Still at extremely low levels, but moving up none the less, along with car sales, as happens at the early stages of a consumer credit expansion, supported by the trillions in financial equity from federal deficit spending that continues to add large quantities of income and savings to the economy.

Risks for equities remain the possibility of a near term dollar reversal, proactive fiscal tightening by Congress, and the ECB changing its mind with regards to supporting member funding needs.

Mortgage Applications in U.S. Increase for Third Week on Gain in Purchases

By Courtney Schlisserman

November 25 (Bloomberg) — The number of mortgage applications in the U.S. rose as purchases increased for a third straight week and refinancing picked up.

The Mortgage Bankers Association’s index increased 5.8 percent in the week ended Nov. 5, the Washington-based group said today. Refinancing rose 6 percent and purchase applications were up 5.5 percent, the most since Oct. 1.

20 Responses

  1. As a newbie to all of this (even economics in general, ;-)), I’m curious to how MMTers view Steve Keen’s work.

    I was interested to note that a recent article was posted in which Chris Martenson (whom I was wondering about in an earlier thread due to his economic views, basically of the “Austrian School,” that are spreading pretty strongly among “resource depletion” folks, and others, due to the “3 E’s” – economy, energy, environment – within his “Crash Course,” I had been wondering what might happen if he were to begin to engage in conversations with MMTers)… Martenson interviews Steve Keen, who walks him through his work that shows that hyperinflation (which Martenson has been prone to “see” ahead) is very unlikely, whereas deflation is far more likely.

    I’ll be curious if Martenson takes Keen’s work to heart in his own work of reaching out to the public about his concerns for the future, and, as mentioned above, I’d also like to learn how MMTers might converge and/or diverge from Steve Keen’s work, how he describes things in the following article.

    Here’s the article:

    1. By the way, although you can’t tell from anything explicit in my post above, I do think the interview with Keen does relate to the topic of this thread, ;-).

      1. Linda, this has ben discussed on other threads. To summarize, Keen is a circuitist and MMT’ers and Circuitists are in general agreement. Circuitists emphasis endogenous money and MMT’er’s focus on the vertical relationship of endogenous and exogenous money. However, Steve Keen and some other circuitists are overly concerned with government “debt” in that they do not pay enough attention to the vertical relationship and do not see government finance as essentially different from nongovernment finance.

        Where MMT’ers depart from agreement with Steven Keen in a major way is over accounting. Steve uses accounting principles that are non-standard, and MMT’ers think that it’s a bad move for two reasons. First, it is confusing when someone makes up his own rules. Secondly, it misrepresents operational reality. Standard account is standard for a reason. It reflects operational reality.

        But these are minor difference in comparison with the differences with New Classicals and New Keynesians.

      2. Thanks so much, Tom. And I will look for this discussion within other threads – a lot of good stuff to find for a newbie like me in mining older threads, ;-).

      3. Linda, as Tom said Steve is better than 99% of the economists out there, in that he is at least asking the right questions – it’s just some of his answers that are off. He is a big fan of Minsky, but IMO he has never fully assimilated the “Three balances” approach of Wynne Godley, which is critical to understanding global financial flows. Just looking at “debt” in isolation doesn’t really tell you as much as he thinks it does. He has also been historically skeptical of the ability of governments to address financial imbalances with fiscal remedies, but I’ve never been able to figure out if he thinks this is just a political limitation or a “real” one.

    2. Linda, I just finnished reading the Martenson interview of Keen. It pretty much bears out what I and others say above. A lot of what Keen says from the Minskian vantage MMT’ers would agree with, but, as Keen admits, he disagrees with the MMT’ers (aka Chartalists and Neo-Chartalists) about what to do about the resolving crisis. MMT’ers see the crisis as a essentially a demand problem created by a Minskian financial cycle that led to increasing financial instability and culminated in Ponzi finance. This can be addressed through fiscal policy coupled with financial reform. Keen rejects that approach as insufficient and wants to adopt Zarlenga’s monetary reforms. MMT’ers regard this as ill-conceived. MMT’ers hold that the existing monetary system is not the problem. The problem is that it is not well understood or implemented operationally. Changing the monetary system radically is unnecessary and current proposals for doing so are unhelpful. MMT’ers agree with Keen that the financial sector needs to be reorganized in light of understanding of financial instability and the growing trend toward financialization.

      Keen’s analysis does reveal why most of the mainstream economists missed the building crisis and have no clue about how to deal with the consequences.

      I would say that appreciation of Keen is a step forward for both Chris Martenson and Mish Shedlock, both of whom are Austrian in their bias. Keen shows how the money multiplier is a myth, for example. From there, it’s not a big jump to MMT. It’s a matter of integrating the vertical-horizontal relationship and the hierarchy of money, exogenous and endogenous money creation, national accounting identities, the sectoral balance approach, and stock-flow consistent macro models with Minsky’s financial instability hypothesis.

      As Ed Harrison shows, it is a small step from being a dyed in the wool Austrian to an approach that integrates PK and MMT insights.

      1. I have not read Ed Harrison`s analysis but from other experience I’m not sure the jump is so small. I have seen presentations by people who reject the money multiplier, support endogenous money, but believe the debt to GDP ratio should not go above 60%.
        Keen is very critical of MMT for reasons I find puzzling in that he accuses the approach for things it doesn’t actually advocate.

    1. Equities are a hedge against a falling dollar. Equity prices have not risen because of improving fundamentals but in response to dollar depreciation. The relationship of the markets track almost perfectly.

    2. Tom’s right as far as he goes, but there is a fundamental reason for the inverse relationship between US equity prices and the dollar.

      Think of what a for-profit company does. It takes in goods and services as inputs and sells goods and services as outputs. Presumably the company is adding value in some way so that the value of what it produces exceeds the value of the resources it consumes. This value creation is roughly independent of the currency in which goods and services are denominated. If a company can turn sand into microprocessors, then it doesn’t really matter so much if that company is in the US and conducting its business in dollars or if it is Japan and conducting its business in yen. The enterprise itself creates real value, and therefore the enterprise has real value (equal to the discounted sum of all of its future value creation).

      That value, say X, is to first order independent of any currency. This is less true for importers and exporters, which benefit or suffer from exchange rate fluctuations for a number of reasons. But for most companies, it’s true.

      On the US stock market, people measure X in terms of dollars. Therefore, if the dollar depreciates, the price of X in dollars will go up. It is really easy to see this effect when a country suddenly devalues its currency as Brazil did in 1999. The Brazilian currency went down by a factor of two, but most of the Brazilian widget makers were still able to make widgets just as well as before. Thus their price in BRL doubled.

  2. How do you know either from MMT or otherwise how much federal deficit is enough vs not enough. Clearly it is not enough due to the output gap and most literature suggests that the stimulus spending was not all useful. For what stimulus was useful, how can someone do the analysis to know that the effect is large enough to cause income and savings to go up enough to offset on-going home price declines? I know that you are proficient enough to do it but how can the someone else do it…

    1. MMT economists generally look at the employment rate to access demand adequacy and what would be required to get to full employment. They regard full employment as about 2% friction, whereas under NAIRU it is 4-6%.

    1. I wonder why Warren doesn’t setup something competing that just advertises. It would probably work quite well.

      We could help!

    1. Well, if Ellen Brown ever gets her wish for a federal public bank (a la Bank of South Dakota), I guess “Bank of America” would be as good as name as any. :o)

  3. It probably should come as no surprise that mortgage applications are up slightly – if you are lucky enought to have a secure job, houses are now easily affordable.

    I just saw some houses for sale in the US for less than $100 000 – the same houses would set you back $400 000 to $500 000 or more here in Australia.

    A surge in new housing construction is construction is what I would look for as a sign of true recovery. Money borrowed for new construction must surely create a significant sized spending multiplier compared to the purchase of existing houses which is mostly just a transfer of financial assets between the borrower and the bank with maybe one or two other agents thrown in along the way – it doesn’t require the purchase of construction materials and the payment of building workers wages, who then spend those wages at the butcher, the baker, the candlestick maker etc etc.

    I suppose the purchasing of existing housing at very low prices will eventually eat into the oversupply.

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