>   (email exchange)
>   One prominent Irish minister said explicitly that we should use Greece as a bargaining chip >   to renegotiate the promissory note. The whole government and press went crazy saying that >   she was completely out of line etc.

that’s how it starts?

21 Responses

  1. still, it is a long way to go from “government and press going crazy” against the idea, to agreeing to that idea, and then fighting euro-bankers to promote that idea, and finally winning against the Germans and ECB.
    A very long way.

  2. Completely off topic . . . .

    Warren’s theory about low interest rates being deflationary is based, as I understand it, on the idea that interest payments come from new money printed by the Fed. However, Nick Rowe says that in Canada those interest payments come from government (i.e. taxpayers). In the latter case, the effect of interest rate changes are arguably neutral in that extra payments to govt bond holders are cancelled out by extra tax. See his paragraph starting “The possible need to sell….” here:


    Are arrangements in Canada different to the US?

  3. Actually, I think that exchange concerns a Minister who may well be doing nothing more adventurous jockeying for extra influence/power in her own Coalition party. I very much doubt that anyone in the Irish Government is going to take any decisive steps towards changing the status quo, particularly in relation to the ‘promissory notes’. They may, of course, ask the ECB/Commission for more favourable repayment terms, but they will be met with an immediate rebuke, the Irish leaders will say ‘tank you, sur’, and the economy will proceed to its destruction.

    In short, they are a very compliant bunch.

  4. Actually, federal interest payments are both inflationary and deflationary — and neither.

    -They are deflationary, because Warren says they are. 😉
    -They are inflationary, because they add dollars to the economy.
    -They are neither, because there is no post-1971 relationship between federal spending and inflation, which in fact, is caused by oil prices.

      1. @WARREN MOSLER, Are you referring to zero rate nominal or real?

        As Scott Fulwilier has stated (I paraphrase), why should private savers receive a return on risk-free assets?

    1. @Rodger Malcolm Mitchell, Roger, I was in ireland a few months back and asked them all what about the oil? Scotland can break free and have that north sea stuff, one irishman said they are running out of peat and fresh water, I said I can’t even fathom as a US citizen people in the modern world still consider peat a major industry, he said we are all toast! He said it will be good for hard liqour sales as the families start to freeze in ireland when the peat bricks get too expsensive. An entire new generation of irish children will become drunkards at an early age just to stay alive.

      1. @Save America,

        Actually, there is plenty of peat. It’s just controlled by really loathsome people who have formed a cartel. The remaining peat is in hard to get places, making it expensive, or in really scenic places and the environmentalists won’t let anybody dig it up.

    2. @Rodger Malcolm Mitchell,

      “They are inflationary, because they add dollars to the economy…” Really? That’s the $64k question I’m trying to get to the bottom of.

      If interest payments consist of new money printed by the central bank, then dollars ARE ADDED to the economy. But if the money comes from tax, as seems to be the case in Canada, then dollars ARE NOT added to the economy.

      1. @Ralph Musgrave,

        Lots of unstated premises.

        “They are inflationary, because they add dollars to the economy.”

        This cannot be so, because every Federal expenditure adds dollars to the economy. If a few billion of interest were inflationary, what about 3.8 Trillion of total spending?

        In a monetarist sort of view, adding dollars to the economy WITHOUT a corresponding increase in production might be viewed as inflationary (increasing the supply of money without change to the demand for it), and as such interest payments might be considered differently than buying an airplane. MMTers don’t like monetarism, but I think this supply-demand thinking must be the unstated premise behind

        “They are inflationary, because they add dollars to the economy.”

        But, then, there are transfer payments that are orders of magnitude greater than interest payments, and they also add nothing to production. If interest payments are inflationary, why are transfer payments not far more inflationary?

        “If interest payments consist of new money printed by the central bank, then dollars ARE ADDED to the economy. But if the money comes from tax, as seems to be the case in Canada, then dollars ARE NOT added to the economy.”

        Lots of unstated premises here. Apparently Canada is running a budget surplus? Is that what is meant by the money “coming from tax”?

        Money that government spends comes from keystrokes. It is not funded by taxes or borrowing. That is true always, it makes no difference whether the budget is in surplus or deficit.

        I think the point being made is that when the budget is in deficit, the government is adding NFA to the private sector. Interest expenses do that, just like all other expenses.

        When the budget is in surplus, government is subtracting NFA from the private sector. All spending reduces the amount of the subtraction, interest the same as any other expense.

        The further implied point is that budget deficits are inflationary. This can only be true when the deficit raises aggregate demand to the point of causing shortages, when producers are able to raise prices and “make it stick”. Not now.

      1. @WARREN MOSLER,

        Good question and I’m glad you asked. I reckon the demand for money would increase if the perception was that the risk adjusted return on capital had risen. In other words, my thinking is that a large increase in the supply of currency need not be inflationary if it is more or less matched by a corresponding increase in the demand for money. To take it a step farther, it could even be deflationary if the demand for money outpaces the increased supply.

        My guess is that this gets into an area outside the realm of MMT per se because I’m not sure how to quantify demand for money which is probably not as straight forward as a accounting balance sheet approach to debits and credits and has more to to with “Animal Spirits”. Would demand for money may be revealed in part by loan demand as in C&I loans… http://research.stlouisfed.org/fred2/series/BUSLOANS? Although rising loan demand also signals leveraging of reserves as bank money expands which is probably inflationary, (opposite of deleveraging).

        Modeling demand for money may be as elusive as modeling prepayment speeds in mortgage pools.

      2. ok, ‘demand for money’ is desire to pay down borrowings/increase savings of financial assets?

        yes, mmt explains how savings desires alter aggregate demand, etc.

    3. @Rodger Malcolm Mitchell,

      This might be stating the obvious, but if inflation is caused by rising oil prices, then selling oil from the SPR has a twofold opposite effect, from offering oil prices lower while simultaneously draining currency reserves.

      (Reuters) – Britain has decided to cooperate with the United States in a bilateral agreement to release strategic oil stocks, two British sources said, in an effort to prevent high fuel prices derailing economic growth in an election year.

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