Central banks have unlimited ammunition – if they chose to use it

Financial Review has the article Central banks have unlimited ammunition – if they chose to use it.

It is time to fundamentally rethink the conventional macroeconomic policy framework in preparation for future economic downturns. Monetary and fiscal policy need to be better aligned and coordinated so that they can be mobilised quickly and effectively when needed, and in the right combination. MMT can play a useful role in that debate. But economists on both sides have to put down their rhetorical pitchforks first.

If you read the whole article, you will see much of my own view. The article reminds us that the restrictions that Congress has put on the Fed are an unhelpful obstruction to the full use of the fiscal policy that would be available to the government if there had been no such restrictions.

It just occurred to me that saying that central banks have unlimited ammunition leaves the wrong impression. Central governments have unlimited ammunition, but the ammunition is not completely in the hands of the central banks. Central banks are a part of the central government, but they don’t have some of the powers that the rest of the government has.


The Dreaded New York Times

YouTube has the video NYTIMES Pathetic Apology For Russiagate Coverage Failure w/ Aaron Mate’.


Here is all the raking of The Dreaded New York Times over the coals that you need for today. Even if you only have time for part of the 50 minutes, you will get some good laughs.

I doubt that my fiends who revere The Dreaded New York Times will listen to any of this. There is only so much destroying of your childhood idols that a person can take. At least people still have Santa Claus.

Here is a mostly word for word transcript of the video starting at 22 minutes and 24 seconds.

If you even read the Mueller report you see there that Mueller even has a line where Mueller is talking about the period after the election and he says that the Russian government and top Russian elites want to make contact with the Trump administration and Mueller goes “They appeared not to have any pre-existing contacts and struggled to make inroads with the new administration”

I can picture it now. The people around Putin are trying to figure out how to contact the Trump administration, and Putin sits there with a Mona Lisa like smile knowing full well that Trump is actually Putin’s puppet.


Meme way off in claim that the Rothschild family holds ’80 percent of the world’s wealth’

Politifact has the story Meme way off in claim that the Rothschild family holds ’80 percent of the world’s wealth’. As discredited as Politfact may be, surely there is an ounce of truth in this article. Well, maybe not surely.

Our ruling

A meme recirculating the internet claims the Rothschild family “holds about 80 percent of the world’s wealth,” and thus has the ability to “feed, clothe and settle every man, woman and child” if they so choose.

The family is certainly wealthy but claiming they control 80 percent of the world’s wealth is a tall order. There is no longer any centralized family wealth, with the closest being an investment banking firm. But the firm’s revenues are far less than what many corporations make.

The rumor is a baseless exaggeration that furthers the spread of anti-Semitic theories.

We rate it Pants on Fire!


Krystal Ball: The truth about Bernie and Warren

YouTube has the video Krystal Ball: The truth about Bernie and Warren.


Bernie has a set of advisors and possible appointees that will not fight him when he tries to get progressive action going. All the practical people will have to fight their own appointees to get executive action done. Think of all the Trump appointees who are ruining the country through executive action. Imagine executive branch appointees who actually want to carry out the mission of their agencies.


‘It’s theft’: RT’s Keiser Report unearths ugly truth about negative yield bonds

RT has the article ‘It’s theft’: RT’s Keiser Report unearths ugly truth about negative yield bonds.


Here is something you definitely do not want to see. This left one thing unexplained, and that is how do banks make money on negative interest rate mortgages. After thinking about it for a while, I figured it out. Here is a clue, negative interest rate mortgages make money in the same way that liar loan mortgages made money for the banks. With liar loans, the banks didn’t expect people to pay back any of the principle on the loan, and they still made lots of money (for a while). The bank executives made lots of money that they got to keep even after the crash.

I’ll forgive Max and Stacey for the 1% nonsense to that goes with their 99% sense. (The obvious nonsense has to do with Greece).

Well, here is another small tad of nonsense.

Here is something you definitely do not want to see. This left one thing unexplained, and that is how do banks make money on negative interest rate mortgages. After thinking about it for a wqhile, I figured it out. Here is a clue, negative interest rate mortgages make money in the same way that liar loan mortgages made money for the banks. With liar loans, the banks didn’t expect people to pay back any of the principle on the loan, and they still made lots of money (for a while). The bank executives made lots of money that they got to keep even after the crash.

I’ll forgive Max and Stacey for the 1% nonsense to that goes with their 99% sense. (The obvious nonsense has to do with Greece).

Max and Stacey seem to have forgotten that in the USA, long before the housing bubble started to inflate, the standard financial advice for mortgage borrowers to take out a mortgage that was 250% larger than their annual take-home pay. That’s not so far off from where the Danes are sitting now. Considering that the Danes pay much higher income tax, maybe they are not out of line at all.


Our over-reliance on monetary policy is the problem

Credit Writedowns has the article Our over-reliance on monetary policy is the problem.

As Marshall Auerback wrote

We don’t even have to invoke the moral arguments on inequality any longer (even though they are very strong). It should be blatantly obvious to anybody with a pulse these days that to continue to distribute the bulk of GDP’s gains to an increasingly small number of people (with the highest savings propensities to boot) is invariably going to cause one’s economy to grow less efficiently.

The author comes near to the ultimate explanation that I have understood since I learned about it in the early 1960s.

For the Fed to have any impact, there has to be a “transmission mechanism”. That’s the jargon. And the way this ‘transmission mechanism’ works is actually very much in dispute. When the Fed raises rates, it’s supposed to feed through to interest rates in the rest of the economy and then into the economy as a whole, with a lag. But it doesn’t always work that way.

The lack of a transmission mechanism is the key here. The usage of that mechanism to raise interest rates is the least important part of the quote. What is lacking is a transmission mechanism between creating money and getting it to stimulate the economy.

If you studied economics as I did before Milton Friedman took the world of economics on an extended LSD trip, you learned what John Maynard Keynes explained. If you give money to people to “invest” and there is nothing worth investing in, then they won’t invest it. Giving out money like this to encourage investing has been likened to pushing on a string. Pulling on strings gets more accomplished than pushing on strings. There is a reason why there is a sporting event called “rope tug of war”, and not one called “rope push of war”.

For there to be something worth investing in, there have to be customers able to buy what you could invest in producing. If there are already too many goods in the market that are beyond the capability of the consumers to buy, it isn’t going to do much good to put more stuff on the market.

Since governments like the USA (sovereign in their own currency) create the money, they can always buy stuff. They are the only possible entity that is big enough and has the staying power enough to buy stuff just to put people to work. For people who are unable to buy even the necessities of life, giving money to them will pretty assuredly be used to buy more.

These last two strategies are the only ones I know of to get out of the trap of people with lots of money not being able to find anything to invest in that will produce a profit or at the very least avoid a loss.


Does The Fed Intercede In The Domestic Stock Market?

Here is a topic that can stand a lot more research. I think the term Plunge Protection Team is what started me thinking along these lines. I can’t remember where I first heard the term, but the Wikipedia artcile, Working Group on Financial Markets, explains the origin of the term.

“Plunge Protection Team” was originally the headline for an article in The Washington Post on February 23, 1997,[2] and has since been used by some as an informal term to refer to the Working Group.[3][4] Initially, the term was used to express the opinion that the Working Group was being used to prop up the stock markets during downturns.[5][6] Financial writers for British newspapers The Observer and The Daily Telegraph, along with U.S. Congressman Ron Paul, writers Kevin Phillips (who claims “no personal firsthand knowledge” [7]) and John Crudele,[8] have charged the Working Group with going beyond their legal mandate.[failed verification] Charles Biderman, head of TrimTabs Investment Research, which tracks money flow in the equities market, suspected that following the 2008 financial crisis the Federal Reserve or U.S. government was supporting the stock market. He stated that “If the money to boost stock prices did not come from the traditional players, it had to have come from somewhere else” and “Why not support the stock market as well? Moreover, several officials have suggested the government should support stock prices.”[9]

Now that I see Ron Paul’s name connected to this, I immediately start to have doubts. Here is a further explanation from Wikipedia.

On October 6, 2008, the working group issued a statement indicating that it was taking multiple actions available to it in order to attempt to stabilize the financial system, although purchase of stock shares was not part of the statement.[14] The government may wind up owning shares in the firms to which it provided loans, as they will receive warrants as collateral for these loans.

Here is an old article from The Fed that seems to claim that the Fed doesn’t buy stocks, or at least didn’t in 2005. (or maybe even 2008). Can the Fed conduct monetary policy through the purchase and sale of stocks on the New York Stock Exchange?

Some of the world’s central banks (including the Bank of Japan) 1, do in fact hold assets such as public stocks, but the Federal Reserve does not.

A Federal Reserve Bank Of New York article seems to deny the direct ownership of corporate stocks, System Open Market Account.

You can read all of these article, follow more links than I did, and come up with a conclusion. Good luck.


Milton Friedman’s Defense Of Greed Ruined A Whole Generation Of Economists ft. Richard Wolff

YouTube has the interview Milton Friedman’s Defense Of Greed Ruined A Whole Generation Of Economists ft. Richard Wolff.


YouTube also has a commentary on the interview titled Richard Wolff Lays The Smackdown On Milton Friedman

In either case, I don’t think they were as successful at countering Milton Friedman as they think they were. I would have liked a more direct attack on greed and defense of altruism.

I think back to my career writing and supporting software that was used to design some of the important products of the information age. I enjoyed the challenge of writing and fixing the software. I enjoyed the participation in the revolution of the information age. I enjoyed the fact that the software I helped develop was among the best in the world. I enjoyed working with very competent people from whom I learned a lot, and made friends with many of them. Yes, I was fairly well paid, but I gave up on opportunities to make even more money because I knew that I would not enjoy the work as much as I enjoyed what I was already doing. There were other emotions driving me other than the lust for money.

I studied a little economics when I went to college. I have maintained my interest and study of the topic over my lifetime. In my retirement, and before, I talked and wrote a lot about what I had learned about economics and its impact on society. I have earned no money doing that. In fact, I pay a little money to have this blog so that I can give the world the benefit of my knowledge to whatever degree this blog does that.

Maybe Milton Friedman took no joy from his skill in doing what he did. Maybe he was only in it for the money. There are many people who are like that. I wonder if he had any human feelings for his students.


The end of capitalism has begun

The Guardian has the article The end of capitalism has begun.

Capitalism, it turns out, will not be abolished by forced-march techniques. It will be abolished by creating something more dynamic that exists, at first, almost unseen within the old system, but which will break through, reshaping the economy around new values and behaviours.

As I read this quote in an introduction to the article, I was thinking that it will suffer the usual failing of some great articles – great on analysis of the problem, short on the solutions.

At some point, as I read the article, I realized that this article was going to exceed my expectations. It’s not quite that he has proposed some great solution as it is that he has given a hint as to what that solution might look like and how it is different from anything we may have imagined.

This is a thought provoking article that will shake all of our worlds. Articles like this don’t come around that often.

This video is just an introduction, but a good one.

The book mentioned in this article is Postcapitalism: A Guide to Our Future