| HN Mirror

>> the same one that told us governments can spend infinitely without consequences

you’re making a strawman argument. You’ve mischaracterised then proceeded to knock it down.

Here’s Randall Wray, a leading MMT scholar on this topic in early 2020: https://www.levyinstitute.org/publications/covid-relief-and-...

“The inflation worriers’ objection seems to be largely over the “stimulus checks.” While we prefer targeted spending in normal times (and prefer pay for work over transfer payments), these are not normal times. The extra $1,400 (above the $600 already approved) will and should go to most families to help cover those bills. The propensity to consume out of these checks will not be high, as most people will use them to pay down debts or replen- ish savings (only 29 percent of the first round of checks was spent on consumption, while 34 percent was used to pay down debt and the rest was saved). What little boost to consumption they will provide can be handled without inflation, as production around the world has rebounded sufficiently.”

Before we dive into the relief part, note the “While we prefer targeted spending in normal times (and prefer pay for work over transfer payments)”. This refutes your argument as being a strawman. MMT doesn’t say what you said it does.

That doesn’t refute that stimulus is mostly inflationary though, so let’s look under that rock.

All spending, private or public inescapably contains inflation risk, however we saw something else for the most part.

Building on Randall’s reference to what the first relief was spent on (mostly non inflationary - but with some inflation where checks were issued to those without need for relief), we then went on to see supply side shocks (it’s still a pain to source some cars). There were demand shocks very early on - toilet paper predated stim checks so something else caused that demand side shock…

To this day We still see the predictable bullwhip in some markets.

We also see evidence of suppliers opportunistically increasing prices - some of our largest corporations are currently enjoying record profits.

So let’s be more direct in knocking this argument down - what are the cases of inflation that can’t be completely explained with one of:

    1. increased profits in the supplier
    2. global supply shock (oil, gas, manufactured goods etc)

That leaves us with only real estate, financial products including stocks, and…?

So what exactly is the argument around inflation if it is limited to a few asset classes that are ripe for obvious taxation solutions to eliminate said inflation?

>> it is indeed how money works

but going back to this bit, ignoring bs macro fairy tales and looking specifically at the system itself (which most macro theories rarely do, the stated assumptions in most macro bs are laughably absurd).

So how do things work in practice?

Ignoring that the fed has bought treasuries and thus literally means the government created money from nothing on a whim - ignoring this case because while it does sink the argument that taxes come before spending, it is a complex case with lots of gotchas that mean it’s not fair to characterise it as govt create money regardless of circumstance in all cases.

So instead let’s look at the policy that gives exactly this operation:

Step 1: The fed finances the primary dealer banks that participate in treasuries auctions - it accepts treasuries as collateral for repos.

https://www.newyorkfed.org/markets/domestic-market-operation...

Step 2: The primary dealer banks are obligated to stand ready to purchase treasuries

https://www.newyorkfed.org/markets/counterparties/policy-on-...

Step 3: and the Federal Reserve ensures there are sufficient reserves to do so by supplying them through temporary repos (a matched purchase of Treasury debt with a requirement that the seller must repurchase later). While the Federal Reserve is not in that case directly buying the new issue directly from the Treasury, it uses the open market purchase to buy an existing bond in order to provide reserves needed for a private bank to buy the new security. The end result is exactly the same as if the central bank had bought directly from the Treasury.

https://www.newyorkfed.org/markets/domestic-market-operation...

>> In case my sarcasm wasn't thick enough - it is indeed how money works.

I won’t be sarcastic, but you have been overconfident and mistaken.

NB: Great rebuttals include links to authoritative sources.

>> This is a false statistic

People’s opinions are invalidated only if they feel a different way than you? Come on… behave!