Pragmatic Capitalism has the paper A Critique of Modern Monetary Theory (MMT).  The introduction states the following:

Neochartalism, also known as Modern Monetary Theory (MMT) is an interesting and relatively new arm of Post+Keynesian Economics (PKE) that has developed in recent decades and has become quite popular in the last few years largely on the internet.  As an arm of PKE there is much that is correct within MMT, but there are also some newer contributions made by the “neochartalists” that render the theory flawed and inapplicable to the modern monetary system.  Although I find that MMT is incomplete, it is important to note that their description of the monetary system is, in my view, superior to the neoclassical models that tend to dominate modern economic discourse.  I hope this critique will be viewed as a constructive criticism and not an attack on MMT.

A Google search will find you this definition of chartalism.

Chartalism is a term derived from the Latin word ‘charta’ meaning a ticket or token. Chartal money is the token for value, while metallist money is the thing of value itself. Precious Metal Viewed as Money.

I have only read 11 of the 73 pages of A Critique of Modern Monetary Theory (MMT).  I am not sure of what I make of it yet, but other readers of this blog might want to have their own go at it.

I stumbled upon this paper as I contemplated the possible wealth effects mentioned in the article of my previous post Nobel Prize Winner Robert Merton Slams Fed for “Negative Wealth Effect” Policies.  I am nowhere near settling the issue, but I will try to describe what that issue is.

My epiphany on the wealth effect came about when considering how the Fed can get out of its low interest policy regime. If it raises interest rates, then the economy collapses. If it keeps interest rates low the economy is no longer being stimulated by a policy that has lost its effectiveness. My first thought is that a massive government stimulus spending plan will have to take place at the same time the Fed raises interest rates. Then I started to think about what is really being taken out of and put back into the private sector by the combination of these policies.

I got to thinking about the current state of inflated assets (stock market) and the impact of deflating that bubble. The bubble exists only because people value their stocks at mark-to-market prices. The wealth doesn’t really exist, but people think it does and they behave accordingly. If the stock market collapses and assumed wealth disappears, the government hasn’t actually taken anything out of the private sector pot and put it into its own pot. And yet, there are huge effects on the economy. So it is true that the accounting of “outside money” is not the whole story. “Inside money” is important, too.

The MMT assumes that “inside money” is less powerful than “outside money” because each creation of “inside money” creates a balancing debt on someone’s books.  The trouble with mark-to-market accounting of the value of your stock holdings is the creation and destruction of notional money without any balancing debt creation or destruction.  I am using notional money to mean money that you assume you have because of mark-to-market accounting, but this money only exists if you could sell all your stock instantly at the current market price.  For small  investors this might almost be true sometimes.  If large investors or if many small investors make a similar buy or sell decision, then the mark-to-market price means nothing.  The act of changing your stock into actual money changes the market price. You will only get the amount of money for your stock as you will find a willing buyer will give you.

What I am trying to research is what all this means in practical and in theoretical terms.  This issue has been argued for thousands of years and is the subject of many PhD theses, books, articles, and Nobel Prizes.  So it’s not that I expect to come up with a definitive answer.  The point is to come to a better understanding from just looking into the question.

April 22, 2015

Now that I have read some more of the critique, I see a pattern developing. The author, Cullen Roche, seems to read into MMT extreme positions that I don’t think the proponents of MMT have ever taken, and then he criticizes those imaginary positions. There may be a few valid criticisms in what I have read so far, but most of it is knocking down a strawman that is the sole creation of Cullen Roche.

I think I will have to search elsewhere for what I am seeking. I am going to try to look at the composition of our money supply to see how much is outside money and how much is inside money.

Naked Capitalism has the story Nobel Prize Winner Robert Merton Slams Fed for “Negative Wealth Effect” Policies.  This post is a discussion of the Pensions & Investments article Monetary policy: It’s all relative by Robert C. Merton and Arun Muralidhar.

The Naked Capitalism article starts with the explanation:

Nobel Prize winner* Robert Merton and Arun Muralidhar have charged ZIRP and QE happy central banks with economic malpractice. One of the main justifications for low interest rates is that they create a “wealth effect” by elevating asset prices. People allegedly feel richer and spend more, stimulating growth.

As we’ve pointed out, the first central bank to try the bright idea of lowering interest rates to spur consumption was Japan in the late 1980s. We know how that movie ended. Japanese banks and companies engaged in what was then called zaitech, or speculation, funded by being able to borrow 100% against urban land.** The result was to massively inflate already-large commercial and residential real estate bubbles, and to funnel Japanese cash into largely misguided and/or overpriced foreign investments.
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Super low interest rates lower incomes to asset owners, producing what they describe as a “negative wealth effect”. The Fed seems to think that retirees and others who live mainly off their assets will happily eat their seed corn, um, liquidate some of their capital gains to make up for the loss of income. Instead, people in that position who come up short most often curb spending.

As a retiree who is managing my own investments just as Merton and Muralidhar describe, I can attest to the fact that I am behaving just as they say I should.  Though I have had a good  boost in my net worth, my income has not gone up by much  since the crash of 2007-2009.  Perhaps Merton and Muralidhar are not devotees of the newsletter Investment Quality Trends.  IQT’s methods do extract a little rising income out of the  current situation. without eating into your principle.  As I mentioned above, both my principle and income have increased since the crash, although the income is way down from the pre-crash level and my net worth is above the pre-crash level.  I have adjusted my spending in response to my new level of income.

I have since realized that no matter what my dividend income is, I should limit my expenditures to no more than 5% (maybe it is 4%) of my invested assets.  According to historical performance, that level of spending should be sustainable pretty much forever.  I have modified my investing goal from what used to be just maximizing my investment income stream, to a mix of capital appreciation and investment income, where the income doesn’t have to be more than about 5%.  The rest can be capital gains.  If I manage income higher than 5%, I just reinvest the excess instead of happily spending it.

If You Only News has the article Hillary Clinton’s Answer On Abortion Leaves ‘Pro-Life’ Senator Speechless (VIDEO).

In 2009, then Secretary of State Hillary Clinton was asked in Congress about abortion rights in other countries and whether the administration had any plans to further restrict abortions throughout the developing world.

I don’t know why they chose now to publicize these remarks from 2009, but I applaud them for doing so. Hillary Clinton can speak with passion and authority when she chooses to.

I only hope that she will choose to speak with such passion in proposing to prosecute the criminal bank executives that are still violating the law. It was one thing for Obama to have refused to prosecute them in some misplaced worry about the impact on the economy of prosecuting them. It is quite another for him to refuse to prosecute even while they continue to break the law after they promised not to do it anymore.

If You Only News has the article WATCH: Jon Stewart DESTROYS Dick Cheney In The Hilarious ‘Case Of The Iranian Agent’ (VIDEO).

Some nights Jon Stewart and company go above and beyond. Thursday night was one of those nights. Stewart took on Cheney and his recent claims from the Hugh Hewitt show where Cheney makes some outlandish comments about Barack Obama and essentially calls him a traitor.

Cheney must figure that the best way to avoid being identified as the traitor is to call someone else a traitor. I think most traitors would much prefer anonymity than bringing up the topic themselves. At least you can’t fault Cheney for not thinking outside the box.

New economic Perspectives has the article Lanny Breuer’s Defense of Not Prosecuting HSBC and its Officers by William K. Black.

I have been researching the HSBC frauds for a column I am doing about Loretta Lynch, the U.S. Attorney who refused to prosecute HSBC or any of its officers for the largest and most destructive money laundering and anti-terror finance sanctions-busting in history and continues to fail to do so even though her own appointed monitor at HSBC reports that HSBC is not complying with the sweetheart deal Lynch gifted them and even though she is now aware (of something she should have been well aware of for years) that senior HSBC officials continued to violate the laws to aid the wealthy and criminal evade taxes while HSBC’s lawyers were negotiating the sweetheart deal with Lynch about other mass felonies.

See the CNN article and video Obama rips Senate over Lynch nomination: ‘This is embarrassing’.  Speaking about Loretta Lynch, he describes her as

A woman who everybody agrees is qualified

So who is William K. Black, chopped liver? (As we used to say in my family.)  What’s with CNN not making any comment about this statement?  It looks like Obama is taking a page from the Koch brothers book, repeat the big lie loudly and often and who is going to question you?  He even has people like Bernie Sanders promoting the lie.  Rachel Maddow is promoting the lie.  And here I am (along with William K. Black) shouting “The emperor has no clothes”  Is anybody going to notice?  Have you taken notice?  Has Elizabeth Warren taken notice?

Friend of Bernie have posted a link on their Facebook wall.  You don’t have to “do Facebook” to see it.

Here is the video. I don’t know the date when this was first aired.

Despite what the President says about TPP, all the leaked evidence tends to show that he is lying. So, saying, “but the President says” just doesn’t carry much weight with me anymore. If he says words that are true, but mislead you into believing something that is false, then I call that lying no matter what a jury in a perjury trial might conclude.

Maybe instead of saying “he lied”, I should say “he spoke with the intention of misleading”. I hope that gives him less weasel room when the truth comes out.

The Washington Post has the article The populists capture the Democratic Party.

A quartet of senators and a dozen members of the House took the stage in a park across from the Capitol midday Wednesday to join hundreds of steelworkers, union faithful and environmentalists in denouncing President Obama’s bid for fast-track approval of the Trans-Pacific Partnership trade deal.
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But Obama hasn’t really split the Democrats. They are almost unanimously opposed to him on trade. The upcoming battle over fast-tracking and the Trans-Pacific Partnership shows how dramatically the center of gravity in the Democratic Party has shifted.

To those in the Democratic Party who complain against my outspoken posts against Democratic policies and politicians who I think are wrong, I would like them to consider what activists in the party are accomplishing.  When the complainers ask what I expect to accomplish, I can now point to this.

No we aren’t going to turn the party around in an instant.  If we  can shift “dramatically the center of gravity in the Democratic Party” already, we have accomplished a lot.  We need to keep putting on the pressure.  If you want to follow the party leaders like sheep to maintain “unity”, then you can do so.  I’d prefer to get out in front rather than follow behind.

Fossil Free MIT has the article 04.09.15 – 500 Attend High-Profile MIT Divestment Debate.

In response to 3,000 nerds-turned-activists, MIT’s administration hosts an unprecedented public debate on whether MIT should divest from fossil fuels, just days before Harvard students and celebrities begin a week of civil disobedience to confront their administration’s stonewalling.

The article featured the video clip below.

If you follow the URL displayed at the end of the video, , you end up at the webcast of Should MIT Divest? A Debate on Fossil Fuel Investment. From the links I have just given you, you will find a wide array of other links to follow.

Rather than my just complaining about the Koch takeover of MIT, I now realize that there may be active steps I can take to see if I can undo the damage.

Thanks to Mary Afable for cluing me in.

Politicus USA has the article Bernie Sanders Rolls While Demonstrating How To Knock Down Faux Noise. [I have corrected some spelling errors in their headline. I noticed the same spelling error in the video]

What really stuck out was Sanders’s ability to shift O’Reilly and the interview anywhere he wanted it to go. It is rare that a guest on O’Reilly show is more aggressive than the host, but the senator from Vermont was aggressive without being combative. The segment never turned into a scream fest. In fact, Sanders handled Bill O’Reilly fairly easily by keeping the tone civil and not falling for the loaded questions that the Fox News host was […] trying to lead him with.

This is the closest I have seen anyone come to taming Bill O’Reilly. There may be others, but I only watch the show through occasional clips like this one.

I have been waiting for decades to find a progressive person who can handle the media this well. Frequently, Mario Cuomo could do it. Of course Bill Clinton could do it, but he was hardly progressive.

If Sanders can do this well against that O’Reilly blowhard, it gives me hope that Sanders could actually run, win, and lead this nation into a new era.

The BBC has an episode Hallelujah – How an obscure track on a Leonard Cohen album became a global anthem. Thanks to Laurie Cane for posting this on Facebook.  I have admired the song, but never understood it as well as it is explained in this radio broadcast.