"Well, if over a 30 year period, the Govt issued no new bonds due to being in a sustained $1p.a. surplus, almost every bond would have matured in that 30 years. Every bond holder would have gotten their original deposit back (plus interest) and Congress would have never had to tax $16 T in surplus in order to get the bank money with which to redistribute around back to the bond holders.
This is a serious flaw in your rationale. If $16 trillion in bonds can be redeemed with only $30 in surplus funds over a 30 year period. Then deficit spending is adding new money to the system. Thanks for the back and forth Tom, I enjoyed it."
Earlier you wrote:
"There is no such thing as Congress appropriating funds from the TGA to pay back maturing T-bonds."
Are you saying that Tsy can legally issue no new bonds because it's experiencing a $1 p.a. surplus? Are you saying that this is what the law dictates? You're saying this because to issue even one new bond puts them over the debt limit (even though another bond is just about to mature... thus putting them right back below the debt limit again)?
But this can easily be solved by raising the debt limit just enough above the current debt to allow a small number of bonds to be sold (just enough to cover a new set of maturing bonds) so that the principal can be paid, thus exchanging the old bond as a liability on Tsy's balance sheet with a new bond liability.
Or are you saying that legally NO new bonds can legally be issued in any circumstances when there's even a $1 p.a. surplus? Even if there's a small buffer between the current debt limit and the current debt?
Update:
From the bottom of this post:
http://brown-blog-5.blogspot.com/2013/08/banking-example-11-all-possible-balance.html
| Assets | Liabilities |
|---|---|
| $(L+B+F) deposits | $L borrowing from banks |
| $(T-B-F) t-debt | ------------------------------- |
| Total Assets | Total Liabilities |
| $(T+L) | $L |
| Negative Equity | Equity |
| ----------------------- | $T |
Update #2: (O/T):
Below is a PREVIEW of a coming post (perhaps just this one redone). In it I'm proposing to wrap both intra-governmental and foreign up in one big new entity called "X-org" (I'm putting it here in case somebody has some feedback for me about my plans!):
So what I'm proposing to do here is to create a new "X-org" balance sheet representing the aggregated effects of both the non-Tsy intra-governmental and the foreign sectors. This new balance sheet will thus incorporate Federal worker retirement funds, Social Security (SS), GSEs (Fannie, Freddie, and Fannie Mae), and all other such government agencies AS WELL AS all foreign governments, central banks, international organizations (both legal and criminal: e.g. the IMF and Mexican drug cartels), etc. The reason for this is:
- To try to keep the number of balance sheets and variables from getting out of control
- Aggregated together all such organizations have one super-set of common traits
- Hold US Tsy debt
- Hold Fed deposits
- Hold MBS
- Hold cash (still assuming only reserve notes here: not coins or US notes)
- Sell its own obligations: debt, currency, central-bank liabilities, bonds, whatever.
| Assets | Liabilities |
|---|---|
| $Ux CB deposit | $X debt |
| $Tx T-debt | ----------------------- |
| $Mx MBS | ----------------------- |
| $Cx cash | ----------------------- |
| Total Assets | Total Liabilities |
| $(Ux+Tx+Mx+Cx) | $X |
| Negative Equity | Equity |
| --------------------- | $(Ux+Tx+Mx+Cx-X) |
Hey Tom,
ReplyDeleterereading what I wrote last night, I can see where the framing is a little clumsy. My apologies. First of all, I've posted over at NEP about this very subject trying to get some different perspectives. Here's the link to the article. You'll find my comments start right at the top. I've written quite a bit there this morning and instead of just copying and pasting, you can see the full context over there.
http://neweconomicperspectives.org/2013/08/mosler-on-treasury-rates-and-fed-policy.html#comment-190671
Regarding you comment above...
"Are you saying that Tsy can legally issue no new bonds because it's experiencing a $1 p.a. surplus? Are you saying that this is what the law dictates?"
I'm not a financial lawyer Tom, so if you're asking me to fully commit to an answer right now saying that's under our current legal framework it is wholly impossible for the Treasury to issue new bonds when in a budget surplus environment, I will obviously not commit to that in ignorance of reality. But lets suppose its true. Not that you or I do, but say we are not PK initiated, we're mainstreamers and since securities = debt, why would the Govt issue more debt when running a balanced budget? Of course, new special nonmarketable bonds for the SS trust fund were issued during the Clinton surplus years, but thats not what we're talking about. So we are running a balanced budget and we are not issuing new bonds. We are literally paying back the national debt. Here's a quote from what I wrote at NEP that describes more thoroughly this situation....
"If the budget was perfectly balanced for 30 years. Would Congress have to appropriate the funds to come out of the TGA to pay back the maturing securities principle?
For example, if congressional budget outlays and spending for FY 2014 are exactly equal at $1 trillion each. $200 billion for defense, $200 B for SS, $200B for infrastructure, $200 B for Govt institutions and $200 B for Medicare. As securities mature, would Congress have to divert money from other spending programs to pay back the maturing principle?
To continue the example, say in FY 2015, we have $200 billion in projected maturing securities. Would we have to cut spending or raise taxes an equal amount and reappropriate that money for bond repayment?"
Again, I am not talking about the debt limit, simply paying back securities as they mature. Where is that money coming from? Since the bondbuyer's original deposit has already been spent on previous Govt deficit spending. Either Congress must cut spending or raise taxes to repay the principle. Or the Fed is creating new money to repay that principle. I see those as being the only two possible explanations given my above criteria for this specific example.
Thanks Tom
Auburn, thanks for bringing the discussion over here. Unfortunately I probably won't be able to go through all of what you wrote here and on your link till later this evening, but I'll catch up with it then. I gave your post a quick once over here... in the final paragraph you ask:
Delete"Where is that money coming from?"
Well I see you are saying to suppose that no new debt can be issued (for whatever reason: legal or political) to roll over old debt. If that's the case, then we've got a problem.
If we allow just enough new bond auctions to pay down the principal on maturing old bonds, then we don't have a problem. This can be sold to congress as "Relax... this won't permanently raise our national debt since the old bond matures simultaneously... at most it's a 1-day raise of the debt while the checks clear... and then we're right back to where we were."
Does that make sense?
I still think I'm missing a major point you're trying to make, but I'll have to review later.
Again, I might be missing you completely here... so don't bother responding unless by some miracle I happened to nail exactly what you're talking about.
OK, later!
Hey Tom, I'm off work today so by all means respond only when its convenient for you.
DeleteI do feel we are getting closer to communicating accurately here (amazing how difficult accurate communication can be sometimes :).
This I think gets to the crux of the issue:
"Well I see you are saying to suppose that no new debt can be issued (for whatever reason: legal or political) to roll over old debt. If that's the case, then we've got a problem."
So if its true that all principle repayment must come out of the TGA, then yes, that would be a huge problem in "paying down the national debt", as we'd have to divert a significant sum of discretionary TGA funds (all tax dollars in a balanced budget environment) to principle repayment. If we simply roll over existing debt in perpetuity without ever increasing the nominal dollar value of outstanding securities, then of course we'd never have a problem. We'd simply be recycling new bond purchasers deposits to the accounts of maturing bond holders forever.
The fundamental question is this, as currently constituted, without changing any present rules, can the federal Govt create new bank deposits. Of course, the Govt can create new securities and reserves, but is the Govt simply a "user" of bank money like MR describes, or is MMT more accurate when it says that the Govt is the currency issuer.
Of course, COngress is the ultimate Dollar sovereign since they are in charge of creating the laws that created the modern US dollar. And Congress is the only institution in the world with the Article 1 Section 8 Constitutional authority to "coin money and regulate the value thereof", but that is beside the point, I want to know as accurately as a I can, how it works right now.
Talk to you later
Hi Auburn.... OK, I'm cheating a little and coming back for a quick response. I've updated the post above with my final simplified non-bank private sector BS from my Ex 11 on the other blog. Why? It might help answer your question:
Delete"The fundamental question is this, as currently constituted, without changing any present rules, can the federal Govt create new bank deposits."
From the above:
deposits = L + B + F
so Yes, by (for example) Tsy just selling debt and the banks buying it (that's the "B" part).
Cullen doesn't deny this... he just says that this is not the usual way it happens. He says that B amounts to about 20% of bonds held in the private sector, the other 80 is held by the non-banks (what I've called "Public" on the BS above). I've taken him at is word on this... because I've found the matter difficult to sort out on my own. I do know that intra-governmental debt holdings are very very large, but I think there's good justification for ignoring those... if we draw a line around Tsy, SS, etc, then SS buying bonds from Tsy just means tax revenue earmarked for SS fills the TGA. I think it's fair to exclude intra-governmental holdings (but not the Fed!). Obviously when F goes up (i.e. Fed buys T-debt), so do deposits, but that's a two step process since the Fed doesn't buy direct from Tsy (except perhaps in unusual circumstances... and probably not for high $ amounts).
It's my intention to either update Ex 8 or Ex 11 (or both) with this 20%... and even the intra-gov stuff (I'm working on that now actually). I did update Ex 11 (called Ex 11.1) with MBS.
Also to do: foreign sector.
Actually Ex 11 already has the "20%" part... that's what that "B" was all about!
DeleteHey guys
ReplyDeleteIf I might Id like to chime in because I think this question of Auburns really does get to the heart of the MMT/MR differences in presentation, at least as I understand them. If I misrepresent your position in any way Auburn please correct me, same for you Tom.
Regarding deficits and debt, Ive always understood that deficits must be funded by borrowing aka bond issuance. Mosler has always said that borrowing is a misnomer since the govt cant borrow its own currency and that bond issuance should be understood as interest rate management...IOW without issuing bonds, the reserve balance will accumulate and drive the FFR towards zero so the bonds drain reserves to keep a positive interest rate. In this light then, only when taxes collected dont meet desired spending is a bond issued. If there isnt enough money in the TGA then we borrow and issue bonds. So.... if we always only spent what was in the TGA then we would never issue new bonds. If we carried that out for thirty years then all bonds would be gone in theory. This is exactly the way many of our modern conservatives seem to think we should run the govt. Tax first and only spend what we can collect in taxes... so by cutting taxes we will choke off govt spending.
Now, according to Mosler, the correct way to understand bond repayment is not thinking about the govt using some of their TGA funds and deciding to pay off a bondholder, pay the troops, pay Congress' salaries (that would actually be priority one) but instead to think about the Security account as a savings account and a reserve account (non interest bearing) as a checking account, this way all one does is move from Treasury security account to checking account and no one is taking anything from grandchildren or SS recipients. No taxes go to paying back bondholders. All that happens is a bondholder now holds cash and can A)
spend it B) keep it as cash C) buy a new financial instrument to save ...thats the only options.
The MR position regarding govt spending is that when a period has the TGA short of tax money, we borrow from Peter, issue a bond and then credit the TGA and spend. Its not new money just recycling and a new bond. So it seems that if TGA was never negative when the govt wanted to spend no bonds would be issued..... what would the point be?
Part of the question is; Are interest payments on bonds part of the govt budget? If they are then new bonds would just be issued any time TGA didnt have the balances to meet all the payments. Even if taxes covered every other expenditure item in the budget to the penny if they still needed to pay bond interest then a new bond would be issued to cover the spending.
Now, presenting it like this certainly opens one up to claims of Ponzi finance. "What, you borrow to pay off your old debt!!? You cant do that forever!"
Moslers story, I think is much cleaner and closer to the truth. They dont have to "come up with the money" to pay bondholders any more than BBT has to come up with the money when I want to move a portion of my savings acct money back to checking! The money is already there. I deposited it and then moved it to a different account it didnt "go" anywhere. That would be like Toms librarian view of banking (love that term Tom) to say it went somewhere and isnt here anymore.
Thats all I can type for now but lets keep this up!
Hey greg, welcome to the party. I grew up on MMT from Mosler and the crew, so I definitely lean towards the way of thinking. But I can't stand making uselessly inaccurate statements, and so have been compelled to find out if my query about Securities repayment is true or false. The more feedback I get, the greater impression I have that it is inaccurate to say that Congress wouldn't repay the bonds at maturity. Sure, the Fed is the body keeping the scoresheet that is the US$ economy, but where does the authority come from? In order for the Fed to have the Authority to redeem (mark up and down) a bondholder's securities and reserve/deposit account, that amount of reserves must first come out of the TGA. And since, all TGA funds come from the non-govt (since the Fed, cant technically buy UST's from the Treasury) then all spending by Congress would be technically a redistribution of bank money. At least, this is the way my thinking is trending given all the new data and info. Yes, the Govt can create Bonds and Reserves ad infinitum, but Congress ultimately needs to acquire bank deposits from the non-Govt in order to interact with the private economy....or something like that. Give me a few hours or days and I might rejigger my thinking by finding a loophole or another example:)
DeleteHi Greg! Sorry I ignored you... I was absorbed w/ Auburn here.
DeleteBoth of you: Cullen joined us (at the bottom) and he found some good stats on gov debt: looks like that 20% figure for bank held Tsy debt was off by an order of magnitude or so on the high side: It actually amounts to no more than a few 100 million (so between 2% to 4% depending if your talking about out of the total or just privately held)
No problem Tom, wasnt feeling ignored.
DeleteI'll have to chew on some of this for a little while. But my initial thoughts are as follows:
ReplyDeletePublic Money stock = bank loans + treasury debt (which can be broken down to Bank held debt and Fed held debt) Where is the public non-bank holding of Tsy debt? Would this be included in "bank loans"?
I don't see why bond repayment would be different depending on who is holding the bond. Yes, the TGA only deals in reserves and then the banks add a correspondi0ng amount to public deposits when necessary. But what I'm trying to answer definitively is...must all principle repayment reserve dollars come out of the TGA? Sure those reserves could go to the Fed, the banks, or the public, but do they have to, by law, originate out of the TGA? That is the question. Because if its true, then all Federal Budget spending both deficit and tax dollars are redistributing bank or inside money.
As I mentioned, I've been trying to wrap my head around this for a few days since I started thinking about this conceptual framework, here is a copy of the email exchange I've had with Mosler. For full disclosure's sake, please don't share this as I certainly didn't ask him if I could make our correspondence public, but since this is a private blog that nobody else is going to see except us, I feel the risk is minimal.
.
Auburn, you write:
Delete"Public Money stock = bank loans + treasury debt (which can be broken down to Bank held debt and Fed held debt) Where is the public non-bank holding of Tsy debt? Would this be included in "bank loans"?"
I'll just focus on this for now. Check out the above BS for the public. Total Tsy debt = T in there. thus:
public's holding of Tsy debt = T - B - F
Make sense?
Add that to the public's money, and we get:
public assets total = T + L
Subtract off public's total liabilities (L = bank loans) and we have
public's equity = T
you also write:
"must all principle repayment reserve dollars come out of the TGA?"
My understanding is yes, they must!
"Because if its true, then all Federal Budget spending both deficit and tax dollars are redistributing bank or inside money."
Not really... because in the case that B increases (assume all balance sheets start off absolutely clear: $0 for all entries for everyone), then they have to borrow reserves to do that! (There's some business about TT&L accounts, etc... details which help explain how the banks can get the collateral to borrow from the Fed, but these are details we can gloss over for now).
My other assumption (in Ex 11... simplified part at the bottom) is that Tsy spends every $ immediately. Thus TGA = 0 every time we look.
So if that's the case, then B up means bank deposits up... forget about L or F.
Cullen says that's true, but it only accounts for 20% of T (the non-intra-gov & non-F part of T).
You can see the above if you go to my interactive spreadsheet in Ex 11 and type in the following values in the green cells at the top:
DeleteT = 100
L = C = F = 0
B = 20
The spreadsheet already takes care of the banks repaying their reserve borrowing from the Fed once Tsy spends every $ on the public.
DeleteI see what you are talking about now Tom. So, to the extent that new bonds are purchased by non-bank members (with bank deposits), then when those get paid back, there is a net zero increase in bank money if the next purchaser of the bond is also a non-bank purchaser.
DeleteBond purchase accounting:
Bond buyer A +100 security -100 deposit
A's Bank B -100 reserves
TGA +100 reserves
Deficit spending accounting:
TGA -100 reserves
SS recipient M deposit +100
SS Recipient M's Bank B +100 reserves
At this point there would be a net zero change in bank deposits. But Bond buyer A would have a NFA bond
Paying back the bond accounting:
Bond buyer A's deposit +100 (+interest)
A's bank B +100 reserves
TGA -100 reserves
Securities account -100
Assuming that the TGA sold a bond to another non-bank depositor, then bond buyer B's deposit would have gone down 100 so there is a continual net zero in new bank deposits.
Now if the bond purchaser is a bank.....
Bondbuying bank B securities account +100
Bank B's reserve account -100
TGA +100 reserves
Now the deficit spending:
TGA -100 reserves
SS recipient M deposit +100
SS Recipient M's Bank B +100 reserves
And the bond redemption accounting:
Bank B's securities account -100
Bank B's reserve account +100
TGA -100
Now in this example, assuming that the new bond purchaser is also a bank whose initial accounting transaction would be a -100 reserves to make up for that last line of TGA -100. To this extant, we would have a net +100 in new bank deposits, but instead we would have a net zero change in reserves.
I think this sounds cogent, Tom what do you think?
And one more thing Tom, all of this sounds totally logical to me, but the proof I think should be able to be found in the budgets between 1997 and 2000. As those were the only string of surplus years for which we realistically have post gold standard examples, we should find budget items and appropriations by Congress for securities redemption. I have not had any luck finding out anything definitive about that and I really don't want to go through the budget with a fine tooth comb to find it. Have any ideas about what might be a suitable shortcut for getting some proof?
DeleteI went through it all once carefully... and some parts again... and I think that all looks good!
Deletere: proof: none-whatsoever! Good luck, and if you find anything please come back and let me know! Thanks!
DeleteWow, sure took me a long road to get to the above T-accounts and understanding eh :) Better late than never.
DeleteWell, I hope in the course of your research it all hangs together! I'll trust you'll let me know if there's a problem. Fun conversation... I enjoyed it.
DeleteBTW, I did go and make an incomplete Ex 11.2 today: attempting to fold in non-Tsy gov sector (in addition to the MBS in Ex 11.1). Feel free to look it over and see where I've gone wrong... I don't have that much confidence in it, but thought I'd put it out there for review.
Next up: foreign sector and non-zero reserve requirements.
I'm really pushing WAY past my comfort zone here... and am soliciting people for help. I posted a question in AskCullen for him or anyone to help me fill in some of the gaps:
http://ask-cullen.com/q-re-gses-and-maybe-a-little-foreign-element/
Check out the pie chart in there:
http://www.optimist123.com/optimist/2011/08/pie-chart-of-who-owns-the-national-debt-mid-2011.html
Intra-gov Tsy holdings are 32%!... I think I should at least demonstrate why I think they can be ignored, which is the reason for 11.2. I think what that means (ignore) in this case, is just remove them from over-all debt to start off with... er... actually, I'm not sure that's what it means. I have to think about that.... but clearly it's a HUGE slice of the pie.
Anyway, here are the two new ones:
http://brown-blog-5.blogspot.com/2013/08/banking-example-111-macro-balance.html
http://brown-blog-5.blogspot.com/2013/08/banking-example-112-macro-balance.html
I expect them to change! (especially the latter).
My preference has been to express the public's BS as functions of the other independent variables.. that's just a choice, so it's why the public's Tsy debt is expressed as:
T - B - F - G
and the public's MBS assets as:
M - Mb - Mf - Mg
etc.
The BSs are getting ridiculous now I know, so it probably hurts to look at them, but I'm just totally winging it! I'm flying blind putting those together, just doing what seems to "make sense." So any feedback (especially based on facts) would be much appreciated!
Thanks again!
Sounds good Tom, I've already put your link into my daily rundown of bookmarks that I visit so I look forward to taking in more of your good work.
DeleteHave you seen Dan Kervick's new piece just up at NEP? Its very clearly written and well thought out. Its amazing how similar MMT and MR really are. I highly suggest it.
http://neweconomicperspectives.org/2013/08/government-spending-and-the-governments-money.html#more-6120
No, I haven't. I'll take a look. Thanks for the head's up!
DeleteMy email)During the Clinton surplus years, how much money came out of the the Treasury General Fund to pay back maturing securities as new ones weren't issued to roll over existing principle? I know that the nominal amount of securities still went up in those years due to SS's still positive cash flow balance and the requirement that all SS "trust fund" money go into securities.
ReplyDeleteI have asked this question and looked for this answer in a number of places and have yet to find a satisfactory answer. As I said in the title, I'm pretty sure that not a single TGA dollar when towards principle repayment as the old securities mature, but before more forcefully making thist claim in public, I'd like to get some confirmation one way or another.
Furthermore, if we don't even have to "pay back" the debt, in the sense that that money must come at the expense of current spending (from a non-MMT perspective), doesn't that prove definitively that the Congress has no need whatsoever to "borrow" money?
As always, thanks for your time and insight,
Auburn Parks
WM response email) "During the Clinton surplus years, how much money came out of the Treasury General Fund to pay back maturing securities as new ones weren't issued to roll over existing principle? I know that the nominal amount of securities still went up in those years due to SS's still positive cash flow balance and the requirement that all SS "trust fund" money go into securities."
(WM)Don't know. I suppose it was the difference between those two, plus or minus?
any reason that matters?
(ME) I have asked this question and looked for this answer in a number of places and have yet to find a satisfactory answer. As I said in the title, I'm pretty sure that not a single TGA dollar when towards principle repayment as the old securities mature, but before more forcefully making this claim in public, I'd like to get some confirmation one way or another.
Furthermore, if we don't even have to "pay back" the debt, in the sense that that money must come at the expense of current spending (from a non-MMT perspective), doesn't that prove definitively that the Congress has no need whatsoever to "borrow" money?
(WM)yes, but let me clarify.
when congress spends the fed credits a member bank reserve account on its books. when tsy secs are sold the fed debits a reserve account and credits a securities account.
both reserve accounts and securities accounts are nothing more than $ balances in fed accounts.
'paying back' means shifting dollar balances from securities accounts to reserve accounts.
and both are, functionally, for all practical purposes, 'base money' or 'money supply'
so when govt spends more than it taxes it is adding to 'base money supply' in one of those two accounts. and debt reduction means reducing 'base money'.
so most of the headline rhetoric is inapplicable
here's the final bit of correspondence:
ReplyDelete(ME) As always, thanks for the response. Personally, I understand what you're saying about "paying back the national debt" is simply marking up and down deposits on the Fed balance sheet.
(WM)Right,
Once spent by govt, those dollars exist somewhere. they don't just vanish unless you lose actual cash somehow.
those dollars are constant and exist as dollar deposits at the fed called reserves and securities accounts.
there is nothing to 'pay off', as the dollars in securities accounts only get transformed at maturity from securities accounts to reserve account balances
it's like asking, how will bank America pay off its savings accounts?
or, how will the banks pay off their savings and checking accounts because someday everyone will want...??? cash??? comes from the fed. etc.
(ME)I didn't mean to come off sounding as someone who doesn't accept the reality of MMT. My point is, when in discussions with the uninitiated, would it be accurate to say something like this?:
"Congress, through the Treasury General Fund, isn't even responsible for "paying back the national debt". Even if Congress is running a budget surplus, tax dollars never go towards paying back the principle on maturing securities. Only the Fed can "pay off" the debt. For example, you can't find a line item in the Congressional budget during the Clinton surplus years that is for 'debt principle repayment'"
(WM)Not the way I'd say it as it's not technically correct.
First, how is 'national debt' defined?
If it's tsy secs only, for example only, congress could abolish tsy secs and replace them with tsy overdrafts at the fed which don't have to 'count' as debt.
but when congress taxes more than it spends, it is reducing the total dollar balances in reserve accounts and securities accounts at the fed.
the fed can only shift balances between accounts
congress increases or decreases the total dollars in those accounts
(ME)Again, keep in mind that, I know taxes don't ever really pay for anything, but that is usually a bridge too far for mainstream or layman thinkers, so I'm simply trying to craft arguments that are persuasive, accurate, and relatable to normal people. For example, Cullen Roche is constantly saying that Govt is simply using and redistributing bank money because the Treasury account must maintain a positive balance.
(WM)It's one way to look at it but changes nothing as banks are 'designated agents' of Congress,
so it's still govt.
(ME)I obviously reject his argument, but when in debate it would nice to be able to point the surplus years and say "how can the Congress be using bank money when they don't even pay back the principle on maturing securities in a budget surplus environment?"
(WM)they did reduce dollar balances in the hands of the non govt sector, which is what counts.
the increase was tsy held by govt in the social security trust which is functionally just govt record keeping/accounting.
Still trying to digest everything he said, lets see if it adds anything useful to our discussion
I certainly didn't intend to lump Cullen in as a mainstream or layman thinker. It just happened to come out that way, two separate ideas got scrambled :)
ReplyDeleteWarren really is a great guy. Ive had numerous email exchanges with him. Not on the level you did but back when he was running for office I sent him money and I was very new to MMT and econ in general and he ALWAYS responded to my emails within 12 hours. usually much quicker within a couple hours.
ReplyDeleteThe guy has been around, certainly famous in many circles, but he has almost zero ego about himself. You can tell in his interviews that he is not a self promoter, he is an ideas guy.
A lot to think about in your exchange with him but its interesting that he simply says of Cullen "One way to look at it" He wants no fight with him he just wants understanding. Unfortunately I think the designated agents have turned around and bought off the guys who do the designated.
Right you are Greg. Not that I've personally met any near billionaires (I haven't) but Warren does seem to be one genuinely nice man. You are right about him not seeming to have an ego, probably a very rare occurrence in today's large financial investor culture.
DeleteIts funny when I watch him in his interviews he comes across to me as a savant. He is often emotionless and his understanding of these things is so deep /natural its like he never had to learn this he just understood it completely from the start. Its a subject which many people find very difficult and complex and he is able to reduce it quickly to very understandable terms.
DeleteHey dudes,
ReplyDeleteIt's fun to think about what might happen if the govt ran a surplus, but we have to remain realistic as well. Yes, in theory, the govt can do all the things that Auburn says. But we're not operating in theory. We're operating in reality. So I think it's important to keep things in terms of how they actually work and not in terms of the way they could work. That's why I frame the story I do.
And I think there's a really crucial piece here that MMT leaves out. We have a monetary system that is built around pvt banks and pvt bank money. Almost everything the govt does on the operations side via the Fed and Tsy is designed AROUND the banking system as an add-on of sorts. So the govt is actually a huge bank subsidizing entity in many ways. We're talking about subsidies to the tune of TRILLIONS of dollars. Now, MMT might say they don't actually "tax" to provide those subsidies, but I say that's nonsense. Those are real resources that are being redirected from the real economy into the financial sector to support this banking behemoth.
If you fail to present the monetary system like this then you give the impression that everything is just fine and dandy as it is. And that's what MMT implicitly protects. I've seen several commenters on NEP accusing me of being some sort of big bank apologist who is protecting my right wing leanings and capitalist tendencies. That's nonsense. I am the one presenting the system as it is. MMTers are the ones saying that this huge govt banking subsidy is cool. By failing to present the monetary system and its bank centric design MMT is actually adding to many of the problems they claim exist.
I'm just here presenting the system as it is. I don't play judge and jury over it, but I think my presentation is much closer to a reflection of our reality than the MMT presentation. And you have to focus on the bank centric nature of the system. Otherwise you actually end up being a bank apologist by not calling out the fact that the entire system is designed around and for banks.
I'm not the bad guy here despite the way some MMT people talk about me. I wish you guys could see that I am simply trying to present what is. I am not out to get MMT. I am out to present the system as it is. That's about it....
Hey Cullen... fancy seeing you here. ;)
DeleteI was kind of interested in hearing out Auburn's argument... and also seeing if I couldn't better explain my position, so I asked him to bring it over here (Lord knows your readers have had PLENTY enough of the MMT/MR debates). I think I was able to communicate where I was coming from... we kind of hashed through that, regarding the operations involved, etc... so I think it was good overall!:
http://banking-discussion.blogspot.com/2013/08/auburn.html?showComment=1377219095843#c5125836761607510982
But while you're here, question for you: You've said that banks hold around 20% of Tsy debt, but is that 20% of the full $16T or 20% of what's left after you remove foreign, Fed, and intra-governmental (e.g. Social Security, Fed pensions, etc.) held debt? ... or 20% of something between those two?: for example, the full amount minus foreign and intra-gov, but including the Fed's holdings (which amount to just 7% of overall Tsy-debt according to the pie chart).
For example, on this chart:
http://www.optimist123.com/optimist/2011/08/pie-chart-of-who-owns-the-national-debt-mid-2011.html
If it's accurate, it shows the "US Public" (which may include the banks... I don't know... I assume it does) holding just 29% of all outstanding debt at the time (2011). So I'd be surprised if you meant the banks hold 20% of ALL Tsy debt: that would leave only 9% for the non-bank "US Public."
If instead that 20% is 20% of the 29%, then that makes a lot more sense: that would be about 5.8% of the overall debt issued by Tsy... leaving 23.2% for the non-bank "US Public."
So first off, do you think that pie chart (though dated) is basically accurate regarding percentages? And then secondly is my 2nd (or 3rd) interpretation of your 20% more or less correct?
Thanks!
Just to be clear about the three interpretations of the base value from which the Banks' 20% of Tsy debt is calculated, and assuming that pie chart is accurate, we'd have for a base value one of:
Delete1. Full amount of Tsy debt = $16T
2. Full amount - (foreign + intra-gov + Fed) = $4.64T
3. Full amount - (foreign + intra-gov) = $5.76T
Thus if we calculated what the bank-held 20% amounted to in each case we'd have one of these:
1. 0.20*16 = $3.2T
2. 0.20*4.64 = $0.93T
3. 0.20*5.76 = $1.15T
For total bank held Tsy debt.
Do you have a feel for which one is closest? (I'm assuming either selections 2. or 3.)
You know, I've never done much research into this, but I am now looking at the FMS website and I might have been way high on the bank side of this data. According to FMS the break-down is as follows:
DeleteTotal: $16.4T
Fed & Govt: 6.5T
Total Private: 9.9T
Total Foreign: 5.5T
Depository Institutions: 0.352T
In other words, banks don't really hold much of the debt at all. It's mostly held in money market mutual funds, foreign accounts, pension accounts, SS, Fed and privately held.
http://www.fms.treas.gov/bulletin/index.html
So percentage wise we'd have:
DeleteFed & Govt: 6.5/16.4 = 39.6% (the pie chart gives 39% for these two combined)
Total Private: 9.9/16.4 = 60.4% (this does not compare well with the pie chart, unless the pie chart included a lot of private holdings in the various foreign sectors)
Total Foreign: 5.5/16.4 = 33.5% (pie chart says 32%)
So the big difference is is what you called "Total Private"... those first 3 categories themselves add up to more than 16.4T, ... in fact just the 1st two add up to the full 16.4: thus "Total Foreign" must be a subset of "Total Private" right?... or is it divided between the first two categories? (i.e. "Govt" includes foreign Govts). OK, no matter, then Dep Inst. (also, presumably a subset of "Total Private") amounts to:
Depository Institutions: = 0.352/16.4 = 2.1% of Total debt!
= 0.352/9.9 = 3.6% of "Total private"
OK, now I'll go look at your link to see if I can clear up some of my own follow-on questions.
Thanks!
Cullen, thanks, that fms link has some great info on it. I've looked for something like that before, but that seems to have a awful lot right in one place.
DeleteYou bet. I didn't actually breakdown the figures so you should dig into it. I'll be curious what you conclude.
DeleteHey Cullen
DeleteThanks for coming by. Let me start off by saying that I would personally never have a problem leaving you in charge of watching my young grandson, I would not fear that he would be eaten when I returned home.
On my part anyway, there is no sense that you are trying to destroy MMT. I think what is going on at MR is valuable and I really appreciate the info on what is really going on on the banking side and how it relates to national accounts and stuff.
Do I consider myself MMT? I know this, I do feel that our macroeconomy would be much more stable if there werent the possibilities for wide fluctuations in incomes in the consumer sector and these variabilities are not good for the banking sector either. People are much more reliable borrowers if they have a reliable income stream. That should be unassailable. So a JG or BIG seem, to my way of thinking, a necessity. Would there be consequences? Of course, but there are consequences to NOT having one as well. So I think this places me more in the MMT camp but its a small matter of degree as I see myself.
Now you make a good point when you say this;
"Almost everything the govt does on the operations side via the Fed and Tsy is designed AROUND the banking system as an add-on of sorts. So the govt is actually a huge bank subsidizing entity in many ways. We're talking about subsidies to the tune of TRILLIONS of dollars. Now, MMT might say they don't actually "tax" to provide those subsidies, but I say that's nonsense. Those are real resources that are being redirected from the real economy into the financial sector to support this banking behemoth."
but I just want to say that Warren has said its "more trouble that its worth" referring to financial sector.... implicitly acknowledging staggering real costs. I know you guys hate Warrens "man with a 9mm at the door", "shredding dollars at the IRS" and "imports are a real benefit" type talk but there are some real truths in what he is saying with those as well. Those are very effective tools to breaking people out of many of our old ways of thinking about money. Are they bulletproof? No and Im not sure he intended them to be.
I totally respect what you and Mike and JKH have going on at MR and Prag Cap is still one of the best go to sites for comprehensive finance econ talk. I will never drag down any of those comment threads by starting MMT/MR wars, I may chime in if a thread moves that way but I will never be an instigator.
All of us are hard to move out of our ways of thinking and MMT was my first real exposure to any of this stuff but I most definitely have expanded my thinking with the addition of MR.
One last thing. I do wish you would be harder on the MMers than you are. Not ugly, but some of the stuff they say sounds like crazy talk. In Nicks contributions to your post the other day he could never quite say what he thought would work for sure and how. This is one of the guys who has invented this idea, in a sense, and he cant articulate a way to see results, it all relies on expectations fairies. In a response to me he said he wants
"monetary policymakers to follow a rule (like inflation targeting or NGDP targeting) rather than actively using their discretion to do whatever they feel like doing at the time."
Yet when questioned they (mostly Sumner but Nick never contradicts Sumner) end up saying that he (Mr Norris) should be prepared to do everything and anything. Now, this "do everything and anything" does not square with not wanting a body that just uses their discretion to do whatever they feel like doing at the time, in fact they are advocating exactly that.
Those guys are shooting guns at night with dark sunglasses on.
Not that this terribly interests anyone else, but with those revised bank held T-bond numbers, it looks like the way to describe the amount of bank deposits that deficit spending net creates is dependent on the amount of Bonds purchased with reserves instead of deposits. If that definition is right, than wouldn't a good portion of of the foreign held bonds have been purchased with reserves by other Countries CB's etc?
ReplyDeleteAuburn/Greg/Cullen, check out my "Update #2" in the post. It doesn't have much to do w/ the discussion here in general, but it does tie into that data that Cullen dug up on debt. Check it out and see if it makes sense:
ReplyDeleteIt's also at the bottom of my Ex 11.2:
http://brown-blog-5.blogspot.com/2013/08/banking-example-112-macro-balance.html