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Modern Monetary Theory


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2020 May 16, 8:25am   1,384 views  14 comments

by Cash   ➕follow (1)   💰tip   ignore  

The little-known consequence of the massive coronavirus bills

https://noqreport.com/2020/05/15/modern-monetary-theory-the-little-known-consequence-of-the-massive-coronavirus-bills/

There are many perspectives about what Modern Monetary Theory really is, but the worst perspective is the one shared by a majority of Americans. It’s the perspective of ignorance to the concept at all. Now is not the time to dive into definitions or debate nuances. Instead, let’s explain it in layman’s terms, which is easy considering our current situation. With Modern Monetary Theory, the government essentially prints whatever money it needs in order to pay for whatever programs it wants. That’s what’s happening with these coronavirus bailouts as we spend money that never actually existed.

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1   clambo   2020 May 16, 9:39am  

The government has two main sources of money: 1. taxes 2. borrowing by selling bonds

A minor source of money is lease fees on public lands or in the ocean (gulf of Mexico).

Today after the "stimulus" I believe every working American's share of the total debt is about $200,000 which is a guess not a figure I am certain of.

Soon the money paid in interest on the debt will exceed the money the government spends on anything else.

Imagine if you had a giant credit card debt such that your paycheck went to pay the interest on the card and you never got the principal down, just instead applied for new card to add to your total debt.
2   Al_Sharpton_for_President   2020 May 16, 9:46am  

UST's are typically issued to pay for things after the fact. The now debunked thinking is that by having to borrow money via bond issuance, spending would be controlled. But we can see that is total bullshit. so what difference does it matter if the government issues unlimited amounts of bonds to irresponsibly spend money or just prints without bond issuance?
3   AD   2020 May 16, 10:21am  

I'm listened to this economist Daniel Lacalle being interviewed by the libertarian and conservative think tank in Auburn, Alabama called The Mises Institue.

He is saying it will take about 1 month to return jobs that are lost in one month, while in Europe it takes 5 months to return jobs lost in 1 month.
4   AD   2020 May 16, 10:22am  

clambo says

Soon the money paid in interest on the debt will exceed the money the government spends on anything else.


That is why they have to keep the 10 Year Treasury Note below 3%.

I think that ensures federal debt service remains below 10% of total budget.
6   clambo   2020 May 16, 11:03am  

In addition to what Ad shows, the invisible secondary effect of too much debt is the value of our currency drops against some others without the problem we have.

Example: Swiss Franc. When I visited Switzerland years ago I exchanged $1 US Dollar=3 Swiss Francs. Today, it's about $1 US Dollar=1 Swiss Franc.

I tell gold bugs here to just open a bank account in Swiss Francs, or better yet, buy a Swiss stock ETF and make a little dough.
7   Patrick   2020 May 16, 12:28pm  

clambo says
the invisible secondary effect of too much debt is the value of our currency drops against some others without the problem we have.


But that's not all bad. As the US currency falls relative to other countries, our exports become cheaper for them to buy. This supports jobs in the US.

China knows this very well, which is why they keep their currency artificially low. And they were right to do it. US CEO's and Congress were very easily corrupted by the prospect of cheap production in China and high sales prices in the US. That strategy provided big profits to be funneled into bonuses for CEOs and bribes to Congress - in the short term.

In the longer term, the corruption of US CEOs and Congress meant that:

1. most US manufacturing moved to China
2. the US became dependent on China for pretty much everything
3. China was able to accumulate a lot of US debt

If China starts to sell all those bonds, it seems that interest rates would have to rise to compensate.
8   AD   2020 May 16, 12:57pm  

Patrick says
3. China was able to accumulate a lot of US debt


Fortunately China only owns about $1.1 trillion out of a total of about $25 trillion in US debt.

China's holdings peaked at $1.4 trillion in 2014.

The biggest adversary to China's holdings liquidation is the United States Federal Reserve System and its quantitative easing.
9   Misc   2020 May 16, 1:34pm  

What that oh so compelling chart leaves out, is negative interest rates like they have in Europe and Japan. With negative rates a country can rack up quite a bit more in debt than can be easily measured.
10   Cash   2020 May 16, 1:48pm  

OccasionalCortex says
Cash says

Wrong I just shared the article and quoted w/i said article.... lol
11   Hircus   2020 May 16, 2:28pm  

ad says
Fortunately China only owns about $1.1 trillion out of a total of about $25 trillion in US debt.

China's holdings peaked at $1.4 trillion in 2014.


Sharing this fact with others can make for some interesting reactions. The Orange Man Bad propaganda of 2015 - 2016 said over and over that "Trump will upset Chyna with his trade war, and Chyna owns MASSIVE US debt that they could use against us to badly hurt us."

So, many people think Chyna owns like half or most of our debt, and can use it to crush us. When you tell them that they actually only own about 1T they don't believe you. When you show them via web search, then they go through a moment of cognitive dissonance as you point out they were lied to and misled by their favorite politicians and "news" stations.
12   Misc   2020 May 16, 3:00pm  

Zero is not the lower limit bound. You would think that with all this money printing that asset prices and consumer prices would be skyrocketing, but that is just not the case.

As we saw a few weeks ago asset prices can go negative. The price of oil went down to a negative $40 per barrel roughly. A bald guy on TV said it was ok, so there wasn't much discussion on it, but some people lost tens of billions of dollars on this blatant market manipulation. I had really expected this to happen with stock portfolios or some alt-coin first, but it happened in the oil markets 1st.

Your financial institution can sell you out of a losing position. This happens regularly with stock traders, bond traders, commodity traders, etc. using margin accounts. It can also occur when the account goes below a zero value for negative valued assets such as what happened in the oil markets.

This could easily happen with real estate prices. As an example, if the State of California in its quest to secure tax revenues to fund its pension obligations, house the homeless, provide "free" medical coverage to all, and subsidize a living wage for all, it could abolish prop 13. It could then institute say a 6% property tax based on December 31, 2019 appraised prices. This would turn a residential property worth about $2 million to a slightly negative value. The higher the tax rate the lower the property value.

It would then become customary that the nicer the property, the lower the value as more taxes would be needed to pay the state. People would be paying another buyer to take it off their hands.
13   Misc   2020 May 16, 3:22pm  

OccasionalCortex says
Misc says
As we saw a few weeks ago asset prices can go negative. The price of oil went down to a negative $40 per barrel roughly.


Oil is a consumptive commodity, and thus makes for a poor asset, unlike real estate, art, bonds, stocks, etc.

It is thus treated as such by the markets.


This was the 1st time ever it went negative. What happened to one asset class can happen to others.
14   Misc   2020 May 16, 5:58pm  

OccasionalCortex says
Misc says
This was the 1st time ever it went negative.


That was future contract pricing that did that. Oil is a commodity, not an asset. You don't consume assets.


Before the recent negative interest rate phenomenon, interest rates had a 6000 year history of not going negative.

I bet an alt-coin like Ripple could go negative value if/when the creators want out forcing a sell out of Holder's positions.

I gave an example of how real estate values can go negative in San Fran (it doesn't just have to happen in Detroit)

There is no law that says a stock can't go negative value, and with the manipulation shown in the oil markets anything can happen.

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