        Regarding patents, this is still a controversy.

        On March 7, 1876, Alexander Graham Bell received a patent for the telephone; three days later, he and associate Thomas Watson successfully tested their invention. Elisha Gray, Antonio Meucci and Thomas Edison all claimed to have invented the telephone first, and the issue is still a source of controversy

      • karlgarcia says:

        Regarding the trash talk.

        Caliphman said it best when he said(paraphrased): Rethoric and reason do not mix.

        I do not play favorites here.

        When kasambahay crossed the line with Micha I called her out.

        But in this oil and water exchange, it will always end up with a solution of 100 percent water and 100 percent oil.

        No imagery there LCX because I made that up.

        • chemrock says:

          I thing I had been exceedingly patient and tolerant of Micha.

          She brought nothing to the table except quote grabs and link dumps. Like I said, for every pro-MMT link, I can show you an anti-MMT link. But we don’t need a link contest here. She was also name dropping and like I said, for every MMTer name mentioned, I can also show an anti-MMT big name, again that’s a contest we don’t need. These I have refrained throughtout.

          If you show a link and a quote and discuss it in relation to the rebut on my ideas, that’s fine. But meaningless links don’t mean anything.

          From a level of juvenile approach to the discussion, she crossed the line when she asked my resume in order to diminish me by qualification. In good faith I offered personal info only to face repugnant pugnacity from her.

          Her reference to Mossler is really a joke since the gentleman is her pet hate. He was a trader in a Wall Street firm. I had lots of salvo, but I held her back. I could have asked her, name me another hedge fund trader who is a MMTer.

          Every point she raised I have destroyed.
          Not a single point I raised has she engaged.

          She knows I’m prepared to carry her blank strap if she can have a solution for the concerns I raised.

          Unless she has something to contribute, I’m through wasting my time with her.

          I want to make it clear, half the time when I demolish her comments, I did so with the view of sharing, particularly for those who are uncertain of the issue and care to find out.

      • chemrock says:

        It’s difficult to understand the core of what you are saying. I’ll respond point by point.

        (1) “… i don’t know any further of what caliphman means by the Fed and MMT can exist together

        If I get it right, he said let’s put inflation, independence of Fed, other concerns aside, if MMT can be accommodated in the existing mechanism, and if it can address the problems of our economic crisis at the moment, then it should be considered.

        My respond was to deploy MMT is a piece of cake. Simply have Fed keystroke the credits into the TGA at Fed NY. It’s not the deployment that’s holding it back. It’s a question of can it work — solve the economic problems of today? And my articulation here is a flat NO and I have explained WHY.

        (2) “….Debt Monetization was magic”

        There is no magic…it’s the real deal. If you are in a jam, you dispose of your assets for cash to have cash in your house. You sell your Ferrari to get cash to pay your rent. Debt is just like any asset that you can convert to cash.

        (3) “…I have a pet rabbit

        This analogy is wrong at a few levels.

        The pet shop owner has a rabbit that he does not own. He clones another so he now he creates and asset which he can sell.

        The bank has a deposit which he does not own. He loan it out so now he creates an asset (loan) that he owns. Unlike the pet shop owner, when he creates an asset, he creates a corresponding liability. Recall I mentioned every $ transaction ends with banks’ reserve account at the Fed being debited or credited. In this case, the banks’ reserve a/c is debited, means he has a liability to the Fed.

        Some people (no names mentioned) think all this Fed deibts and credits are just play play, just digital magic. When the Fed keystrokes money into bank reserves or the TGA (for MMT), it is creating liabilities for the government. It is a debt by the government to the account holders.

        A $ in your hand, whether a currency note, or a balance in your bank account, is your claim to the government for value received. There is debt. MMTeers are’nt seeing the wood for the trees.

        (4) “….your balance sheet is just the top hat, that’s the thing you show to people and say, look here, it’s just a top hat, but the actual magic is in the “multiplier effect”

        The word magic is applied by many critical of the system in a derogatory way. It denotes trickery and afalsity to a very serious matter. The Fed’s balance sheet liabilties show the public’s claims on the government. The money that has bee created through fractional banking is out there in the market, not with the Fed. This is seen in the M2 data. There is no magic about it.

        (5) “So my argument here is to not only curtail the “multiplier effect”, but to put an end to it.

        You are saying ban bank lending. That’s tantamount to saying close all banks. Go down the supply chain and close all the others — the ATM manufacturers, the rating agencies, the financial software developers, all those network backbones, derivatives markets, fund managers, various risk hedging markets etc let’s throw millions out of jobs. Oh don’t worry, under MMT the govt can create full employment. Many open up thousands of rabbit shops?

        Lending is not a dirty work. And some people who have been drilling Karl’s brain about budget deficit is right. Lending is not bad. But unfortunately, the proviso is never taught – you can borrow provided you have a future income to repay debt. (that’s the magic pitch of snake oil salesman. Pitch on the upside, silent on the downside).

        (6) “Because MMT, why have two engines of wealth creation, when only one is necessary.

        The money that you have is an asset. You have other assets. All your assets are your wealth (ignore the intangibles – your good looks, your brains, your connections to corrupt officials etc). Wealth creation is making those wealth grow (ignore the boring parts of bring other factors of production together). A very important ingredient of growing wealth is to have savings (deferred consumption). But the irony is MMT is not about savings. It’s spending without having real wealth, just create money (forget the liabilties side — that people holding all those money created now has a claim on the government).

        Lance, please do understand this (I don’t think this has sunk into you yet) :
        The core of MMT is create money for Treasury to spend (versus debt by issuing bonds). That’s all there is to it. It’s ABC. Everything else, all those theories, is blowing in the wind.

        So in the entire deliberation of MMT, they ignore the rest of the economy that does not rely on government spending. The deficit budget is $3T, the US economy is $21T. What’s driving the rest of the country?

        (7) “…Basically, banks in this scenario will be like banks of old, when they were just there as vaults, a place to safeguard money & valuables

        How do you propose the banks’ live on?
        By the way, banks of old were not just vaults, they were money lenders. Recall my old article The Holy Curse of Bankers? They were Shylock and those money lenders.

        (8) “The question then is , is innovation and R&D dependent on banks having magical powers? Yes, IMHO, just one more think to curtail ……… my concern are corporations’ ability to patent or copyright things into existence.

        You should look at the debits and the credits, not just on the profits people make. You can’t have a radical view by skimming the surface. Consider this:

        – Some people spent their entire life working on an innovation.
        – The amount of personal savings loss in innovation before one seeks sponsors, meaning loss of independence and rights and earnings.
        – Sponsors who pump into R&D and unearth duds. Do you know how many duds or failed projects for every one success in the market?
        – Risks-Rewards is the fundamental theatre that humans operate. All other systems have failed. Threats? – look at how many apostles were matyred and how many followers of Christ we have today.
        – Innovation and R&D is not dependent on banks magic powers — it is directly dependent on the indomitable spirit of some people and their grey matter.
        – many people in innovation and R&D are just like Einstein — they are not looking at the cash register. Some have even lost their lives, eg the young female scientist who actually discovered the helix character of DNA (but whose discovery was hijacted by the 2 gentlemen who claimed the credits) — shied from overexposure to nuclear microscope.
        – some spend millions on R&D and never enjoyed profits because of the speed of obsolescence.
        – etc etc

        But I do agree some patents are a bit ridiculous. Like Apple bringing Samsung to court all for the patent of having their rectangles rounded at the four corners.

        (9) ” no more finance industry; no more patents. He’ll be force to run a business where the point was to xxxxx people over, on top of making cheap unnecessary items.

        That’s rather shallow. You know the words by now – resilience. There’s no way you can keep the indomitable spirit of humans down. We don’t know how the economy will turn out. There will be changes, how radical I would’nt know, But my faith in mankind is more positive. There will still be markets, there will still be restaurants, don’t you worry.

        I may have dooms day scenarios for the US $23T debt, but I don’t have the same as you for mankind in the aftermath of the virus pandemic.

        (10) “…, we all produce goods and services for each other. There lies innovation and creativity

        I finally get you point. We will return back to the future….in the days where there was no job segregation. Everybody is a producer unto his own. We just exchange stuff. So how’s is this related to MMT? Govt prints something for us, and we just use it as a medium of exchange to buy and sell directly to each other.

        Why stop there? Why not go to North Sentinel Islands. Don’t even need MMT money.

        Say we get to your scenario. Let’s say I produce cars. On my own I produce only 1 every 3 months. Soon I learnt NH and Sonny are great engineers. So I put aside some of my MMT cash and when I had enough savings, I ask Sonny and NH to produce some machinery for me. Now thanks to them, I set up the machines and now I can make 10 cars a day. I’ll name my cars Ford…..What?, it’s been done before?

        • chemrock says:

          Still regarding patents, there is some equity.
          Patents have expiry dates. I think it’s 20 years in US.
          The Nasa R&D velcro tape that my brother had agency rights? It was a product before its time. People did’nt know how to use it. As a kid, I helped him brainstorm applications, like use it on shoes and bags. I suggested replace zippers. He was not successful. The Bata Shoes CEO literary threw him out. Years later the patent expired and Taiwanese velcro tape captured the market and today the product is used everywhere.

          • The patents i’m worried about are ones based on biology and genetics;

            the internet/tech industry have their own worries, ex. where a person files some generic tech idea and sue the people who actually work out the idea, but that’s small potatoes to the patents based on life.

            My thinking is, if you do away with all that stuff, people will find ways to ensure their ideas are monetized.

            Patents have expired for LSD, psylocibin, mescaline but now with legislation about to drop for legalising them, now companies are tweaking the original molecules to be able to patent a 2.0, or 3.0 , version. cactus and mushroom grown on the ground!

            Either put it out there as a gift to mankind, or make money off it creatively. Do away with the law.

            • chemrock says:

              I’ll leave it at that, seeing I hav’nt got the faintest idea about the patent process, the legalities and technicalities, especially in biology and genetics.

              By the way, the company that owns the most patents in the world, Foxconn — it is still just a $3 stock before the virus pandemic.

        • Haha. Well done, Chemp. Well done. Thank you for the work you’ve put into the blog article and this discussion. Your patience is as deep as your intellectual might.

    • Thanks for obliging my scenarios, chemp. I’m not arguing from any positions of authority here (i thought Micha was gonna do that). Unlike the Darwin and Islam stuff, I don’t know this stuff as good as i should.

      But I am pretty confident on why I ‘m repulsed by “multiplier effects” of banks and the finance industry. And I’m calling it magic, because I’m not gonna call it divine , as in only God can make something out of nothing (and I’m not religious).

      MMT to me sounds like magic too, but it sounds like magic that can be democratically applied. Or maybe because its never been applied as of yet, hence yet sullied.

      I am familiar with the banks of old also lending, this is the reason Muslims went the opposite when it came to usury. But you gotta admit, small time lending is now something totally different from what was then understood in the past. Apples and oranges, chemp.

      I do understand what you’re writing about why $3T becomes $30T , I am tracking, i’m just panning out farther. And no matter how I figure your explanations on it, it’s still the 5 loaves and 2 fish miracle, chemp (God is Jesus). We can differ on this, that’s fine. We’re using two optics after all.

      We can peaceably part ways re magic. No problem.

      As for patents and how goods and services are made, and your last example with NH and sonny, of course you’re right there’s nothing new under the sun. The only thing new is the internet and digital currency. but how that marries with MMT, i dunno.

      “Oh don’t worry, under MMT the govt can create full employment. Many open up thousands of rabbit shops?”

      This is the big question mark, chemp. I gave you my Prickly Pear notional idea because I’m not entrepreneurial, but I assume a bunch of people will create new goods and services, as soon as a new economic model is agreed upon.

      Hell , the beauty now is that multiple economic models can now exist, side by side if necessary, and maybe that’s a better way to do wealth creation , chemp, for people like karl who want more; and for people like LCpl_X who want less. a path for everyone.

      Lance, please do understand this (I don’t think this has sunk into you yet) :
      The core of MMT is create money for Treasury to spend (versus debt by issuing bonds). That’s all there is to it. It’s ABC. Everything else, all those theories, is blowing in the wind.”

      I understand this part, chemp. And why i’m questioning the bonds of WWII (although i’m still reading up on that, maybe you’re right that they did square all that), and you do make a good point with the bonds of today, just IOU notes, and your comparison of responsible banking vs. American fly by night banking norms now.

      But the theories blowing in the wind is what I’m interested in. And there are plenty, just like conspiracy theories, some are superior some are just funny, but all are potentially dangerous because as Carl Jung said, “People don’t have ideas; Ideas have people

      I’m kinda disappointed at Micha’s performance, but all in all a great blog, chemp. I learned a lot. Thanks!

      • chemrock says:

        “But the theories blowing in the wind is what I’m interested in.

        Would you care to propound the theories and explain how you understand it? Our engineers taught us Euclidean ideas, so maybe there is some formulaic representation other than the faucets picture.

        Lance, you come across as mixing 2 ideas up, so it’s a bit confusing. I mean it’s MMT and the game changer with the virus. You seem to be saying with the virus problem, govt use MMT to helicopter drop cash. With lockdown and all that, business will be conducted differently, one-to-one direct buy/sell relationships.

        On the change in economic model, I’ll leave it to Hollywood, they are great at conjuring unknown worlds.

        On the helicopter drop, it does not matter to you whether it’s MMT or debt. It’s also same with the govt — funding from securities (debt) and printing (keystroke to TGA) is still the same — it ends up with claims on the govt, either in terms of the bonds, or in terms of credits in bank reserve accounts as the TGA funds funnel into banks when govt spends.

        The $1,200 helicopter drop is supposed to be one off thingy but you imply under MMT govt just pays everyone and you are lazy you want need less so you choose wines and stay home while Karl wants more so he has to go produce something on his own. MMT is ‘free’ money so you imply govt just pay everyone this free money to use. In the first place, that’s not what MMT is, In the second place, the question then arises how much to pay you and how much to pay a brain surgeon. If you think since it’s govt free money, it ought to be equal, no favoritism. You realise all this has been done before? When I first visited China, my tour guide was paid 100 yuan a month, same as the driver, the hotel doormen, the city mayor.

        Winston Churchill said of socialism : it’s a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery.

        • chemp,

          To begin with pre – COVID19 I’m already more aligned with Micha, though I wasn’t sold on MMT– precisely because giving money away seems dubious, I’m against welfare (and truly believe the ills of society stems from here, here I agree with you).

          But like Micha I also think the biggest welfare program is ones given to corporations/1%ers.

          Post- COVID19 , where I hadn’t even given any serious thought to your disaster scenario here (I can’t find your blog on it now, what was the title again?), although I like reading ‘worst case’ stories, now I am seriously playing it out. I think this whole opening up like this, over here , will make this pandemic into something really wicked.

          So you’re correct there are two, I think there’s a few others, like crypto currency, etc. too , but for the purpose of this blog, yeah there’s two , perfectly stated in caliphman’s proposition that the Jekyll Island system can appropriate MMT. though I don’t know if its possible given the constrictions you’ve outlined.

          But if I had to pin down the biggest concept that worries me, chemp, because I also know you may just be correct that this virus pandemic economic downturn will fizzle , the issue in the two ideas that share this worry is this,


          “Ancient Near Eastern societies regularly declared noncommercial debts void, typically at the coronation of a new king or at the king’s order. Biblical scholars once argued that the Jubilee was an obvious development of the Sabbatical year, had a special impact on the ownership and management of land in the Land of Israel. According to the Book of Leviticus, Hebrew slaves and prisoners would be freed, debts would be forgiven, and the mercies of God would be particularly manifest.”

          Pre-COVID19 and Post-COVID19 , “multiplier effect” as magic, I don’t mind this whole 5 loaves and 2 fish miracle , chemp, my main issue is that with this ability of magical creation if (if) only used to serve the few, then it won’t sustain, chemp. that’s why I think MMT may just

          be a better magical system, but there has to be a re-start, ala Jubilee , and maybe that whole concept of Jubilee has to be embedded in there , to ensure more of the same will just continue. Can you imagine a world where Trump’s father couldn’t bestow on him all that money? Maybe that’s how Jubilee can be reinterpreted.

          A constant re-start for everyone. I’m sure this would help in the innovation and R&D department too, chemp!!!

          Thus, with MMT they can first embrace this whole UBI for everyone, that’s the first step. No helicopters needed, just transfer it to peoples bank accounts (for those that have accounts tied to Treasury, because of tax, welfare, VA benefits, etc. etc. ) , then once the individual payments become regular (not everyone is plugged into the Treasury system), then

          UBI for states and local gov’ts whose money are set to run out. Have them expand programs for giving away food (no more seniors, seniors usually do a lot of volunteering), contact tracing, etc. etc.

          I think small business loans should be delayed, not only to avert frauds like Micha said a bunch of shell corporations took a lot of that money, most of these shell corporations are LLC’ed in Delaware by the way, but for me let’s truly see which goods and services are essential, and which are superfluous , so to get aid you have to prove that the service and goods you provide are important.

          Did you know grocery stores and grocery workers were essential before COVID19?

          We give money to the people, and follow where the people go. If they all go to strip joints, then small business loans to strip joints. My point here, is not all small businesses are the same.

          Then via MMT you inject money where there’s more potential for public good, like Microsoft Teams, making telework easy, then Microsoft personalized learning using A.I. as task master, which the Bill & Melinda Gates foundation is now working closely with Gov. Cuomo, I believe that this will render teachers obsolete , https://thecity.nyc/2020/05/cuomo-swings-to-bill-gates-to-reimagine-new-york-schools.html , there’s plenty of other changes, that will occur and many I don’t really have the capacity

          to imagine, but that’s my “formulaic representation”, a small sampler. I know the 1900s was a mess with all sorts of competing systems and ideas, chemp, I’m not proposing we go back and pick one of the failed ideas, I’m proposing we go forward with things we haven’t done before.

          • karlgarcia says:

            I think it was not a blog article, but a comment where Chemp implied bankruptcy of the US.
            Do not ask me to google it because per Carl Jung, it will just come to me.

            • karlgarcia says:

              It also made mention of a rabbit.

              “The US has defaulted on its promise of gold convertibility once. It is defaulting on its debt obligation by the hocus-pocus rolling over of Treasury bonds. The huge public debt debacle is brought about by irresponsible budget and monetary management. The world is not waiting to be driven over the financial abyss and has made moves to marginalize the use of US$ as an international currency. Over the next 2 years, these moves will become more evident. Can the US pull out another rabbit from its hat like 1971?.
              Will it be a slow transitioning to another international currency or will it lead to a panic. Either way, the US has no choice but to default or face inflation as the vast sum of offshore US currency come home to roost. If the US goes into high inflation, the rest of the world will suffer as the biggest economy in the world goes into a tailspin.”

          • chemrock says:

            1. Freebies and welfarism — biggest welfare programs for the 1%. Much has been said about this, but nothing shown. In contrast I have shown that financial crisis was all about extending credits to solve liquidity problems, not freebies to save insolvent businesses. As Micha pointed out, this covid crisis is different because of cash squeeze on ordinary folks. And so the Treasury has a helicopter drop program ofr ordinary fplks and Fed has credit programs for corporations.

            I believe Washington lobbies impact political decisions with outcomes that favour certain parties. That’s nothing to do with Welfare policies per se. That does not point to a failure of the macroeconomic system..

            2. “my main issue is that with this ability of magical creation if (if) only used to serve the few, then it won’t sustain, chemp. that’s why I think MMT may just…

            Society changes, sometimes violently. Current inequality level is unsustainable, I agree. The logical conclusion of this path is the pitchfolks will come out unless some correction or reset is implemented.

            My issue is that it’s not the macroenomic system that is the cause. You whitewash a complex issue by saying the ‘magical creation” is the cause. We need to understand how this huge wealth accumulation occurs. Unless we get to the real cause, how can we have a solution.

            3. Jubilee — So for a Darwinian, you accept Divine wisdom. God provlaimed this 7 year reset, but we are’nt following His laws. Because majority of people don’t take Him seriously.

            4. “….. Thus, with MMT they can first embrace this whole UBI for everyone, that’s the first step. No helicopters needed….

            Upteen time I’m saying this, you can do this with or without MMT. Makes no difference. There is no free money. MMT still ends up with liabilities in the Fed’s books.

            UBI idea has been around since the 16th century. It’s not a novelty. Finaland and Canada experimented with it. But their idea of UBI is to replace a myriad scheme of social assistance for the poor. Simply give them UBI and they fend for themselves. Less admin cost for govt. Recipients stigma lowered and more responsible to how to use their money. With basics taken care of, recipients can stabilise themselves, go get jobs etc. Finland experiment in that respect was abject failure. Unemployment rate for these recipients remained the same.

            It’s always a challenge — social assistance vs incentive killer.

            Helicopter drop was coined by Milton Friedman, in days when there were no digital money. And it has a more restrictive meaning — for ordinary folks only, not SMEs.

            “…small business loans should be delayed, not only to avert frauds

            There you go. It’s not the fault of the system — ‘magical creation’ or MMT….\

            “Then via MMT you inject money where there’s more potential for public good

            Nothing novel here Lance. Governments here have been doing this sort of things under present “magical creation” to influence macroeconomics. Like tax incentives of New York in trying to get the Amazon HQ set up there. All sorts of incentive schemes for all sorts of purposes. I get it you now want to incentivise or support on the basis of essential goods and services. You may of surse suggest massage parlours and bars (if that’s where everyone is headed with the UBI, but essential services have been supported all over the world, including US, in places like education, health, public transport, public housing etc…

            What’s new bro?

            Again I say, you can do with ‘magical creation’, why do you need MMT?

            • I think we agree more than disagree, chemp,

              especially having re-read that old blog that karl found. We disagree on the details, but agree that something’s gotta change. Your stay the course, just less amateur hour, I’m open to. But nothing ‘s changed, the milk is dirty now, because they’ve taken the system you love, and prostituted it and once de-virginized it can’t never go back (at least that’s my understanding of the world ).

              So by that very fact, I’m open to another system, that’s because I don’t like wars and violence in general, i’d rather economists and politicians say we ‘re now doing MMT folks, than say we’re going to war. You say i don’t understand MMT enough, that’s fair, MMT just represents something new (whatever is new I’ll favor).

              As for 1. , we got shell companies from Delaware (now they’re everywhere), money laundering as the norm, Panama papers, tax breaks, foundations, tax avoidance vs. tax evasion, weaponized philantrophy, plus all the debt monetizing tantamount to fraud (Subprime crisis, still going on, chemp). I ‘m no journalist, but I understand enough that wealth intended for public good is siphoned by the rich. Sure I blame politicians too. The granular details I don’t have, maybe Micha will have, but my personal evidence here is circumstantial, and since this isn’t the criminal justice system, my mind has been made. Preponderance of evidence, burden of proof is met, albeit circumstantial— because much of this is hidden, chemp.

              But you were the one to recommend me that Peter Schweizer book.

              As for Jubilee as God’s idea, I’m think more it’s an old idea, my use of God here is similar to the 5 loaves and 2 fish, if we can all agree towards some magical idea, why not Jubilee, i’ve not become Christian and Jews overnite, chemp. it’s still in line with magical systems. it’s man’s idea.

              Sports is based on this reset, so too games, no one plays monopoly and uses the same amount from previous games , won’t be fun because it won’t be fair. Same-same in farming, then Borlaug decided to squeeze more from the ground, supplemented with fertilizers. A system that resets is wise, whether from God or man, I don’t care, just let it re-set.

              I understand none of these are new ideas, chemp, if i had new ideas i’d write a book and get rich of it. I’m not smart enough to come up with new ideas, but I’m pointing towards new ideas, you’re saying our old ideas work, just eliminate bad apples and the system will work again, like in Singapore. But i’m saying your pure milk has been pissed on (i can’t say the other fluid i want), and you’re telling me its still good.

              But again I repeat, we agree more than not, chemp. When you give policy advise to movers and shakers, you always stick with three, first is always the stay the course, do nothing different advice and follow that thru; then you give 2 totally new courses, you high ball one and you low ball the other, or make them as divergent as possible. I’m saying let’s not do 1 anymore, let’s explore 2 and 3.

              You say everything’s been done before, but not Jubilee, can Jubilee work within your old system, and we’ll make 2 or 3 out of Jubilee?

              In that old blog, I caught Ireneo’s idea of a Jedi priesthood to safeguard the system from being sullied, maybe include that too. Makes sense, economy and money is about faith (and confidence). Looking back, Episodes 1-3, were indeed kinda mostly about trade disputes, which the Sith were behind, so maybe this was actually the purpose of the Jedis.

              • karlgarcia says:

                Do not turn into a lose cannon.

              • karlgarcia says:

                That goes for me too.

              • karlgarcia says:

                *loose cannon

              • chemrock says:

                Where we are both agree — the kitchen sink clogs.
                Where we difffer — you wanna tear the whole house down, I wanna know who clogged the damn sink and clobber them.

                I suggest you go read some stuff on social economics (not socialism). It’s more to your frame of mind.

                Economics for some, are to be approached as mathematical problems represented in equations, in an environment of static equilibrium. In the process, they ignore the nature of man.

                For me, it’s about man’s planning. Systems of logic and understanding nature of man guide that planning. Sometimes you get mediocrity, sometimes scarcity and sometimes abundance. But at all times, impacted by the nature of Man. Therefore we need to deal with the nature of man.

                Yet for some others, they desire abundance, and so they go forum shopping for ideas of mathematician economists.

                Theories of economic freedom is foundational upon private property, and the inevitable inequalities of wealth has equity so long as it’s within the bounds of fair competition. Unfortunately, open market free competition has led to monopoly that can only be reset by intervention of the government. The monopolistic nature of production crowds out the market leading to great wealth accumulation for some. That is one of the main causes for the clogging of the kitchen sink. Deal with that, do not tear the house down.

              • A fine analogy, chemp.

                But remember COVID19 and the end of globalization.

                That kitchen sink won’t be worth saving if the kitchen’s burning or worst yet the whole house burns.

                Rewind back to 2015, sure everyone has the luxury to dither; fast forward to Christmas 2020, it’ll be a sad Christmas for sure. if things continue.

                I just went to Santa Barbara today, and a whole lot of people not wearing masks and social distancing. Restaurants and shops are open now, malls and movie theatres no, so too bars.

                Which takes us back now to Joe’s current blog. Can you do a play by play on how Singapore’s open up, I can tell you California is opening up base almost straight thru parties lines, Dems will wear masks, Republicans (a lot of them in Santa Barbara) won’t even have masks handy.

                Except for sneers and judgmental looks by the Dems tsk tsk, no enforcement really. Like it or not America is opening back up.

              • chemrock says:

                The kitchen clogged in the 1720s and 1918 with the bubonic plague and Spanish flu. They did’nt tear the house down.

                No one can really tell the wisdom of herd immunity. Good luck to the Reds in US, and blues as well cause they are in the same boat.

  23. sonny says:

    Just so I don’t forget. I’d like to express my appreciation primarily to Chempo and JoeAm and also to the contribution of all the interlocutors for this particular blog on the workings of the Treasury and the Fed. I am learning here more than I have learned in an academic quarter of study of Macro-Economics. Thank you.

  24. maidah khan says:

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  25. karlgarcia says:

    I miss R Hiro
    Naka-inis minsan pero nakaka-miss pa din. (RIP)

    R Hiro

    It is really sad that almost no one has a rudimentary understanding of finance economics…
    The problems in the international fiance system is due to the fact that the U.S.A wants to maintain imperial control of the international payment system…
    Keynes had warned that no one country should have the power to issue the international medium of exchange…Economies do not exist in a vacuum.. They are mostly influenced by power relations of the big guys…
    I would like to direct everyone to secure a copy of the October 3, 2015 issue of The Economist…
    The writers described the U.S. Dollar as Dominant and Dangerous…The man leading in the presidential polls in the U.S. is calling for anti-globalization, zenophobia and racism…

    Caliphman’s interjection.

    I presume the almost qualifier in your post is because you are one of the exceptions. You perhaps can offer up anything in support of such humility?

    * R.Hiro says:
November 20, 2015 at 4:02 pm 
Yes I am an exception as to having a rudimentary understanding of financial economics…
Nation states cannot go bankrupt like corporations…They have land and people…Governments can have liquidity problems…The Philippine Republic you may recall defaulted on its interest payments in 1983 and was declared in default…Did the country disappear? Or did the country take in more debt???? The latter off course is the answer…Jobo debt notes paid 30-430% per anum…Remember when!!!!!
Chempo said that oil is priced in dollars. So what???? Euros, pounds, yen, swiss francs, RMB’s can be exchanged in the forex markets for dollars in any commodity exchange worldwide…
I had an earlier posting which is undergoing the regulatory process of this blog…One thing Chempo has not answered is this… 
Why are countries of the world continuing to buy dollar assets including Treasuries?
Nobody is forcing them to do this…Why are U.S. T-Bill rates so very low? If a brilliant guy like Chempo says that the dollar is worthless why do individuals and corporations continually to invest in dollar denominated assets?
“The rise of credit cards — Now here is the crazy part which I bet you don’t realize. And this goes right up the face of MMT which says households are different from government in that we as private individuals cannot print money. Each time you use a credit card, you are actually “printing” currency. You are making a deficit spending. Out of no-where, without any cash, you swipe your credit card and the vendor’s a/c is credited, which is similar to the latter making a bank deposit, and so the amount of your consumption initiates a bank credit expansion. In other words, you spend $100 and create $900 electronic currency. But you now have a debt of $100 which, too bad, you have to monetize in due course.”
Valid Bank credit cards and vendors credit cards are simply IOU’s…Each individual signs a purchase slip to be paid for later…Individuals whose bank credit cards are banks clients..IOUs are eventually paid for..Please note that a postdated check an IOU…
M-I are checking accounts….Hence they are called demand deposits…If you have different types of assets with the bank and the bank grants you a credit line, It is due to the banks valuation of your assets…
Please note that there are credit limits for both….I am sure Mar Roxas has a Platinum card issued by a foreign bank…no credit limit….
Banks have both business and personal financial histories of their client’s assets…
In today’s modern societies wealth is measured using monetary valuations……
Obviously in nominal terms the U.S.is still the largest economy in the world in nominal terms. But what is the value of the total capital assets in the U.S. and the total value of the capital assets held by U.S. citizens, both juridical and human overseas?..These assets keep the U.S. economy going. The U.S. had a debt to GDP total of over 100% after the Second World War…Today it has the same problem… So what???? 
Bain and Capital has come out with a valuation of total global financials assets at $500 trillion…
“How come there was no inflation? The GDP was $29T in 1980 and $51T in 2014 – an increase of 75%, whilst M2 increased by 600%. By all logic, there should have been severe inflation. Some MMT proponents gloat at this fact – where is the severe inflation over the last few decades?. There were some bumps in ‘60s-‘70s but since Paul Volcker tamed inflation in the ‘80s, inflation from 1983-2014 averaged only 2.5% which sent the wrong message that printing money does no harm to the economy. The reason for no inflation was because the increase in currency supply did not go into consumer goods but was sucked up by :”
U.S. nominal GDP is approximately 18 trillion…Where did the figures for U.S. GDP come from in 1980 and 2014? Totally wrong…I have explained the high inflation in the U.SA. in the 80’s already…Rise in oil prices in 1972 induced a wage price spiral upward… Volker destroyed inflation by inducing a recession…High interest rates…
“Economics is not an exact science. We have been very wrong before – communism caused untold misery to millions of people for a hundred years. MMT is absolutely seductive because it implies the notion that money is for free. It is the ideology that has been driving American monetary policy in the last 40 plus years and has brought the country to a US$18 trillion public debt.
MMT is a thesis of monetizing deficit spending of the government with new money…
The U.S. has been financing fiscal deficits with debt….The two are contradictory…
You talk about a countries debt what about the monetary valuation of a country’s assets???


    * caliphman says:
November 20, 2015 at 6:26 pm 
You sound more like a economics history professor more than a student of financial economics, RHiro. Your post was more interesting for its timeline of major economic events than any insights ir analysis of why events happened and whats applicable to the present situation. But still worth reading. Thank you.


    * chempo says:
November 21, 2015 at 1:21 pm 
“Nation states cannot go bankrupt like corporations…: ”
Bankrupt is a state of being unable to pay outstanding debts as it falls due. Nobody is saying that a country will be treated like an individual or corporation when it goes bankrupt. Many countries have been in this state before and ways have been devised for them to get out of the shit hole.The fact is that countries can and do go bankrupt.
“..oil is priced in dollars. So what?”
It creates a huge external economy for the $ and keeps huge chunks of $ floating internationally instead of being used to buy up US goods and services and exerting inflationary pressures on US economy. That currencies are easily convertible in the foreign exchange market has nothing to do with this.
“Why are countries of the world continuing to buy dollar assets including Treasuries?…”
The answers are self-explanatory in the article.
“The rise of credit cards…”
The debit/credit cards are simply paraphernalia that enables the card system, nothing like checks or treasury bonds which can be likened to IOUs. Your introduction of asset valuation has nothing to do with the issue on hand, which is the creation of money through fractional banking as a result of credit card spending.
“U.S. nominal GDP is approximately 18 trillion….Volker destroyed inflation by inducing a recession…High interest rates…”
Inflation in late ’60s and early ’70s came from Korean war, Vietnam war, and yes, oil price hikes. LBJ refused to increase Fed rates which was what Volcker wanted. To achieve his objectives without crossing LBJ, Volcker forced down money supply, and that forced interest rates in the markets to rise.
“You talk about a countries debt what about the monetary valuation of a country’s assets???”
Sounds like a nice topic, but it’s not the issue this article was trying to relate.

    • karlgarcia says:

      What about Monetary valuation of a country’s assets?

      Can the world repo man confiscate a country’s asset and put a sign board: Property of WB/IMF?

      • chemrock says:

        Those with socialist and radical slants always generalise and give a primer of US economic hegemonism of poverty stricken countries by their dominance and control of IMF or World Bank.

        The studies on the success or failures of IMF bailouts thus far are all inconclusive, for various reasons. For one, it is not possible to have a control country in a test because no two countries are the same. There are many other factors that challenge a bailout effort, such as debtor/creditor moral hazards, research methodology, corporate governance and leadership quality in the recipient countries, etc. But there are many success stories.

        IMF bailouts are not about economic imprisonment, because countries are free not to accept, just as Malaysia showed in 2008. IMF led bailouts seek to put recipient country budget to surplus as quick as possible, and maintain sustainable economic growth in the long term. These bailouts come in 3 main programmes – a financial assistance, programme, structural reform plans and macroeconomic policies.

        In order to achieve the objectives of bailouts, recipient need to sacrifice certain levels of solvency and policy autonomy. This is painful and with political consequences and reforms often include such things as currency devaluation, lowering tariffs, encourage FDI, austerity drive, privatise some state assets. Basically, an open-market approach to solving the country’s problems.

        One may argue that some of the reforms may not be appropriate for a particular country for certain reasons. But to argue that IMF-US design for dominance is the objective of bailout efforts is colour a benefactor a villian.

        • karlgarcia says:

          I asked for a penny for your thoughts and you gave me more than 2 cents. Thanks.

        • karlgarcia says:

          Back to Asset Monetization.

          On Twitter, people were clamouring to sell the Giant couldron already so we can fund this pandemic.
          This came after the suggestion of selling more military bases.

    • Man, that was a great blog, karl. The commentary was perfect, all points of view represented, I remember being reprimanded by RHiro too, though I don’t think on this particular blog. and I almost cried.

      I just watched this video, and thought this applies perfectly to the Philippines. and relevant to the discussion.

      • karlgarcia says:

        We go way back.
        I was so pissed off by his put downs of other people and his mention of the word ignorant as if he is the only one not ignorant in the room that I outed his real name.
        He was using the handle HVRDS back then (circa 2005)
        And I saw one of hid letters to one columnist with his name, email address with HVRDS in it and that is how i knew he name.

        I was reprimanded by some veteran commenters that outing is a no no.

        Oh well I got used to him.

      • karlgarcia says:

        Re : the video
        Was that Oprah?
        I use to question those who pull the NIMBY card because if you reject this and that in your place, it will just be built in others so might as well make them not to build it anywhere if it is really that bad.

        The video covers a lot of social justice issues.

        • sonny says:

          “The video covers a lot of social justice issues.”

          Seems like STEM jumps are prone to leave Soc Jus issues in its wake, e.g. strip mining, refineries, nuclear energy, shale fracking, et al.

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