Bernanke: Aware Of Dollar’s Special Role In Global Economy
Bernanke: Best Fundamentals For Dollar Come From Strong Economy
Bernanke: Must Act To Bring Down Long-Term Fiscal Deficits
Bernanke: Well-Functioning Chinese Economy Good For US Economy

’nuff said??

82 Responses

  1. He’s not alone. Virtually every politician, popular columnist, and big name economist, including Nobel winners, feels the same. So the real question is: Why, in the face of clear fact, have we been unable to get the message across?

    I’ve written for 15 years on this subject, yet my book, my web site, my blog, my numerous letters to politicians, media editors, columnists and university economics professors have barely made a debt.

    I’ve tried changing and simplifying the message. I tell people about monetary sovereignty. I tell them a federal surplus = an economic deficit and vice versa. I tell them the economy changed dramatically in 1971 when we went off the gold standard. Much of what was true before 1971, no longer is true, so people who have the same opinions they had in 1971, clearly are wrong today.

    My blog contains graphs showing how lack of deficit growth precedes recessions, while deficit growth cures recessions. My blog contains data showing that recessions result from federal surpluses. My blog also contains graphs showing no relationship between deficits and inflation, with all inflations since 1971 resulting from oil prices. The response is, “Oh yeah, what about Zimbabwe?” as though Zimbabwe were in any way comparable to the U.S.

    Even my closest friends, all college graduates and most with advanced degrees, don’t get it. They don’t even want to talk about it any more. Their minds are frozen. It’s as though, “Facts be damned; I’ll believe my intuition.”

    Having now passed my 75th birthday, I’ve grown weary of cement-headedness. Perhaps there is some magic formula to help the blind to see. Or will it require a few more recessions and another depression, to open eyes?

    Any suggestions?

    Rodger Malcolm Mitchell

    1. I’m betting on a (deeper) depression. But that’s no guarantee that minds will be changed in the right direction. Could be an FDR, but it could also be a Hitler.

    2. I think at the end of the day MMT proponents are fighting against an opposition that is well funded by the banks who want to monopolize money creation. However, the recent bank induced crisis has brought many new converts (like myself) to MMT which opens up the possibility of a grassroots change in thinking. For example I was excited to see yesterday an MMT comment highlited on the front page on NYT. If we all do our part to educate others, there is a chance.

      1. Are you insane?

        Does economics department of Berkeley in pocket of big bank? Is the beard, who tenure at Princeton, in pocket of big money? Or how about krugman? Is that communist a right Wing hacks?

        So long as People think mmt is block by some right wing conspiracy, they will be unable to see the real reason for it total failure to make progress outside of some blog and maybe a fourth rate Econ department here or there

      2. banking is about making loans at higher rates than the cost of funds for the same maturity.

        as well as engaging in various business services.

        there is no ‘money creation’ aspect in the sense you are hinting at.

      3. Warren,
        My perceptions agree with Seth even though you may be technically correct. The way I put it in a comment on another blog:

        “When someone says we should balance the federal budget they are knowingly or unknowingly saying we should become further indebted to private bankers in order to obtain an adequate money supply to lubricate the economy. The ones knowingly saying that might be best described as creeping fascist hyenas.”

        Dennis Kucinich will be introducing the American Monetary and Financial Security Act to address this: http://www.youtube.com/watch?v=bZmDV9Z03N8&feature=youtube_gdata

        I doubt he will meet with much more success than you have.
        As I have said before, I recognize that if your proposals about what banks can and cannot do were implemented, most of the sociopathic tendencies presently existing would cease, but I think the strong point of Dennis’s proposals is that they would simply be changing the reality of institutional arrangements into what most people think they already are, which is that the government creates all the money and banks loan out money they already have (100% reserves).

      4. Dennis doesn’t at all understand monetary operations, unfortunately.
        And he’s fallen for the Zarlinga/AMI line.

        It’s as bad as Ron Paul in many regards.

      5. Kucinich has been “almost” introducing the “American Monetary Act” for several years now. Its really not that difficult for a Member to introduce a bill. The ideal time to introduce a bank reform bill might have been before earlier this year before, you know, Congress passed a bank reform bill.

        One thing is that AMI keeps larding their “draft” bill with more and more amendments. Here’s a rather stripped down version of full reserve banking bill from 1996 (I agree with Warren it doesn’t move the ball forward at all, but at least it has the benefit of brevity).

        Now look at this pdf of the most recent AMI draft online of their own version of the same bill (apparently from 2008):

        It adds, among other things, sections establishing: direct funding of infrastructure improvements, farm parity programs (google “doctrine of parity” for definition, you wouldn’t believe me if I told you); education funding program; initial monetary dividend to citizens; universal health care (in this draft, that section is still unwritten).

        At least Kucinich came by his AMI fanboy status honestly, he met his wife while she was an AMI staffer. But unless he’s waiting till the AMI runs out of groups to subsidize with seigniorage revenue before introducing a bill, I’m not sure what the hold up is.

      6. Beowulf and others,

        On the subject of agricultural parity, you might find the 1933 Congressional testimony of Marriner S. Eccles enlightening.

        This was before he became chairman of the Federal Reserve from 1934-1948. http://fraser.stlouisfed.org/docs/meltzer/ecctes33.pdf

        He called it an allotment plan. It is sad that we have had no one of his caliber and understanding since in that position in my view.

        The USDA publishes parity prices monthly, although those of us that study this think they are understated in much the same manner that the CPI and other data may be. See pages 26-27. http://www.usda.gov/nass/PUBS/TODAYRPT/agpr1010.pdf

        If the USDA was enforcing 7 USC 601-602, the Great Recession would be over and very possibly would never have happened in the first place.

    3. Roger,
      This injustice is indeed really hard to bear against, and I have great appreciation for your work over the last decade and a half. I wish I had come across it sooner.

      If it is any consolation, the type of things you are working against have been going on for a long time:

      Luke 3:
      10 And the throngs inquired of him, saying “What, then, should we be doing?”
      11 Now answering, he said to them, “He who has two tunics, let him be sharing with him who has none, and let him who has food be doing likewise.”
      12 Now tribute collectors also came to be baptized, and they said to him, “Teacher, what should we be doing?”
      13 Now he said to them, “Impose nothing more than has been prescribed to you.”
      14 Now soldiers also inquired of him, saying, “What should we also be doing?” And he said to them, “You should be intimidating no one, neither be blackmailing, and be sufficed with your rations.”

      This was the herald speaking, and this was all he specifically decreed. If you think about it, when it was asked of him what they should be doing to prepare, he said:

      1. Re-establish economic flows for all to obtain their means of subsistence.
      2. Stop taxing in an external currency.
      3. End government corruption.

      That’s it. Then he was taken into custody and his head was cut off.

      And we still can’t seem to figure out how to get this done to this day. That said, I think you could. Please keep doing what you are doing.


    4. Rodger,

      I’ve read your book and thank you for your work in getting the word out. If you or any of the other knowledgeable commenters here would like to continue to fight the good fight one web-comment at a time there is an opportunity for some proselytization at the following website where I’m engaged against a large contingent of deficit terrorists. Any reinforcements would be appreciated. Thanks in advance.


      1. Nice work, Banker. I just signed up for an account over there, but I imagine I’ll only be able to offer moral support. I’m going to stick with the Average Joe approach as I get confused when the theory gets too thick. I think it’s important to keep it simple, so the guy on the street can relate. When the public at large starts saying to the politicians “You’re going on about bankruptcy and we ELECTED you?”, it could make an important vector for change.

      2. Thanks Unforgiven. Chime in if you find an entry spot.

        For any others, I’m looking for any help I can get as I’m against an array of neo-classicals who are lining up to challenge this “crazy MMT stuff”!

      3. To whoever has joined the debate under the name of “Carpe Dinkum” and particularly to “pj4XTrader” (if either of you are from this blog), Thank you very much! It’s difficult to keep up with all the questions and counterpoints that are raised when there is only one person representing MMT but it looks like we’ve actually made progress. It looks like several of the posters on that debate site are starting to see the light! Thanks again!

      4. Banker –

        You’re doing all the hard work and you’ve got some fierce ones you’re up against. It’s hard keeping those guys on track! They keep taking a MMT macro statement and arguing it with a gold-standard micro statement. We do seem to be coming to some agreement though..

        If you’re interested in MMT, come over and check it out. The Banker (Brinn) and the others are doing a great job and you may well learn something you didn’t know.

        I’m CarpeDinkum, btw. PJ4xTrader is doing great too. Wish I understood more about bonds but every time I think I have a basic handle on it, it just slips away.

      5. Thanks Unforgiven. They’re a smart bunch of people but it’s very easy to get stuck in our ideological silos and start to look at ideas as something to be defended rather than remain open to new ideas, paradigms etc…

        I appreciate the help though and I do think we’ve made some progress. Unfortunately, as tedious as it is, I think this is the only way we’re going to get these ideas out into the public discussion. People like you, me, pj4Xtrader, and others on here to take the time to present the facts in an accessible and non-confrontational manner [mostly although my sarcastic side does often come through! ;^) ]

        I just wish we could get a few of the heavyweights on this blog to join in! With a little more impetus we could tilt the scales in our favor and maybe (just maybe) show a bunch of neo-classicals how the monetary system really functions.

        Regardless, thanks for your input. It’s much appreciated!

      6. BTW, IS there any language within “funtional finance” that addresses the moral hazards of giving money to the states, or is that outside it’s scope?

      7. not specifically,

        we all more than recognize that excess demand can cause rising prices in general.

        and we have the general recognition that having people who don’t work/produce with political control introduces all kinds of incentives, as does rentier income. etc.

      8. I’m not sure I’ve come across any articles or white papers that address the issue directly but I’ll do some research and get back to you right here if I can find something of interest. It would be a great topic for Warren. Wouldn’t it?

  2. Warren,
    You may not be able to answers this question for poltical reasons, but does Blumenthal “get it”? I know you have met and talked to him.
    And BTW, I met Blumenthal back in the 90’s at a running road race. I finished well ahead of him. I guess you could say out of all the great things you have accomplished, there is one thing I have done that you haven’t; I beat Blumenthal in a race 🙂

    1. good job!

      yes, he totally gets it. i spoke with him with 5 others in attendance for a good two hours back in late Feb, went through everything. and he called me several times afterwards to clarify various points.

      then he went into deficit terrorist mode presumably to get elected, including kissing up to union leaders on the China issue, etc.
      He’s 100% intellectually dishonest. Maybe worse than Krugman and Stiglitz who also know better from first hand experience.

      1. Warren, I wouldn’t be so hard on Blumenthal. As politicians go (so yes, we’re grading on a curve), he’s probably above average in brains and integrity. I’d give him a pass on the deficit terrorist talk, with the president of his own party saying the same thing, he would be setting himself up to lose if he came out against the Republicans AND the Democratic White House.

        Furthermmore, from his standpoint, he’d be foolish not to embrace the labor unions. When candidate is being hammered by an opponent like McMahon who can drop $50 million of her own money into a race, he needs a firewall of supporters who will be out there rain or shine doing GOTV work and running ads on his behalf. Since Blumenthal is a Democrat, his firewall of supporters was labor unions (for Republicans, it’d be the religious right). I don’t blame him for saying what the unions wanted to hear on trade issues.

        As I’ve mentioned before vis a vis your conversations with Wynne Godley, since the politicians are being pressured to reduce the budget and trade deficits, the least bad option is creating an import certificate market, which would reduce both deficits without taking NFA out of the private sector (and conceding that point may win over labor unions on the side of other MMT policies).

        Anyway, as intellectually dishonest Blumenthal must have seen to you running against him, remember that Krugman and Stiglitz have nothing to lose if they say something unpopular since nobody can take away their tenured professorships or their Nobel Prizes. Politicians don’t get tenure, if Blumenthal didn’t play the game (and a grubby game it is), he’s out on the street and McMahon is in the Senate.

        So let bygones be bygones, send him a copy of your book and invite him to come down anytime to go fishing.

      2. So let bygones be bygones, send him a copy of your book and invite him to come down anytime to go fishing.

        I agree. It’s not about being right. It’s about building allies and coalitions. This paradigm shift is not going to happen publicly until there is a critical mass of people who understand operational reality and a suitable catalyst that gives them cover for surfacing it publicly in policy and politics.

        This is a behind-the-scenes game at the moment. We have to remember that the knowledgeable part of the opposition, clued in by Art Laffer, knows the real operational situation and will use it to their political advantage, too, rather than to selflessly advance public purpose. That means that for them deficits don’t matter for tax cuts and supporting the military-industrial-financial-governmental complex that is the basis for US neo-imperialism, oops, “exceptionalism.”

        While I agree that one has always to stand on principle, one also has to be practical in the real world and do what one can to advance principle without compromising it. I don’t see any problem with working behind the scenes to build allies and coalitions, if this is what is required under the circumstances.

        Of course, there has to be as much public focus as possible, too, to build recognition and public appreciation of the options. That’s our job. So, y’all keep on truckin’. The last mile is closing faster than I had expected.

  3. Frankly, I don’t see the mystery. If you have the kind of power wielded by the big finance, the big banks–the great parasite–what interest would you have in enlightening people so as to put that position in danger? You have every interest in doing whatever it takes to keep the power; you finance or own outright the media, the think tanks, the econ. departments, politicians, textbook companies, etc., etc. It’s a no-brainer. One can read Quigley. Or a dozen other works. They all lead to the same thing.

    1. Stanley,
      I see your point but if these large banks or whatever are conspiring in some way they are like the gang that couldnt shoot straight. They are not succeeding at least for their shareholders anyway. Countrywide/Lehman/Bear Stearns, etc they had to be shut down and many other Cos. were wiped out. The largest banks seem to still be under pressure as incomes and associated AD has not been maintained by govt fiscal and they are hanging on by a thread via regulatory forebearance.

      If they accepted MMT I would submit that over the long term they would be more successful in what they basically do which is lending to folks who have jobs to buy houses and cars while making decent money doing so.

      Zanon may have a point that it is not necessarily FIRE sectors that are influencing academia or the economic mainstream. It may be interesting to see who (hopefully) broadly embraces MMT first, business or academia. The politicians will probably just do whatever is popular.


    1. Steve: I don’t even know where to begin. It is simple, as simple as MMT, but it is also as big.

      Stanley however is great example of fish not knowing he is all wet. He is like macroeconomist faced with concept of bank lending not being reserve constrained. macroeconomist will say it is “no brainer” that bank lend out reserve with multiplier, just as Stanley say it is “no brainer” that big finance control Paul Krugman. Ask them both for mechanism of such control, and you will gets drivel.

      Just try to reverse all causality and you will be closer to the truth. Or, if you can figure out how economics profession is fundamental left wing, it will start to open your mind to new interpretation.

      1. “Or, if you can figure out how economics profession is fundamental left wing, it will start to open your mind to new interpretation.”

        Define “left wing” as you are using it here.

      2. I am using “left wing” in absolute, not relative sense. In 2010 it is relative right, certainly in university. But it existed before 2010

      3. “I am using “left wing” in absolute, not relative sense. In 2010 it is relative right, certainly in university. But it existed before 2010”

        Again…… please define it a little clearer. No need to be cryptic.

        What is “absolute” left wing? Left of what center?

        Or… what would be absolute right wing in your description?

      4. Greg: I do not want to infest this blog with the foul miasma of politics. There is on individual who cannot help but befoul wherever he go with his moronic prattling. It is like dog with the runs and halitosis who cannot help but to drool. So I do not want to go into detail, it is journey you have to take yourself

        But it is still fact that economics, when wealth of nation came, was consider very left wing phenomenon. And here we are now and not only is it considers right wing, but people do not even know it wad once left! Does this not strike you as strange? Your inability to define left and right in absolute terms is another consequence of this strange fog that has settled over minds

        Once you understand what makes economics such a dismal science, you will understand both macroeconomics, but all the innocent and not so innocent draud that lie over us like thick blanket

      5. Greg, Zanon has this exactly right here regarding the history. Classical economics is called economic liberalism, and it was the material side of the political philosophy of the Enlightenment that is also called political liberalism. They were originally one, and this view laid the foundations for the liberal democracy and free market capitalism that finally replaced monarchy/aristocracy and feudalism at the time of the industrial revolution.

        The slogan of this movement was liberty, equality and fraternity. Liberty meant freedom from coercion by the state, equality meant abolition of state privilege and equality of justice before the law, and fraternity, which is now known in Europe as solidarity, meant cooperation of citizens for public purpose. In the US, it would probably be called community. These are the values that liberal democracy was founded on.

        The kerfuffle now is between left, arguing for justice, and the right, arguing for freedom, as the overriding norm. What the left is concerned with now is a growing re-establishment of privilege and a double standard of justice, as well as widespread distributional injustice, which it sees as a consequence of unbridled individual freedom, resulting in the wealthy and powerful capturing the state for their own advantage.

        Only the far left is arguing for community as the chief value, and its voice is as yet a whisper in the mainstream, although the US was built on community. My spouse grew up in a rural farm community in which there were still barn-raisings and communal harvesting before heavy machinery lead to the demise of the small farm as the foundation of US agriculture. She still remembers fondly helping her mom make a huge lunch for the crew that assembled at their place periodically.

        In my opinion the mature view is arguing for the integration of liberty, equality and community as the basis of both policy and political economy, and this should be reflected in the way that political science and economics are taught and practiced. But when on side overemphasizes one value, then another party counters with its favorite, instead of insisting on balance.

      6. Toms Hickey: I can rely on you to prattle everything and understand nothing.

        “The kerfuffle now is between left, arguing for justice, and the right, arguing for freedom, as the overriding norm.”

        Hysterical! Please re-read your first paragraph

      7. Zanon, I can’t credit for that being original. It is a view of economist/economic historian Rober H. Nelson that I was recently reading.

      8. Dude, just because what is now considered left and right once sat on the same side in opposition to forces that no longer exist does not make the original distribution in any way ‘absolute’ and also does not diminish the distinction in content between the two which has been going on for longer than any arbitrary allocation to seats in an assembly.

      9. Oliver: You miss the point in exactly the same way Toms Hickey does. Try to take position of someone on the right back in 1750. What beleif makes him right wing? How would he view 2010?

        The original question was: why does MMT make no progress? It is not rich banker because Paul Communist Krugman and Joseph Clown Stiglitz reject it. There have been long line of josephs and pauls, although their position in society changed very dramatically (two times). And we are left with the Conventional Wisdom Definition and Desemination structure we have now.

        That is where the answer lies, clear as day

      10. I’m sure we’re all very happy to embrace your definition of history along unconventional lines.

        There is an unpronounceable word in German called Strukturkonservatismus. It is pejorative and used to describe politicians on both sides of the isles who like keeping things (power, that is) just as they are, for whatever superficially given reasons. Seems that’s sort of what your’re getting at? Fine by me, but why not just speak out instead of doing precisely what you accuse others of doing – obscuring. If you wish to communicate outside of conventions, no matter how blatantly obvious the error may seem to you, careful explanation does help. Same goes for MMT.


      11. You are too funny! You can accuse academia of many things, but not “keeping things (power that is) just as they are”. Quite the opposite!

        And I am not obscuring anything. I simple recognize that there are some things people need to figure out themselves. MMT is a little like that. Why MMT make zero progress is like that too.

        It is conventional thinking that make MMT hard to understand. MMT itself is actually quite simple once you rid yourself of nonsense in textbook. Why MMT fail to get accepted is also quite simple, but you need to rid current convention to do its.

        Take a slightly different view — is macroeconomics the only garbage to come out of university? Is academia push other innocent fraud? Where did they come from? Why are they still arounds?

      12. Academics are just as resourceful as others when it comes guarding their personal legacy and preserving the social stratum of their profession. That can happen quite independently of what they preach in their work and what they officially stand for.

        …I simple recognize that there are some things people need to figure out themselves…

        Recipe from Zanon Beck’s self-help book on ? The mind boggles.

  4. Way off topic:

    Warren, just wondering if you know for sure that PBOC clears its dollar transactions through an account it has at the Fed. I had always just guessed it would clear ultimately through a US commercial bank with an account at the Fed (until I started reading your stuff). That way the Fed wouldn’t have to deal with system reserve volatility simply due to PBOC FX transactions. That control would have been beneficial pre-crisis at least. I’ve googled PBOC info many times, and never come up with anything on this.

    1. JKH,

      Chicago Fed’s Modern Money Mechanics says that foreign central banks hold accounts at the Fed:

      “Reserve accounts of depository institutions constitute
      the bulk of the deposit liabilities of the Federal Reserve
      System. Other institutions, however, also maintain
      balances in the Federal Reserve Banks – mainly the U.S.
      Treasury, foreign central banks, and international financial
      institutions. In general, when these balances rise, bank
      reserves fall, and vice versa. This occurs because the
      funds used by these agencies to build up their deposits in
      the Reserve banks ultimately come from deposits in
      banks. Conversely, recipients of payments from these
      agencies normally deposit the funds in banks.
      Through the collection process these banks receive credit to their reserve accounts.”

      1. Thanks, Ramanan.

        Was generally aware of that –

        But in my mind that doesn’t necessarily mean that PBOC as an example doesn’t maintain other accounts with US commercial banks for daily clearing purposes. And my question is whether or not it clears all of its day to day payments for its dollar FX transactions through such an account at the Fed. Quite possibly, but I’m not so sure.

        It matters to me because I’m interested in the facts.

      2. Yes possible they have other accounts as well.

        Good thing to know if the answer is found. The question may be important if one wants to know if PBoC wants the Fed to know the details of its operations or not. It may want to use an account at some bank and keep its transactions confidential.

        The Russian central bank used to have a dollar account at banks in London during the cold war. That was because it thought that its account may get frozen if it uses the Fed’s services.

      3. JKH,

        Something I found here

        “The Use Of The Yen As A Reserve Currency”.
        http://www.imes.boj.or.jp/research/papers/english/me14-2-1.pdf – in particular page 16 talks of the relation of the Fed and foreign central banks and there is a minor discussion on their accounts outside the Fed. There is a footnote reference thats not available on the internet. (“Investment and Account Operations for Central Banks and International Institutions”)

      4. Thanks, Ramanan.

        Don’t know how you come up with this stuff.

        You should start you’re own search engine.


  5. The bad image of government deficits, spending, debt is the strongest argument of the conservatives in the wrongly staged public debate.

    Last night I watched Bill Maher’s show and he had as a guest on a video conference call Bill O’Reilly.
    You know Maher is witty and easily puts his opponents in laughable positions, but when O’Reilly counterpunched him with “Obama’s crazy spending and increasing government deficits”, Maher couldn’t respond anything because he himself was a deficit dove and changed the subject of the conversation.

    I think the upcoming 2011 release of the MMT text book by Prof. Mitchell and Prof. Wray will help a lot, especially if it makes its way to the universities.

  6. I think the upcoming 2011 release of the MMT text book by Prof. Mitchell and Prof. Wray will help a lot, especially if it makes its way to the universities.

    Well, we could see a miracle, but it usually takes years to get any traction, and I mean years — like in “twenty.” We will already have had the depression and consequent war by then, and will be in the throes of the obvious effects of climate change.

    But you have to start somewhere sometime.

    1. Warren is right, of course, but in my opinion the best defense is just to roll your eyes and say (with your best Bill Gates impersonation), “That’s the stupidest things I’ve ever heard.” 🙂

      1. Neither of those responses would win a logical debate.

        Can you give us a better response, PLEASE?

        I get this question all the time, and I guarantee you, either of those responses would leave the questioner feeling like he had won.

      2. Inflation is often defined (in the US context) as too many dollars chasing too few goods. The Zimbabwe government under Mugabe drove off the minority white settlers (in contrast to the South African government under Mandela and his successors who have treated the minority white population on a much friendlier basis). When the whites left Zimbabwe, a large chunk of the the state’s economic capacity left with them. Fewer goods, but the money supply was not likewise reduced. That alone was inflationary.

        What made matters worse is that they borrowed in a foreign currency, the US dollar. By borrowing in a foreign currency, the Zimbabwe government lost monetary sovereignty (which left them rudderless in their management of the national economy and left them vulnerable to currency speculators).

        The German government during the Weimar Republic had precisely the same problem aince its war reparations were payable in Francs and not Marks (the French occupation of the Ruhr Valley, and the loss of its economic output, didn’t help). In contrast, the US Government has zero debt outside the dollar, complete monetary sovereignty over the dollar and, excepting Quebec tourists in Florida, French speaking foreigners are thin on the ground.

        From Zimbabwe and the Weimar Republic, we have three lessons
        1. Don’t start a race war
        2. Don’t lose a war to France
        3. Don’t borrow in a foreign currency

      3. Jay,
        ‘Gotta love Beowulf’s 3 point lesson but also Marshall Auerback gave a ‘hyper-inflation’ presetation earlier this year now available on video in multiple formats here:


        My take wrt so-called ‘hyper-inflations’ is that they are accompanied by a tremendous drop off in output. Zimbo: Ag/Farming, Weimar: Ruhr Valley Re-occupation. Same demand levels chasing tremendously less supply: voila. That kind of thing. But Marshall A. covers it in depth and there are other references included. Resp,

      4. I try to get the point across that to generate hyper-inflation you need to actively sabotage more than just one part of the money / goods function. Apart from increasing the money supply one also has to make sure that the corresponding supply of goods will never be able to catch up by somehow inhibiting, or even better closing down production and that the depreciation of one’s own currency won’t help by strictly borrowing in foreign currencies. So one has to a: increase the amount of money, b: limit supply and c: take on debt in a de facto non floating, convertible currency. It ain’t easy to become Mugabe!

      5. The following working paper was released by the ECB, and seem to back up the loss of output prior to a currency collapse: Chronicle of currency collapses: re-examining the effects on output

        By using different and complementary methodologies, we find that currency collapses are associated with permanent output losses relative to trend, which are in the order of magnitude of 2 to 6% of GDP on average in the medium term (i.e. after 3 years). Moreover, we find that currency collapses tend to be preceded by a substantial slowdown in output. We also find that following the currency crash, growth tends to pick up, but still remains at a level below that which would have prevailed in the absence of a currency collapse. These two features suggest that output losses are not due to the currency collapse itself but rather due to the factors leading to it. On the contrary, we find that currency collapses induce, ceteris paribus, positive gains in output trend that fully materialise in a five-year horizon.

      6. Jaymaster:

        Zimbabwe destroyed real output.

        If US destroyed 50% of its productive capacity, and drove away its most productive citizens, then it would have hyperinflation too even if the money supply stay exactly the same size.

      7. Jaymaster, you can’t convince a true believer. The way I proceed is gradually. If I get a positive response from someone, I go further slowly. I quickly filter out the true believers and drop them, just like a salesman filters out unqualified prospects. No sense wasting time on people with a made up mind, anymore than feeding the trolls on the blogs. They are no-it-all know-nothings that are beyond redemption because they are not interested in truth, only winning an argument. What happens in such arguments is that the parties argue down to fundamentals and then disagree over them. When an opponent is not interested in facts and operations, but only subjective norms, what can one say?

      8. Warren:don’t be defensive. ask exactly what the comparison is?

        If you have some time to waste, when someone throws up an obvious canard, the best response is usually a question. The aim is to target causation. Obviously, Weimar and Zimbabwe are very different from the US. What caused the hyperinflation in Weimar and Zimbabwe. The answer will be, “Printing money so fast that there was too much money chasing too few goods.” The come-back is, “Well, this didn’t come out of nowhere; what caused them to do this in the first place.” Argue back to causation, and their case falls apart, appearing as the canard it is.

      9. Jaymaster: If US destroyed 50% of its productive capacity, and drove away its most productive citizens, then it would have hyperinflation too even if the money supply stay exactly the same size.

        And what is the probability of this right now? Why (evidence)?

        Anyone who thinks this is highly probable should cash in all US chips and emigrate as quickly as possible to a more secure location.

      10. In the “Too much money chasing too few goods” definition, might it be reasonable to assume that aside from greed, sellers might be moved to raise prices in order to service their debt? Even if that debt isn’t increasing, the per unit sales price must go up to pay the leases, salaries, etc.

      11. or totally eliminate tax enforcement.
        instant hyperinflation there.

        The historical example would be Mad Max-era Australia. :o)

      12. Jaymaster,

        I use the following as a basic response to people who bring up Zimbabwe and Weimar Germany:

        Hyperinflation is typically the result of real shortages in productive capacity combined with increasing money supply. Both Zimbabwe and Weimar Germany saw massive decreases in the capacity of their economies. Germany’s obligation to pay reparations in a currency other than their own and the subsequent occupation of the Ruhr region (Germany’s industrial center) by France and Belgium caused a massive loss of productive capacity and hence a situation where any demand was inflationary.

        Zimbabwe had a similar loss of productive capacity when Mugabe began to redistribute the farmland from the mostly white farmers to inexperienced black citizens. The violence and turmoil that followed essentially stopped all agricultural production. This loss of productive capacity combined with profligate spending to create the hyperinflation.

        Be prepared to address stagflation as well because eventually a sharp opponent is going to throw that out stagflation as a counterpoint to your claims that inflation is well understood and easy to manage.

        I use the following (thanks to Warren for the guidance on this one) as my response:

        Stagflation in the 70’s was largely the result of the supply shock (Oil prices) that resulted from a monopoly supplier of a commodity (The arabs) increasing prices on a key economic input. The effect is known as cost-push inflation (as opposed to demand-pull inflation which results from demand outstripping supply). Cost-push inflation is a non-monetary event and as such cannot be managed via monetary operations. If the Saudi’s raise the price of oil there’s really nothing that can be done about it short of taking the oil by force, developing a substitute energy source, or just allowing falling demand to adjust the price down naturally over time (difficult due to oil’s inelasticity of demand but possible over longer periods).

        If anyone wants to critique these responses for weakness or has ideas to improve the explanations, I’m always looking for better ways to fight the good fight.

        Bottom line is that there is nothing monetary policy can really do about cost-push inflation. The country would have experienced price inflation even if it was on the gold standard as the inflation was not a monetary effect but rather an intentional result.

    2. Zanon nailed it. In Zimbabwe, you had a political failure first, with a currency collapse coming later. Mugabe trashed all rights to private-property, confiscating land from productive farmers and giving it to roving gangs of thugs. This literally destroyed the economy, causing severe supply shortages in food and massive unemployment. Unless your friend sees a similar political course of action for the US, Zimbabwe is not a valid comparison.

  7. 3. Don’t borrow in a foreign currency
    Why any country would want to borrow in a foreign currency? Sure they want to borrow in their own, so they they can pay back by issuing more of it. It’s not that they don’t want, they can’t. Let’s say Zimbabwe issues a 30 year bond in Zimbawbes dollar. They sure can pay it back, there is no
    risk of bankruptcy if it is in its own currency…

  8. Great translation of Bernanke’s statement here. Just click on the highlights to get the “plain english” translation. HA!

      1. I enjoyed it. But it just goes to show you, we’re kind of leaning on a one trick pony here.

        And now, for something completely different: QE2!!!!!

        Boy, that ought to get the economy roaring in no time. We’ll probably have to raise rates tomorrow before lunch!!!

      2. This form of presentation is very funny, and the MMT sites should use it as well to translate the neo-liberal content into plain MMT language.

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