ABC Australia has the interview Bernie 2020?

Stephanie Kelton is such a great teacher. Her explanations are so easy to understand, any adult should have no trouble getting what she is explaining.

The only thing standing in the way of more people understanding this is the little recording in their heads that will be repeating, “No, this can’t be true” as she explains for 20 minutes. If you can temporarily shut that recording off, and listen to what she says, then you will have something to think about later when you let that recording play again.

The interviewers are your standins, because they pose all those questions of how could this possibly be true. Kelton has great answers to all of their questions.

I particularly like Stephanie Kelton’s response when the interviewers asked about the problem of interest payments on US bonds growing too large. She said, just stop paying interest. She did not mean that we should default on the interest we have promised to pay. She meant stop issuing bonds that pay interest. We don’t need to borrow our own money back. The money that the government created and put into the hands of the public doesn’t need to be borrowed back so that we can use it for other purposes. Just use it for those other purposes in the first place.

We have created a system where

1. the federal government creates money
2. the federal government gives out the money to the public
3. the federal government borrows the money back with the promise to pay interest
4. the federal government spends the money on things the country needs

We don’t need the second and third steps, It was our choice to create the four step process. We can change how we operate.

Maybe it would help to see the diagram that I explained in my previous post When Will the White House and OMB Ever Learn About Sector Financial Balances?

Naked Capitalism has the article The Global Financial Crime Wave Is No Accident by Nat Dyer.

Top of my list of neglected economic superstars is Professor Susan Strange of the London School of Economics, one of the founders of the field of international political economy. In a series of ground-breaking books – States and Markets, The Retreat of the State and Mad Money – Strange showed how epidemic levels of financial crime were a consequence of specific political decisions.

Dyer goes through four ways that Strange “showed how politics and the financial crime epidemic were intimately connected.” I’ll quote the first item in the list.

There was nothing inevitable about financial globalisation, Strange said. It was born out of a series of political decisions. It means that global money can skip freely across borders beyond the reach of national laws and supervision. For smart operators tax, regulations, and compliance become a choice, not an obligation. Strange argued that international organisations lack the power to control global money, only coordination between the world’s major economies can rein it in.

I have recognized for a long time that no single country can control the problem. It will require coordination among the major players around the world to get a grip on what is happening. There were efforts being made along these lines, but George W. Bush put a stop to the participation of the USA in the talks to rein in the tax havens. Now global “trade” talks are all about making it easier for the corruption to continue.

This was always Lake View to me. The Merry-go-round, or bobby horses, was always fun.

The Real News Network has the video Sears Bankruptcy Engineered to Benefit Executives and Stiff Workers.

BILL BLACK: Oh, this is absolutely the norm. And again, strategic bankruptcies where you don’t necessarily have to go into bankruptcy, but you do so to screw the workers and benefit the executives, are extremely common among the wealthy. And that’s being done in this case, and Toys R Us is a good example. What kind of bonuses – remember, in 2005, Congress changes the law to say you’re only supposed to be able to get a bonus for really extraordinary efforts. Well, Toys R Us just died. It wasn’t brought back to life as some wonderful, efficient entity through brilliance of the management team under bankruptcy. So under the very logic of the 2005 Reform Act, they should have gotten zero in the way of bonuses. So you can see that’s yet another area where, in practice, the bankruptcy judges tend to be extremely generous to the senior management that have looted and destroyed the place, and extremely hostile to the workers. It’s an outrageous, utterly stacked system, and it’s getting worse, and it should be a major area where the House of Representatives, under the new majority, should be acting to reform the law.

If you don’t know this, then you probably don’t understand what we mean when we say the system is rigged for the wealthy.

If you call yourself a capitalist, is this the sort of capitalism you envision? Nancy Pelosi says that she is a capitalist, and that’s just the way it is. She didn’t add the “So there”. Joe Biden is also one of the great Democrats who tightened up the bankruptcy laws for the ordinary people in order to protect the credit card companies incorporated in his state. Is this why some people are rooting for Biden as a Presidential candidate in 2020? Are voters aware of what is going on? This is the kind of capitalism that the Clintons seem to prefer.

Naked Capitalism has the article IMF, Warren Sound Alarm on Leveraged Lending.

All the warning signs are there. Last time around, it was clear that the problem was in the mortgage market, so it was a lot easier to know which investments to avoid. Now the danger is spread out into unnamed companies (except for naming GE). I use various figures of merit to weed out companies on the brink. I hope that caution will give me some protection in the coming crash. Also, I am letting my dividends accumulate. I am in no hurry to reinvest them in the stock market. What are you doing to protect yourself?

Wired magazine has the article with click bait headline The Genius Neuroscientist Who Might Hold the Key to True AI.

Friston’s free energy principle says that all life, at every scale of organization—from single cells to the human brain, with its billions of neurons—is driven by the same universal imperative, which can be reduced to a mathematical function. To be alive, he says, is to act in ways that reduce the gulf between your expectations and your sensory inputs. Or, in Fristonian terms, it is to minimize free energy.

I found the article rather fascinating to read. I had feelings of getting close to understanding something important, with the realization that I had a lot of research to do to understanding what was new in AI which was a subject I only barely understood in the first place.

Naked Capitalism has the article When the Middle Class Lost Its Wealth.

Middle-class households prominently own houses, while the top-10% predominantly own shares and business equity. This gives rise to a race between the housing market and the stock market in shaping the wealth distribution. Housing booms lead to wealth gains for leveraged middle-class households and tend to decrease wealth inequality. Stock market booms primarily boost the wealth at the top of the wealth distribution. Asset price changes can therefore lead to major changes in the wealth distribution. Over extended periods in postwar American history, such portfolio valuation effects have been key drivers of shifts in the U.S. distribution of wealth.

he more I think of this, the more I realize that this should come as no surprise.

As I saw people prior to 2007 refinancing their houses to take out the equity in cash, the more I warned that home equity should not be used as a piggy bank to make up for lack of income gains in the economy.

In 2006, we retired and returned to Massachusetts from Oregon. I could see the end of the real estate boom coming, We decided that we’d better harvest our Oregon real estate gains and move back to Massachusetts while we could still afford to do it. It has taken 12 years for our Massachusetts house to barely regain the value it had in 2006. Meanwhile, the stock market has been very kind to us,

The recent Trump tax cuts to the wealthy went mostly into raising stock market prices, and nothing else.

New York Magazin Intelligencer has the article For First Act in Power, Democrats Consider Making Their Own Agenda Impossible to Pass.

All this would be a bit less problematic if the Democratic Party had overcome its allergy to deficit spending (and/or accepted Modern Monetary Theory as its personal truth). But it hasn’t: In addition to forbidding tax increases on the bottom 80 percent, Pelosi has vowed to honor the “pay as you go” rule, which requires the House to fully finance any and all new government spending.

The article focuses on the roadblock to tax increases on the bottom 80 percent, but only mentions “pay as you go” in passing. The second item is particularly stupid. Deficits and increasing deficits play a role in economic planning. If we should have a sudden increase in our trade deficit, the federal government might need to increase their deficit to replenish the money leaving the country in foreign trade. If the Democrats take a stance against deficits no matter what the economy requires, they are not only not doing their jobs, but they don’t seem to understand what their jobs are.

Naked Capitalism has the article Everything You Thought You Knew About Western Civilization Is Wrong: A Review of Michael Hudson’s New Book, And Forgive Them Their Debts.

“Mesopotamian societies were not interested in equality,” he told me, “but they were civilized. And they possessed the financial sophistication to understand that, since interest on loans increases exponentially, while economic growth at best follows an S-curve. This means that debtors will, if not protected by a central authority, end up becoming permanent bondservants to their creditors. So Mesopotamian kings regularly rescued debtors who were getting crushed by their debts. They knew that they needed to do this. Again and again, century after century, they proclaimed Clean Slate Amnesties.”

Reading Michael Hudson, I am finally getting some of the deeper lessons of Modern Money Theory (MMT). I have many posts on this blog about Michael Hudson. I don’t think I put it all together until I read his book Killing the Host: How Financial Parasites and Debt Destroy the Global Economy. Searching this blog for all the posts about the book helps to remind me of what I learned from the book,

There seem to be two things about Modern Money Theory (MMT) that ttest whether you really understand it or not. I have run into many MMT devotees that seem to have misunderstood these two funsamental ideas.

Do you understand what it means when MMT says the ability of the Federal Reserve Bank to create USA money is infinite?

There seems to be something very fundamental about infinity that non-mathemeticians miss. If you subtract a trillion dollars from an infinite supply how much is left. The answer is “infinity”. If you add 100 trillion dollars to an infinite supply, how much do you now have? The answer is, “Infinity”. Doing mathematical operations on infinity with finite numbers does not change infinity (at least in rudimentary understanding of infinity, and certainly for addition and subtraction). So if you are thinking of doing double entry book keeping, and one account has an infinite supply, you have to realize that the infinite entity behaves very differently from the finite one.

MMT depends on a fundamental accounting identity that measures hom money flows from one economic sector to another. These flows are finite, and you can do normal mathematics on the flow. But the source of the flow of money from the Fed is not finite, so you cannot extend the mathematics of the flows to the source of the Fed’s infinite supply of money.

My previous post When Will the White House and OMB Ever Learn About Sector Financial Balances? explains the following diagram of the sectors.

Because MMT is about money (or monetary policy), do you understand that MMT is not saying that fiscal policy is irrelevant? What MMT focuses on is not everything.

The flow of money among the sectors of the economy imposes some constraints on the various sectors, but it does not control everything within a sector. Once the Fed let’s loose a couple trillion dollars of money into the private sector, it has very little control of what that money is used for. Government’s fiscal policy has more power over the economy than monetary policy, once the monetary policy sets the private sector free of monetary constraints. Any economist that has irrational expectations of what the private sector will do with the money available is not expert about the real world. For instance, when the economy is contracting because people because people are not buying consumer goods, no rational capitalist will use his or her available money to prduce more consumer goods, The availability of consumer goods at prices people cannot afford has little bearing on what they can purchase and keep without repossession.

Back in the 1930s, John Maynard Keynes had an explanation of how fiscal and monetary policy work together. MMT is not a contradiction of that policy. Any modern economist (including some Mobel Prize winners) who thinks that Keynes fundamental insight is not loner applicable should be ashamed of herself or himself for claiming to be an expert. This excludes Milton Friedman, because he had no sense of shame.