Daily Archives: June 21, 2020

Stephanie Kelton and Yanis Varoufakis: Another Now #3 | DiEM25 TV

Wow, I stumbled across this great video, Stephanie Kelton and Yanis Varoufakis: Another Now #3 | DiEM25 TV. The only thing “wrong” with it is that Stephanie Kelton gave away the ending of her book. The butler didn’t do it

For those of us interested in the Movement For A People’s Party, there is inspiration here.

Welcome to DiEM25 TV’s ANOTHER NOW. The program that owes its existence to a mindless virus that placed capitalism in suspended animation, something not even WW2 managed to do. The one-hour discussion every Monday where, together with a weird and wonderful guest, we rant and rave with one ambition in our souls: To prevent a return to normality once the pandemic passes.

This week I have the honour and the privilege to be joined by Stephanie Kelton – an academic economist who felt the need to throw her lot in with Bernie Sanders, become his chief economic adviser and use her economic knowledge to fight the good fight not just in academia but wherever economic mystification is utilised against the many.

Shadow Government

Here is another thought that came to me last night. If we are to start a new political party with the Movement for a People’s Party, then beside organizing voters, it might be good to start planning a shadow government. We could organize policy groups that matched the departments of the actual government. These policy groups could formulate plans for how the People’s Party would actually run these departments when we elect a President in 2024. Having this in place would give voters the confidence that our President and our party were actually ready and able to run the government.

Personal Bonds Similar To Corporate Bonds

Here is a thought that came to me last night. If the Fed can try to stimulate the economy by buying corporate bonds, why not come up with a mechanism where the bottom 90% can create a bond-like instrument for the Fed to buy from them. This would inject money into the economy where it might actually do some good. A corporation already has too much capacity to make stuff for the size of the shrinking consumer market. Giving corporations more money when they have nothing useful to use it for is hardly going to help the economy. The bottom 90% have useful things they want to buy, if only they had the money.

When the Fed gives corporations a trillion or so to make things that they will sell wholesale, can’t you just hear them respond “Now, if only the consumers had enough money to buy this stuff at retail.” That sort of makes me think that the amount of money the Fed gives to consumers should actually be larger than the amount it gives to corporations.

USA Treasuries and Bank Reserves

Stephanie Kelton’s book The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy finally clarifies something I always wondered about.

In studying Modern Money Theory over the years, I have always felt that selling Treasury Bonds to “offset” federal budget deficits was somewhat counter-productive. On the one hand, deficit spending injects money into the private sector of the economy. On the other hand, selling Treasury Bonds drains money out of the private sector. Every time I have heard Stephanie Kelton talk, she says that Treasury Bonds are just another form of money. I kept saying to myself, but although Treasury Bonds can be bought and sold (traded) in the bond market, they are not like ordinary money. You cannot go to the grocery store and buy a loaf of bread with a Treasury Bond.

It took until page 98 in her book for Stephanie Kelton to finally say the words I have been longing to hear for years.

When the Fed wanted to raise interest rates, it sold some of its Treasuries. Buyers paid for those bonds using a portion of their bank reserves. By removing enough reserves, the Fed could move the interest rate up. To cut rates, the Fed would do the opposite, buying Treasuries and paying for them with newly created reserves.

When I first started reading this excerpt, my mind played its usual trick of thinking you don’t raise interest rates by selling bonds. Selling a large quantity of something lowers its price. Then my other brain kicked in to remind myself that the bond price changes inversely to the bond interest rate. A cheaper bond has a higher interest rate. When interest rates go down, existing bonds that pay the old, higher rate get more expensive to buy.