MMT economics in detail
Raising interest rates actually increases inflation. It's supposed to encourage people to save and discourage people take out loans. Loans go down deposits up. If loans go down deposits go down same amount. Cost of credit incorparated in all goods and services - higher the interest rate higher price. Keep rates at 0% permanently. https://new-wayland.com/blog/interest-price-spiral/
Further details: https://new-wayland.com/blog/loan-lock-paradox/#:~:text=For%20as%20long%20as%20somebody,circulating%20to%20cancel%20the%20loan.
The money multiplier theory taught to students is false so mechanism QE results in inflation does not happen. "The reality of how money is created today differs from the description found in some economics textbooks:" in other words economics students are lied to. Basically relationship between reserves and loans and deposits and loans function reverse way and rtaher than central banks choose quantity of reserves they set price of reserves - interest rates: https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy
Even Simon-Wren-Lewis agrees:
"Forget the money multiplier. No serious economist believes in it, and why it is still in the textbooks I do not know."
QE the entire debt.
How government spending actually works read this comment: https://www.taxresearch.org.uk/Blog/2023/04/20/government-spend-precedes-tax-in-the-real-world-but-not-for-the-reasons-some-supporters-of-modern-monetary-theory-suggest/#comment-929480
The mainstream theory government finances spending by tax, borrow or print is wrong. In the UK all government spending works by creating money and there are unlimited intraday overdrafts at the central bank borrowing happens at the end of the day. Money can’t leak abroad it is a swap/exchange, not a conversion. If there is no saving or pay back bank loans in the spending chain you will get all government spend back as tax. Similarly, if people spend from savings or take out bank loans and spend no saving or pay back bank loans get all that money back as tax too. Government spend at Tesco get some back as VAT (taxes as ‘cashback’), Tesco pays its employees another chunk taken by government in income tax and so forth.
https://publications.parliament.uk/pa/cm200102/cmselect/cmpubacc/349/349ap02.htm
Point 20 says:
“ensure that its position is balanced at the end of each day”
Also at diagram in bottom surplus/shortfall in consolidated fund.
Without this overdraft UK government would run out of money sometimes and not make payments! Get round bounded buffer problem make buffer infinite.
If people spend from savings or take out bank loans and spend that reduces deficit but increases transactions and potentially inflation. Government spend and get all money back as tax more transactions only leakage from circular flow of money to tax rather than tax and saving (stops sooner) hence STRUCTURAL DEFICITS ARE DEFLATIONARY! Full worked example: https://new-wayland.com/blog/structural-deficits-are-deflationary/
4 ) Under the current system, 5% of population kept unemployed to control inflation under the NAIRU: https://en.wikipedia.org/wiki/NAIRU
We can use employed buffer stock instead more private sector employment for same level of inflation:
https://en.wikipedia.org/wiki/NAIBER
Basic explanation of what the Job Guarantee is:
https://new-wayland.com/blog/the-job-guarantee-more-money-less-tax/
Limit is real resources not money - run out of things to buy at price government sets.
Detailed blog on "markets trash exchange rate":
https://new-wayland.com/blog/ss-capital-flight/
Ban bank lending for shorting national currency will help.
Please also read:
"MMT works wherever it is used for the fairly obvious reason that it is a description of how a floating rate exchange system on a sovereign currency works. With the correct policy operations it is perfectly applicable to all nations.
But it is important to note that the fiscal space and the real space are separate entities. Each operates within its own sphere and the influence of the fiscal space on the real space is akin to an electrical induction circuit. Importantly there is no one-to-one relationship between the two.
As Bill's blog on world development shows, it is the real constraints on a nation that limit how prosperous it is. If you have a country with a small population and limited real resources then what it can create at full output may not be sufficient to adequately feed, house and clothe the population. No amount of financial wizardry can help sort that out and the country needs international gifts of real aid.
That is, MMT-style policies are best suited for advanced capitalist nations, not necessarily for Third World countries, because most of them face severe balance of payments constraints. Increasing aggregate demand would, for many Third World nations, simply cause a balance of payments crisis, as imports surged.
There isn't really such a thing as a balance of payments crisis in a floating rate exchange system. For those excess imports to exist at all, the saving of the local currency must occur at the same time. Otherwise the financing of the deal would have failed and the transaction would never have happened. And there would be no excess imports. The floating rate balances out the successes and failures automatically. That's its job.
Very simply imports cannot 'surge' unless the equivalent local currency savings by foreigners 'surges' at the same time. And if the savings don't surge then the exporter loses a sale and their economy shrinks as well - because there is nowhere else to export to in aggregate. Mars isn't open for business as yet.
Generally this entire misconception comes about by failing to analyse a transaction end to end"
Also why economists fail at foreign trade: https://web.archive.org/web/20170609140747/http://www.3spoken.co.uk:80/2015/11/why-economists-fail-at-foreign.html
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