@veryslyfox Alf was advocating for us plebs and trying to slow him down, which he managed at times and clarified. But agree that it was messy at times.
Keen is so important to my own education in the workings of the financial system. Been supporting him for years because his work needs disseminating to the wider public.
I’m glad you guys are talking about this. It’s really amazing how many bad decisions are made by our governments purely from a misunderstanding of how the monetary system works. Against the common strawman argument on government debt: This is not saying that government spending is free; it clearly has costs and consequences. However, there is no golden ideal debt ratio allowing the economy to work perfectly, and attempting to “paying down the debt” does have disastrous consequences. IMO, the way forward is to forget about debt levels and look at end-goals instead; things like jobs, inflation, infrastructure needs, is homeless rising, is labor force participation shrinking, and the myriad of other real economic concerns.
Yes, so long as the public spending is effective and efficient and the economy needs the stimulation or the market can't solve the problem then it is fine. The challenge with democracy is that people can vote for bread and circuses which, based on the example of the Romans, is unlikely to solve the increasing inequality. Instead in my opinion we have to keep revitalizing the "animal spirits" in the economy and rooting out forms of corruption and monopoly powers that reduce the dynamism of an economy.
@@joythought You seem to forget that the very same Folks who appear to Own the Political Prostitutes, dictate who is allowed to have their name on a Ballot. For the proper amount of money the Majority Investors of the Electoral Industry, get their desires represented by the People selected to be on the Ballots. As in 1776, the US is subjected to a small number of individuals dictating power. We had a revolution to eliminate that concept.
Me too, our monetary system doesn't need to be this complicated, all you need to know is its manipulated and created from nothing, effectively printing funny money
@@djdos83 Absolutely. As long as you hold the reserve currency......now you know how much privilege the West has.That history is rooted in a lot of suffering.....wont go there.
@@stephencuskley5251 I'll give you TL'DR- Money created via deficit finance; debt issued via bonds; Govs borrow money (either funded by other nations, retail, institutions via bond sales). Money created and managed via a slew of maneuvers - rate change, QE/QT, policies etc.....basically printed digitally when needed (thanks to reserve currency privilege) Entire world runs on credit cycles - boom and bust (on repeat) ; follow the cycles and you'll do ok
1. How does the typical individual investor thrive given these revelations, and what are the pitfalls to avoid? 2. Steve needs a talented animator to help convey the complex and dynamic relationships in his model. 3. It would be good to explain the four tables (what's in the rows, what's in the columns) clearly before jumping in. 4. when you talk about the private sector benefiting, who are we talking about as key beneficiaries? (e.g. top 10% of individuals/families in society have most of the wealth from government "money printing").
#4 He means the private sector in aggregate: what does the total balance sheet of the private sector add up to now? Public spending such as a stimi cheque to every citizen will reduce the balance sheet of the public sector but add the same amount to the private sector.
@@jamesderoc6717 that's not right but it can be the consequence of the extra money in the private sector so, yes, 18 months later we get inflation and the hangover of an asset bubble
4 means the not the Federal Government and Federal Reserve, and not the banking sector. That includes most local governments like U.S. states, cities, counties, etc. Also includes foreign governments who use the USD as a reserve currency. That includes everybody who works for USD, companies and individuals, domestic and foreign. What you are talking about 10% have most the wealth, this is true whether we rich or poor, communist or capitalist, democracy or authoritarian. There are always those who are more productive, have skills that the economy rewards, invest wisely or gets lucky, or just have more control over the economy for whatever reason, etc etc. How we solve that is a matter of politics - progressive taxation, universal public services, subsidies, redistribution, regulation/deregulation, price controls, etc.
3. These are stocks and flows. Stocks are the accounts with numbers, flows are the transactions in words. This is in the first condition when we didn't consider bonds yet, we simply allow the Treasury to have a negative (overdraft) account at the Central Bank. The first table is the Federal Government. The Treasury account (Asset) has an initial condition of $100 which is matched by a liability in the Central bank of $100 Treasury account. Spend and Tax are flows that affect the Treasury account. Spending decrease the Treasury account (credited), which goes into the Reserves (Asset) of Commercial Banks (debited). The liability part of the spending is simply the Federal Reserve transferring Reserves from the Treasury account (debited) to the Reserves account of banks (credited). The banks in turn then add to the deposits of the people being paid by the government. Their deposits go up (debited), which is the commercial bank's liability (credited). So in the end, the government goes into debt, which is reflected in banks having positive balances with the Central Bank. In turn the banks increase the deposits of members of the public. Deposits are assets to the public but liabilities to the banks. Taxes do the reverse. When we consider Treasury bonds in the model, those are liabilities of the Federal Government, and Assets to everybody else. Its still the same, the government went into debt, which is everybody's asset. In the model, physical cash isn't covered among other things. Physical Cash are direct liabilities of the Federal Reserve, but Assets for Banks and the public.
perfect explanation as to how the cantillon effect works, those closest to the spigot and those holding the most assets absolutely rake the purchasing power of the general public specifically the lower and middle class. Keen=Keynesian stool pidgeon
Wow so if the government would just spend more money we'd all be rich 💰 ... Or maybe all that's accomplished is a further and further debased currency 😟
*Depends how the money is spent. If it's spent on housing, education, healthcare, infrastructure and food sovereignty then yes people become richer. Today they spend on war and incarceration, then you get unproductive society.*
@@Phil_D_Waller *You can't debase a free floating currency. The government can always raise taxes removing money from the economy forcing those that work for a living to get back on the plantation to produce. Not to mention theirs a lot of unemployed people that would gladly accept a job.*
This is a powerful message. Factually, you don’t get Tesla or SpaceX without billions of government research grants to the development of battery technology and government spending to transition the US space program to the private sector. Tesla and SpaceX benefit without the financial liability. Just calling out these two firms as examples but the corollary follows.
That's right but doesn't really encompass what Keen is saying. Gov R&D grants are effectively part of public spending so fall under that but he's trying to show the whole economic model as a system that can be correctly accounted for using double entry bookkeeping
And your argument suggests all hard science is done by gov labs and not by the private sector ignores basic historic facts that show some major tech advancements would not have happened without gov R&D but that's a fraction of the R&D done by the private sector.
@@joythoughtHow much research would they do if the government didn't operate a patent office? The government is absolutely central to our economy...despite what Libertarian fantasists claim.
No! He uses “money” like it’s a set measure. It’s not. The more money that’s created, the less it’s worth. It’s almost like he’s saying you can get more “rope” if the government can give you more “length” by merely printing more “feet”. 😂 In the end, money is worthless. It’s goods and services we need. The government can’t “print” that.
The accounting is sound, it is separate from the real goods and services. Just as in a game (basketball for example) the scoreboard doesn’t automatically update when a shot is made, the game and the scoreboard interact via game officials. Inflation is not written off in MMT.
When we inspect the amount of Resources available on this Planet, 70% seems to be owned by the Nations associated with the BRICS Group. The G-7 Guys need the goods available among that group of Nations.
@@Basta11 The establishment of MMT will be dictated by the Wealthy who select the names that appear on a Ballot. The ability to keep the Workers working to haul the Garbage, will seem like it has some issues? Usury is the issue that needs to face examination. Without Usury Capitalists would not like Capital so much.
Something to note: "crowding out" only matters when the income that the money is spent out actually creates an opportunity cost by being contingent on a job. When the government spends $40k on someone to be a soldier: someone is being a soldier rather than a potential employee for the private sector, or an entrepreneur for the private sector. When the government pays out welfare: that isn't necessarily crowding out its welfare recipients, because a welfare recipient can still work while getting that welfare.
Government spending doesn't crowd out private spending. Banks don't lend reserves or deposits to their customers, they create new money. Government spending on material/human resources in short supply can drive up inflation but the solution is to tax away spending power from unimportant areas of private sector activity (luxury goods, tobacco and alcohol production, etc.) and direct resources to public sector goals...affordable housing, schools, public transportation, healthcare, etc.
@@finchbevdale2069 You don't crowd out spending, but labor. The government can print all the money that it wants, and however much work it demands for the money it prints crowds out the private sector for labor. This isn't necessarily a good or bad thing, depending on what it demands of its workers, but it is still an opportunity cost. Like: if someone works as an engineer at NASA, they can't be an engineer at GE or Raytheon or do any other job: because they are spending that time working for NASA.
There is just one problem: money distribution. Negative balances for governments means positive inflows for those who receive governmental money. Not for the others.
...who then spend it themselves on other things in the private sector. When the government buys highway construction services wages are paid to construction workers who spend at the butcher baker and candlestick maker...and so on...without producing private sector debt and interest. If the government didn't spend, ALL economic activity would have to originate and end with private debt...and since banks want interest, you are now looking at a ponzi scheme which eventually blows up. See the 2008 crash and great recession which originated in government surpluses and weak banking regulations...thanks Clinton and Bush. Not.
The caveat of government deficits and borrowing creating equity versus private borrowing not creating equity is this: the government spends borrowed money more often on things that don't increase the WEALTH of the whole, whereas private borrowing more often results in WEALTH Increasing as a whole, that is real assets that increase quality of life.
Exactly backwards. I want more public education, healthcare services, affordable housing and environmental protection and no economic activity on tobacco, porn, polluting pick up trucks, tummy tucks and boob jobs, sugar-laden processed food...need I go on? The private sector is in many ways a cesspool.
We're mixing three things here that lead to using jargon and virtual objects just to look smart - it's like saying there are goblins and ghosts. The money created by the CB, the notes created by government and the currency in the bank accounts of banks are completely different things that we are mistakenly interchanging. If we use common sense and observe how IOUs (could be digital, paper, clay tablets or beads...) are exchanged for so called money issued by the CB, we see that the only thing the government deficit does is that it is exchanged for money from the CB and virtual currency from the banks. Since the banks themselves create their currency by simply keying it into the keyboard, the government receives the so-called currency of specific banks in exchange for the bonds (each bank effectively issues its own currency!) or, if it has an account with the CB, it receives money generated by the CB. Money and currency are nothing but vouchers for which real material things = labour (energy) and natural wealth are exchanged. If you have the ability to print money and force others to use it, it is an elegant form of slavery.
No ..if you look at your bank balance then go to the ATM and take out $60 it's money the same as sending an e-transfer or routing it through a credit card. What do you think your bank is producing if you live in the USA and gives you a mortgage? Pesos? What currency do you pay your US taxes in (assuming you live there)? Money is ultimately a system of account that helps keep track of your tax liability. The government doesn't use your money...you use it's money...to pay your taxes. Or else.
So, when government borrows from the future I don't have to pay it back with interest and in higher prices? That's ridiculous. Why are my taxes and prices keep going up than?
Am I right in thinking that when a government, as in the UK, imposes austerity, limiting the deficit, it leads to an increase in private debt and financial crises.
Something like that I think. A key point made in the video, at 10:15, is that when the gov runs a deficit then people have less need to borrow from the banks. The gov creates money without a liability attached. I wonder then if austerity is an action to increase privatisation and lower labor costs, i.e. wages, which increases reliance of money creation in the hands of the banks. I'm very confused by Labour implementation of austerity, then again I am American.
No mention here of inflation. We have all just seen that just like Milton Friedman told us back in the 80s creating more money while the amount of stuff (food, fuel, houses, cars etc) remains the same just creates inflation. To create wealth we need to produce more stuff. Creating money just fools people they are richer, an illusion that vanishes when they try to spend it. It also makes it easy for those controlling the process to divert funds.Great podcast bur only dealt with one dimension.
And because it completely ignores monetary inflation without an equal amount of economic growth (i.e. some degree of stagflation), there’s no mention of the Cantillion effect, which is every new “fugazi” unit of currency created out of thin air derives its purchasing power by the debasement of all existing currency, and that new purchasing power goes to whoever holds the newly created currency (i.e. the government). So, while this double entry accounting example is technically correct, it implies that forever & ever people will be okay with being robbed of their savings by inflation, AND okay with that theft going to whatever special interest receives the new currency from the government (usually banks, or the already rich via asset price inflation). This really shows why Peter Schiff is right and that more government is not the solution. The wealth will only become more concentrated. The public needs to learn this lesson (probably the very hard way), elect leaders who will strip the government of power, which returns power to private citizens to work, save, invest wisely, and not be robbed by inflation. Imagine if 100% of people of working age in society were incentivized to work without their wages being taxed to oblivion and any savings they managed to accumulate made worth less and less over time. The money supply needs a standard of something. Whether gold, bitcoin, or something else they don’t control, the important part is the standard, the yard-stick by which the value of a dollar is known against.
@@schumiisking Why Bretton Woods collapsed was due to increasingly evident deficit spending by the US government, along with the Eurodollar system being able to lend additional Eurodollars into existence, and so it became apparent that the gold no longer backed the currency at its stated rate. Since foreign dollars were redeemable for gold, it was easy to see for those who looked: Redeem your dollars for gold, and you were whole. Fail to do so, and you might get stuck with dollars backed by nothing. And so, the US effectively backed the dollar with oil via the petrodollar arrangement with Saudi Arabia, and the system was extended. But now, as Luke Gromen points out, oil producers have figured out that saving their dollar surplus in US bonds is a losing deal. Because of ongoing and increasing US deficits, the bonds will never hold their value vs. oil. And so what is the fix? The fix is a peg of oil to gold. Gold has held its value vs. oil historically, bonds & dollars haven’t. MMT and the Cantillion effect are only going to exacerbate this problem. Printing money to buy energy is going to result in more wealth going to those closest to the money, and production in the economy going down & down & down. Printing money will not produce oil or goods & services. It will result in fewer of both, which will eventually break the economy. MMT is destined to fail, and those in favor are probably stand to benefit from the money printing, or simply don’t understand that economics starts with supply. If there’s not supply of oil, goods, and services to start with, it doesn’t matter what demand is. Someone needs to produce these to begin with, and if they can’t do so profitably, then they won’t, and the supply won’t exist.
Yes. There are 2 variables in this equation. Money and stuff. The point of MMT is to say that money is really no object (literally) we can "print" indefinitely because these are simply database entries which is separate from the real stuff, its just numbers and accounting. Even paper and coins, we can always put bigger numbers in those things. As Greenspan said "there’s nothing to prevent the federal government from creating as much money as it wants and paying it to somebody. The question is, how do you set up a system which assures that the real assets are created which those benefits are employed to purchase.” Meaning, you'll definitely get your Social Security check, the issue is, how far will it go.
16:16 A little correction: Actually in some monetary systems the government is allowed to go into overdraft, for example in germany. In the case of germany it only allowed intra-day which means it must balance its account by the end of the day. This effectively means that the government could go into overdraft (therefore create equity for the banks) and then offer them bonds (which they can buy with the equity created by prior spending). The whole point of bonds is not to fund the government, it is to maintain the interest rate target by sterilizing the net effect of government spending on the amount of reserves so the central bank can buy and sell those bonds in open market operations to control the amount of reserves (which is the normal way the control the interbank lending interest rate).
Germany does not have its own monetary system. It uses the EURO and is subject to the Maastricht Treaty rules and regulations which allows Euro countries using the ECB to run deficits.
@@herbwiseman9084 I know that but still each country in the EMU has its own central bank (in case of Germany this is the German Bundesbank). And while all of the national central banks are conducting the monetary policy the ECB mandates its still the national central banks that run almost all of the operational business and also each country has additional national rules that are not subject of the Maastricht treaty and are national law. Allowing the german government to have an intra-day overdraft is one of those national rules. So what you said is not in any way at odds with what I said. Also the construct of the Eurozone is much more complicated. Its not like the ECB does everything and replaced the national central banks completely. Actually it does very little and has very few accounts with itself (mainly the national central banks have an account + a few foreign central banks and some international institutions like the IMF). The ECB primarily decides on the monetary policy which the national central banks carry out. It also tracks the balances between the national central banks in the TARGET2-System.
Professor Keen leaves out one critical element in that all money is created with an interest rate attached. He makes it sound like government spending is positive and adds to the value of the private sector. If you were to take all the money in circulation you could never pay back all the debt because the amount of debt in the system will always be more than money, due to having to pay interest. Recent stats show household debt=16.5 Trillion, current Federal Government debt=31 Trillion, State debt=1.2 Trillion, Local debt=2.3 Trillion, Unfunded liabilities=173 Trillion. In total roughly 223 Trillion, which is $667,000 for every man, woman and child! Compare this to the average savings per family of just $9300, or roughly $2300 per person. How on earth is a total debt load of $667k per person, versus savings of $2300 considered positive, or even neutral?? The fact is that total debt is compounding much faster than total income and there is no way out of this mess!
The "$31 trillion" in government "debt" is balanced by $31 trillion in private sector assets. this isn't a matter of opinion, it's a simple matter of accounting. The government issues the currency and can't run out. If the government stopped spending, there would be no net money creation and private sector debt would keep expanding until we have another massive financial crash. Keen predicted the 2008 crash.
@@finchbevdale2069 Private sector assets are not remotely distributed evenly across the population. Unless the government plans on illegally seizing the private sector assets to help pay down the now $34 Trillion in government debt, it absolutely matters what the debt levels are. Consider that now we are paying more interest on the debt than we do on military defense spending and interest is now the single largest expense item. How on earth can this be positive? Keen ignores these inconvenient truths.
There is no point in taking the government debt and dividing it by the population as if it was debt for the population. The government debt is the net financial asset of the population, not the debt. They must, by definition always have the money to "pay it back" as those are two sides of the same balance sheet. But of course there is absolutely no point in ever even trying to pay it back unless the private sector doesn't want to have any net financial assets. People who add up one side of balance sheets of different entities have frankly speaking no clue what money is to begin with. Savings are BY DEFINITION always exactly (to the penny) as high as debt. The world is a closed system. We take no credit from the mars and we do not trade with the moon. And debt is always and by definition offset by an asset. The special thing about the government is that it is basically eternal and there is no due date at which the government should pay back it's debt at all. It will roll it over indefinitely. Also it does not promise anything for it's currency unless it has some kind of fixed exchange rate regime (which indeed means it can run out of what is promised in exchange). All it promises is that it will accept the currency in payment for taxes, fees and fines. Also it is simply not true that there is "not enough money to pay interest" in the system. Of course banks create the money to pay the interest through an accounting exchange on the liability side (by paying themself loans, profit, rents, paying other for goods and services they need to do their business). And given there is no imagined risk that a government or central bank refuses to pay the interest rate on bonds is entirely a function of the support rate which the central bank sets itself. Private debt is the unstable source of crisis, not government debt in its own currency.
@@trixn4285 "They must, by definition always have the money to "pay it back" --No, once the money is in private hands, the government cannot get it back unless it resorts to outright theft. "Savings are BY DEFINITION always exactly (to the penny) as high as debt."--No again, because ALL money is loaned into existence with an interest rate attached to it. Thus the total debt outstanding is ALWAYS more than the total savings because of the growing interest. If interest rates were exactly zero, then yes your statement would be correct. "And debt is always and by definition offset by an asset."--No because some assets are a mal investment and thus their value over a short or long period of time can drop or even go to zero. The asset can disappear but the debt doesn't. "there is no due date at which the government should pay back it's debt at all. It will roll it over indefinitely."--This does not apply for the majority of countries because they need foreign investors to fund their deficit spending otherwise if they just print the money their currency can likely hyper inflate. Most countries CANNOT roll their debt over indefinitely because most foreign debt is demoninated in US dollars.
@@trixn4285 "always have the money to "pay it back" as those are two sides of the same balance sheet"--Since when does the public(ie you and me) share our balance sheet with the government? If you have an extra $10k in your bank account, do you tell the government, "you have access to my $10k since we share the same balance sheet". Hell no! "Savings are BY DEFINITION always exactly (to the penny) as high as debt. "---Totally wrong!! All money is Loaned into existence with an interest rate attached to it. Thus the moment the first interest rate payment is due, the total owed is higher than the debtor received when the loan is created. Total debt outstanding is higher than total assets due to this interest rate. Even this doesn't account for mal investment, which is where the assets depreciate in value over time. Cars anyone? " It will roll it over indefinitely."--Totally wrong again! Countless countries in the world rely on foreigner entities to fund a good portion of their government debt. The only way they can roll over the debt indefinitely is if they hyper inflate their currency and that is only when their debt is demoninated in the local currency. Much of worldwide debt is demoninated in dollars and thus they must have their fiscal house in order to entice foreign investors to buy their bonds.
It's still immoral for governments to spend more than they tax. The "asset" they create goes into the hands of the most connected first before being further distributed to the public. It must also be payed back with interest in the future.
The government can never be truly neutral, as even 0 deficits creates winners and losers. As the population grows, that creates new demand for money. Without deficits, hoarding would be the sensible play as the value of money would increase. People hoarding money creates reduces the amount of money in circulation. This causes a deflation spiral - people with money will be benefiting from increasing purchasing power, people without - their goods and services for offer will go down in prices. Lots of people will be unemployed as companies demand more from their existing workers rather than hiring more people. It’s not like people can opt out of the money system since the government still taxes in money regardless of medium of exchange.
Why? The government doesn't need to tax you to get money. It taxes you so you use its currency so it can use that currency to buy what it needs efficiently through a dynamic private sector as a matter of state security. It needs to be able to provision itself. The alternative would be to just use its army to expropriate everything and then you really would be a slave. Ultimately our monetary system is backed up by the government's monopoly on the use of force to settle disputes. That's why it's important that we have democracies and that we participate in them.
The only question is how much of this spending power should we ALLOW the government to have. Might compete with private sector via their activities. Might misspend. Might prop up certain special interest groups, which will then become entrenched.
The question is not just how much but also how - what does the government spend on? And what does it do with the things that it purchase? Does it serve public purpose to increase prosperity, well being, and social stability? Or are we spending large amounts on expensive military adventures? Giving massive subsidies to people who don’t need nor deserve it? Even the decision not to deficit spend and austerity, that too is a political decision.
@@Basta11 Agreed, it is all a question of what we collectively decide is best. Problem is that our political class is not interested in honesty and education of the public. There are tradeoffs in every decision. We should always be wary of too big a state. Every person is the defacto member of several special interest groups. They may be an expert in their field, but their perspectives and desires are at least partially subjective. No group deserves unchecked power via injection of unlimited govt resources.
Essentially the government is leveraging the publics equity with cash and debt. Like having a house worth 100k that has a line of credit with a low rate. The house keeps going up in value so the government keeps drawing down on their line of credit but the line of credit can't go above or maybe even up to the current value of the house because it can become unstable. So the bookkeeping is right. But the total overall "value" vs debt is important to keep an eye on.
No the government goes into negative equity in order to produce positive equity in the private sector...it does leverage private sector equity. Government bonds sold to the banks are paid for with reserves, which were originally produced through deficits...they're not "borrowing" because they "need" the money per se (the government issues the government after all), it's done for artificial reasons such as made up rules forbidding the Treasury from running an overdraft at its own central bank and to help set interest rates in the economy.
Sorry this makes no sense at all. If you follow this logic, goverments would never go bankrupt. But this is happening all the time in history. The people are the goverment and they have a giant liabilty in terms of debt service to bond holders, who do not have to be the people or banks of this state.
Governments choose to go bankrupt in their own fiat currency. A government only has to go bankrupt if they can't pay their bonds, and the only way they can't pay their bonds is if they have to pay something that they can't create. If a government owes gold, it has to have gold to pay the gold -> it can go bankrupt. If a non-US government has a bond in US and doesn't have the USD -> it can go bankrupt. If it is its own currency it can create reserves and pay the bond that is due by issuing a new bond.
I remember when I was in my very early twenties, around 20/21 yo, coming across the economic system/s of the world and being completely disheartened and disenfranchised. I wanted no part in it. It was so corrupt, broken and inflationary by design and the system literally serves its masters. I never recovered from it. I am hoping that with the rise of blockchain/DLT systems that we can overcome this system and build something better and fairer, baked right into its design. I only have half a hope though as I am seeing much of the same patterns emerging in blockchain/DLT, going so far as to replicate fractional-reserve banking and a centralization of authority to go with it. I truly hope we can build something better.
There is no point in taking the government debt and dividing it by the population as if it was debt for the population. The government debt is the net financial asset of the population, not the debt. They must, by definition always have the money to "pay it back" as those are two sides of the same balance sheet. But of course there is absolutely no point in ever even trying to pay it back unless the private sector doesn't want to have any net financial assets. People who add up one side of balance sheets of different entities have frankly speaking no clue what money is to begin with. Savings are BY DEFINITION always exactly (to the penny) as high as debt. The world is a closed system. We take no credit from the mars and we do not trade with the moon. And debt is always and by definition offset by an asset. The special thing about the government is that it is basically eternal and there is no due date at which the government should pay back it's debt at all. It will roll it over indefinitely. Also it does not promise anything for it's currency unless it has some kind of fixed exchange rate regime (which indeed means it can run out of what is promised in exchange). All it promises is that it will accept the currency in payment for taxes, fees and fines. Also it is simply not true that there is "not enough money to pay interest" in the system. Of course banks create the money to pay the interest through an accounting exchange on the liability side (by paying themself loans, profit, rents, paying other for goods and services they need to do their business). And given there is no imagined risk that a government or central bank refuses to pay the interest rate on bonds is entirely a function of the support rate which the central bank sets itself. Private debt is the unstable source of crisis, not government debt in its own currency. "always have the money to "pay it back" as those are two sides of the same balance sheet"--Since when does the public(ie you and me) share our balance sheet with the government? If you have an extra $10k in your bank account, do you tell the government, "you have access to my $10k since we share the same balance sheet". Hell no! "Savings are BY DEFINITION always exactly (to the penny) as high as debt. "---Totally wrong!! All money is Loaned into existence with an interest rate attached to it. Thus the moment the first interest rate payment is due, the total owed is higher than the debtor received when the loan is created. Total debt outstanding is higher than total assets due to this interest rate. Even this doesn't account for mal investment, which is where the assets depreciate in value over time. Cars anyone? " It will roll it over indefinitely."--Totally wrong again! Countless countries in the world rely on foreigner entities to fund a good portion of their government debt. The only way they can roll over the debt indefinitely is if they hyper inflate their currency and that is only when their debt is demoninated in the local currency. Much of worldwide debt is demoninated in dollars and thus they must have their fiscal house in order to entice foreign investors to buy their bonds.
Pretty much. Government money created out of thin air only has value by stealing it from the rest of the circulating supply of money, because it does nothing to add to the underlying value it's supposed to represent.
@@HomelessHomeowner617 I'm not sure what the main takeaway of this video is. Maybe this from Alf: "If someone has managed to understand the vital concept that Treasury spending creates net worth for the private sector..." Sounds like a lot of creating something out of nothing. Maybe i'm missing it.
@@libu6189 it’s is creating something out of nothing in a sense. Sovereign currency is a social construct like points in a game. The Federal Reserve and commercial banks are the score keepers of the US dollar. Powers were granted by Congress. Most sovereign currency comes in the form of either database entry (electronic signal), paper, or cheap metals (relative to melted down value). These things have almost no intrinsic value yet here we are working and paying bills buying stuff. It’s because sovereign currency is infused with the power of the state, it’s ability to tax, fee, and fine, settle disputes with finality, and send you to prison should you not obey the laws.
@@Basta11...and some powerful people hate those realities...hence the misinformation peddled as "sound finance" by conservatives and neoclassical economists and billionaire funded "think" tanks.
I love Prof. Keen but he makes me feel stupid .... I just don't get it. How is this wealth created by .gov deficit, out of nothing, without productive work or a physical asset to balance the equation. Its like he throws a spanner in my mechanical mind and it ceases up.
The money is borrowed from the future. Prof keen says governement never pays back its debt but instead just pays interest and rolls over(ie refinances its debt) and i think he is implying that therefore this debt is irrelevant. But ofcourse the cost of servicing this debt is relevant and has limits. And this only works in either a growing or inflationary economy.
@@vaan2900 Ok the money that Prof. Keen says will help the average Joe is 'commissioned', 'borrowed', 'made available' whatever you want to call it. So the new money depletes the purchasing power of the money that was already circulating. How is that good for average worker in an inflationary economy?
You are so naive to say that “one can argue that later on the govt can tax me more, ya… sure, but if we continue to think along these lines, but there are no liabilities attached to new money being created”. This is complete and utter madness and nonsense. This is what is called the deadweight loss. Where a tax increases linearly, the deadweight loss increases as the square of the tax increase. This means that when the size of a tax doubles, the base and height of the triangle double. Thus, doubling the tax increases the deadweight loss by a factor of 4. What’s more is that the government interference in a perfectly functioning market creates a demand shock and the actual inflationary pressure governments and central banks are supposed to be addressing in their mandates of keeping prices and wages stable. For such smart pseudo-intellectuals you cannot even understand the micro side of the equation and speak of the government never having to pay back as it destroys money…. This is insanity! The government not paying back it’s balance sheet obligations by repeated cycles of open market operations through the central bank facility is what raises the borrowing costs of the private sector as the central bank’s bloated assets (treasuries, MBS snd corporate bonds) it hold is the reason why 1. The sovereign credit rating is downgraded, 2. The prime rate is increased and 3. The govt has crowded out private borrowing. “The welfare state is the greatest confidence racket of all time. The government takes your money in taxes and then turns around and spends some of it to give you things. For this, you feel dependent on them, when in fact they are dependent on you.” Dr. Thomas Sowell. Your model is primitive, it does not consider the social hazard it creates and most definitely does not address the moral hazard of a bloated government sector that crowds out the C and I in the GDP formula. What primitive economics!
The government doesn't have to pay the money back provided the equity of the private market is going up. In other words the value of the private market is doing well. If the private market is not doing well the government cannot create more money on this smaller base without issues.
Sorry I tune out MMTer’s cause they are living in an alternative universe that tries to create something for nothing. It’s already miserably failed and what caused all this crap to begin with.
Steve , please explain this to Phillip Lowe , Governor of the RBA , he told Senator Rennick at recent estimates meeting , that the Government should go out to the market to raise money for Infrastructure finance . Senator Rennick wants the Interest cost / margin to remain in Australia .
Don't you reach a point at which the deficit spending becomes terminal and then destroys the value of the currency and the balance sheet of the entire country?
the real ponit is, you dfont ever want an entity that is the most incompetent, and most valuedestroying at using currency in history, to spend resources
This interview is why you shouldn't listen to economists ever (And I'm an economist). Banks don't use reserves to purcahse bonds. They create the money out of thin air. Government spending doesn't create "net worth" it redistributes money around which is evened out by inflation (When inflation rises, net purchasing power remains constant, but a bigger share sits in government coffers) and that's WHY it crowds out the private sector. The word "inflation" wasn't mentioned once, which reveals both speakers' lack of understanding of what money is and how it works. If government "created" net worth by spending then Venezuela would be the richest country on Earth, closely followed by Argentina. Get off the ivory tower Prof. Keen, you clearly need it. It's so easy to prove this is bullshit too: If it were true, governments would never default. Yet, on a long enough time horizon, governments **A L W A Y S** default. I'm always amazed at academics' ability to not see reality. PSA: Money =/= Wealth
Except, epb macro research clearly shows how government spending crowds out private. Now, in the exact question you asked him about checks, maybe in that scenario it doesn't. That's a weird scenario as it's not really spending as much as it's direct transfers.
Correlation doesn't equal causation. EBP etc operate under a fantasy about how the system works. If you put Keen's work with an understanding of the much larger shadow banking system (e.g. the Eurodollar system) then you get a full picture of today's monetary system.
Hmmmm, right away I have a problem. The government does NOT 'own the country'. The government reserves the right to extort resources from the inhabitants by force. In fact the government has no liabilities. The inhabitants of the state ultimately are liable. The government spends on their behalf.
Well now show the offshore dollar market aka Euro dollar system, oh wait, nobody can, even though that’s where most of the US dollar is used(digital + denominated in US dollar), and with zero government or central bank oversight and regulations. What something like $80+ trillion now😅
On a related note, if central bank buys the govt bond(Quantitative easing or direct Deficit spending) do treasury pay interest (coupon) to the central bank ? Could be just passing from one hand to another but for accounting purposes.. ? Thanks
Pretty much. After paying for its own expenses, a dividend is given to member banks who "own" the Federal Reserve. (Banks must have shares in the Federal Reserve to have their banking charter in the first place so its not really ownership in a regular sense). After that, most of the profit goes back to the treasury. The funding to pay the interest comes from the same place - bond issuance in the case of deficit, tax receipts in the case of surplus. www.federalreserve.gov/aboutthefed/section7.htm
The central (Reserve) banks do not just create money that flows into the private sector. The Central (reserve) banks create both debt and money just like the private banks do and the debt which is in treasury bonds then becomes a liability for the private sector which is payable when those treasury bonds mature and have to be paid out. Taxes are the funds that pay out those maturing bonds because government has no money of itself other than taxes. That is why money creation by the Central bank becomes a liability for the private sector which Keen purposefully ignores to put across false narrative. His motivation is the fact that he has invested so much effort in a failed explanations and software over the past 10 or more years that he is unwilling to acknowledge the reality of this situation which if done would show how wrong he is and display his false theory for all to easily see. His only explanation of this is to tell others that his own Minsky software shows he is right. - hardly independent evidence ! The real independent evidence is in the fact that the process creation of money by the Central ( reserve) bank money is recorded on the balance sheet of the Central (reserve) bank as an asset and some years those assets are reduced due to the Central bank selling off those bonds or paying them out on maturity.
Treasury bonds are not liabilities for the private sector. I have never been called upon to pay my share of the national debt and neither have you. They’re liabilities of the govt. If you consider yourself to be the government, then it could be maybe, but it’s not your personal liability. The bonds are sold because the TGA cannot go negative, as Steve Keen says, and also because in effect there is demand for a safe haven risk free asset. Issuing bonds satisfies the savings desires of the private sector as well as yes, foreigners. There is no reason to have it be this way and bonds don’t need to exist at all, if the legal change was made to the TGA.
Which means, inflation will not go down as long as US government deficit spend. Deficit spending keep supplying money on top of the $6trillion stimulus they released in the market. So Powell interest rate hike is totally useless. Treasury must stop deficit spending and increase tax.
Keen doesn0t take into account that when interest rise, cash is more valuable than longterm bonds, because of term premiums. Thus, you can have an *inlfationary* financial crisis.
@@rajasmasala good question. No. I meant inflationary, which has never happened before. Until now, we had inflationary crisis (with price instability) and deflationary financial crisis (with financial instability). Never in the history of humankind we had an inflationary financial crisis. This is why it is so dangerous. But Keen is wrong, because he doesn't take into account instability in the USTs.
When Professor Keen refers to how Governments find $$s, is he including the unique issue with the US FED? We know that the US Financial $$ circulates throughout the world, as the chief "hegemon." All that money appears to come back to the US wherein The FED places all those billions/trillions into the Financial Markets to be used by the banks, and the entire Casino Gambling sphere were ONLY the wealthy make vast profits. Please explain.
As long as you own the financial system,SWIFT, have a reserve currency, control military and naval bases the world over, have a strong military,have advanced weaponry, have a good economy, geo-political advantages over others blah blah you can...Most powerful nations do it, issue debt and world buys it. But you have to be careful else other nations may revolt, see it as abuse of reserve currency, cause inflation etc etc So, they do it slowly but sneakily. 100s of years ago Govs used to balance budget....we were on gold.....so there were more wars to get that gold/asset etc. Folks who criticize the current system dont know it took us 200+ years of bank runs, scams, instability, wars to get to a relatively stable financial system. Credit creation done in a healthy manner has been a great boon for the world and we are way better off because of that. It prevents wars as well so nations arent killing each other over a finite asset/gold etc. Sure, there have been abuses of the current system and they need to be managed and improved but most folks, esp the noobs in crypto dont get it. Crypto will exist as a parallel system but plenty of good things in the current system + ongoing improvements to manage bad actors. I am not absolving the current system from all its shortcomings and many abuses and acts of greed - just saying there is plenty of good to re-build things on + cleanse the bad stuff (which is always a work in progress)
Actually I don't agree. The money supply is increased when the Treasury creates a new bond immediately. However, until the Government actually spends that newly created money the money supply available >>in the real economy
Highly misleading to say deficit spending increases public sector -what happens when the US gives Ukraine 100 billion in 6 months which public benefits??? Zelensky gets the money not the public ?!!!!!!! He gets rich we dont ! Although you are on a macro level correct you are misleading !
And now you understand by not understanding it that they have created a system that's that complex that nearly no one understands it. Because otherwise that would have problems with people like you and me.
Regarding financial matters Keen still just does Not 'get it.' He needs to go back to financial kindergarten and start learning what happens in reality. Keen is totally wrong again when he says the government is more able to support financial claims. The reality is government does not support it's negative equity at all as he claims it does. If it could support it's negative equity then where would that support come from? Not from itself since no institution be it government or a private sector institution can support it's own debts without input from someone else. The reality of his misdirection in this matter is the private sector supports government deficits when the bonds that the government treasury creates and sells to the reserve bank mature and have to be paid out. Taxes collected from the private sector are the funds to pay off maturing treasury bonds. If you ask him where the funds come from for government to support the claims created by deficits he will not be able to supply an answer.
@@andrewprice8820 Try thinking about what you said. You are short on thinking that through just like Keen fails to. It defies reality since it means previous debt was never paid out which is a pure Ponzi scheme where nothing is ever paid off and that defies the reality that all previous government debt which matures and is paid out in a maximum term of 30 years but mostly far shorter than that.
Keen wrong again. He bases his theory on a belief that governemnt money creation is essentially different from private bank money creation. It is essentialy the same being fiat credit money. The reality is governemnt does NOT create money but merely borrows it from the reserve bank and it all has to be paid back. In time it is all paid back via taxes. the public pays those debts through taxes. He says government issues bonds but that is not the true description at all. Government does not 'issue' bonds. It's treasury department creates bonds and it sells those government bonds to get money from the public and foreign entities. It is all borrowed money. The reserve bank and Private banks create the money and lend it to borrowers. All of the sovereign money today (such as Dollars, Pounds, Yen ) is credit fiat money created out of debt. There is no other sovereign money in the economy.
And where does the funds to buy those bonds come from? Previous deficit spending is the answer. Foreign entities can’t buy the bonds without it. Other institutions in the economy can’t get the funds without it. Private banks do not create the funds that buy bonds, only the central bank can do that, which, remember, is part of the govt. Then that money is used to pay taxes later, and on and on it goes.
@@andrewprice8820 You are rationalising instead of following the money trail. Firstly all of the officially designated money of countries today is fiat credit based money which is created by lending. Most of the officially designated money in the economy at any time is created by private banks by them lending to their customers. It amounts to about 90% of all money in the economy. The rest is created by the country's central reserve bank (e.g. Federal reserve in the U.S). That money created by private banks is used for all sorts of purposes. It is simply absurd to believe that people do not buy bonds with money that has been created by the private banks since people do not divide the money in the economy into separate piles such as one created by the central reserve banks and another created by private banks.
Government money creation is different to that of private banks. Money and debt are the same thing since about 5000 years, which also means that money always was fiat money. Money is somebody elses debt. The debtors owe to others to accept the money too and to sell something for it. And from this results the very difference of private money and government money. Private banks do need people who ask for credit and go into debt. So banks depend upon their debtors. If the debtors fail to sell and to repay the debt, the bank runs into trouble and with it those, who do have money on the bank accounts, because without debtors, nobody owes to them accepting the money and sell them something for the money. The money did become worthless. This is very different to government money. The government does not need somebody to ask for credit. The government indebts people by demanding a tax from them. So it is not dependent on finding debtors and by this it can create value for its money just by will. The only limit of the government is the capacity of debt it can create. The capacity of the population to produce and sell is not limitless.
@@ThomasVWorm Monney was not always fiat money. Who told you that. It has varied from time to time and gld or other rare goods were often money or backed the currency. The government designated money we have today is fiat credit based money. It is the same as any other fiat based money and is not identifiable in any way as being different when it is in the economy. If you disagree then point out how it is different as you claimed. -
@@ThomasVWorm You say "Monney was not always fiat money. Who told you that. It has varied from time to time and gld or other rare goods were often money or backed the currency. The governemnt designated money we have today is fiat credit based money. It is the same as any other fiat based money and is not identifiable in any way as being different when it is in the economy. If you disagree then point out how it is dffferent as you claimed.
There is no point in taking the government debt and dividing it by the population as if it was debt for the population. The government debt is the net financial asset of the population, not the debt. They must, by definition always have the money to "pay it back" as those are two sides of the same balance sheet. But of course there is absolutely no point in ever even trying to pay it back unless the private sector doesn't want to have any net financial assets. People who add up one side of balance sheets of different entities have frankly speaking no clue what money is to begin with. Savings are BY DEFINITION always exactly (to the penny) as high as debt. The world is a closed system. We take no credit from the mars and we do not trade with the moon. And debt is always and by definition offset by an asset. The special thing about the government is that it is basically eternal and there is no due date at which the government should pay back it's debt at all. It will roll it over indefinitely. Also it does not promise anything for it's currency unless it has some kind of fixed exchange rate regime (which indeed means it can run out of what is promised in exchange). All it promises is that it will accept the currency in payment for taxes, fees and fines. Also it is simply not true that there is "not enough money to pay interest" in the system. Of course banks create the money to pay the interest through an accounting exchange on the liability side (by paying themself loans, profit, rents, paying other for goods and services they need to do their business). And given there is no imagined risk that a government or central bank refuses to pay the interest rate on bonds is entirely a function of the support rate which the central bank sets itself. Private debt is the unstable source of crisis, not government debt in its own currency. "always have the money to "pay it back" as those are two sides of the same balance sheet"--Since when does the public(ie you and me) share our balance sheet with the government? If you have an extra $10k in your bank account, do you tell the government, "you have access to my $10k since we share the same balance sheet". Hell no! "Savings are BY DEFINITION always exactly (to the penny) as high as debt. "---Totally wrong!! All money is Loaned into existence with an interest rate attached to it. Thus the moment the first interest rate payment is due, the total owed is higher than the debtor received when the loan is created. Total debt outstanding is higher than total assets due to this interest rate. Even this doesn't account for mal investment, which is where the assets depreciate in value over time. Cars anyone? " It will roll it over indefinitely."--Totally wrong again! Countless countries in the world rely on foreigner entities to fund a good portion of their government debt. The only way they can roll over the debt indefinitely is if they hyper inflate their currency and that is only when their debt is demoninated in the local currency. Much of worldwide debt is demoninated in dollars and thus they must have their fiscal house in order to entice foreign investors to buy their bonds.
Keen is an amazing economist and I am glad to see his work being more widely viewed via these podcasts.
Prof Steve Keen is brilliant, he always speaks so fast and assumes we are all following... Dumb it down for the plebs please!
@veryslyfox Alf was advocating for us plebs and trying to slow him down, which he managed at times and clarified. But agree that it was messy at times.
The problem was also explaining the model but not showing the screen. Very frustrating . I slowed the playback speed.
Keen is so important to my own education in the workings of the financial system. Been supporting him for years because his work needs disseminating to the wider public.
Excellent discussion! Thank you.
I’m glad you guys are talking about this. It’s really amazing how many bad decisions are made by our governments purely from a misunderstanding of how the monetary system works.
Against the common strawman argument on government debt:
This is not saying that government spending is free; it clearly has costs and consequences.
However, there is no golden ideal debt ratio allowing the economy to work perfectly, and attempting to “paying down the debt” does have disastrous consequences.
IMO, the way forward is to forget about debt levels and look at end-goals instead; things like jobs, inflation, infrastructure needs, is homeless rising, is labor force participation shrinking, and the myriad of other real economic concerns.
Yes, so long as the public spending is effective and efficient and the economy needs the stimulation or the market can't solve the problem then it is fine. The challenge with democracy is that people can vote for bread and circuses which, based on the example of the Romans, is unlikely to solve the increasing inequality. Instead in my opinion we have to keep revitalizing the "animal spirits" in the economy and rooting out forms of corruption and monopoly powers that reduce the dynamism of an economy.
I would argue it's not a misunderstanding, they know exactly what they doing. They are misleading the public intentionally
@@joythought You seem to forget that the very same Folks who appear to Own the Political Prostitutes,
dictate who is allowed to have their name on a Ballot.
For the proper amount of money the Majority Investors of the Electoral Industry,
get their desires represented by the People selected to be on the Ballots.
As in 1776, the US is subjected to a small number of individuals dictating power.
We had a revolution to eliminate that concept.
Ahh my brain hurts. I need to rewatch this in 0.75x for 10 more times. Thanks for the great talk.
Go back to 10th grade
Me too, our monetary system doesn't need to be this complicated, all you need to know is its manipulated and created from nothing, effectively printing funny money
@@djdos83 Absolutely. As long as you hold the reserve currency......now you know how much privilege the West has.That history is rooted in a lot of suffering.....wont go there.
@@simrans3675 They don't offer Accounting 101 in tenth grade.
@@stephencuskley5251 I'll give you TL'DR- Money created via deficit finance; debt issued via bonds; Govs borrow money (either funded by other nations, retail, institutions via bond sales). Money created and managed via a slew of maneuvers - rate change, QE/QT, policies etc.....basically printed digitally when needed (thanks to reserve currency privilege)
Entire world runs on credit cycles - boom and bust (on repeat) ; follow the cycles and you'll do ok
more of this please!! amazing teaching and contribution
Someone call Jeff Snider!
1. How does the typical individual investor thrive given these revelations, and what are the pitfalls to avoid?
2. Steve needs a talented animator to help convey the complex and dynamic relationships in his model.
3. It would be good to explain the four tables (what's in the rows, what's in the columns) clearly before jumping in.
4. when you talk about the private sector benefiting, who are we talking about as key beneficiaries? (e.g. top 10% of individuals/families in society have most of the wealth from government "money printing").
#4. i think it means those invested in the stock market, to everyone else it means inflation.
#4 He means the private sector in aggregate: what does the total balance sheet of the private sector add up to now? Public spending such as a stimi cheque to every citizen will reduce the balance sheet of the public sector but add the same amount to the private sector.
@@jamesderoc6717 that's not right but it can be the consequence of the extra money in the private sector so, yes, 18 months later we get inflation and the hangover of an asset bubble
4 means the not the Federal Government and Federal Reserve, and not the banking sector. That includes most local governments like U.S. states, cities, counties, etc. Also includes foreign governments who use the USD as a reserve currency. That includes everybody who works for USD, companies and individuals, domestic and foreign.
What you are talking about 10% have most the wealth, this is true whether we rich or poor, communist or capitalist, democracy or authoritarian. There are always those who are more productive, have skills that the economy rewards, invest wisely or gets lucky, or just have more control over the economy for whatever reason, etc etc.
How we solve that is a matter of politics - progressive taxation, universal public services, subsidies, redistribution, regulation/deregulation, price controls, etc.
3. These are stocks and flows. Stocks are the accounts with numbers, flows are the transactions in words.
This is in the first condition when we didn't consider bonds yet, we simply allow the Treasury to have a negative (overdraft) account at the Central Bank.
The first table is the Federal Government. The Treasury account (Asset) has an initial condition of $100 which is matched by a liability in the Central bank of $100 Treasury account. Spend and Tax are flows that affect the Treasury account.
Spending decrease the Treasury account (credited), which goes into the Reserves (Asset) of Commercial Banks (debited). The liability part of the spending is simply the Federal Reserve transferring Reserves from the Treasury account (debited) to the Reserves account of banks (credited). The banks in turn then add to the deposits of the people being paid by the government. Their deposits go up (debited), which is the commercial bank's liability (credited).
So in the end, the government goes into debt, which is reflected in banks having positive balances with the Central Bank. In turn the banks increase the deposits of members of the public. Deposits are assets to the public but liabilities to the banks. Taxes do the reverse.
When we consider Treasury bonds in the model, those are liabilities of the Federal Government, and Assets to everybody else. Its still the same, the government went into debt, which is everybody's asset.
In the model, physical cash isn't covered among other things. Physical Cash are direct liabilities of the Federal Reserve, but Assets for Banks and the public.
If I sped this up 10 times, wouldn't make any difference.
Ending the Economic Situation seems easy at 78 RPM.....
perfect explanation as to how the cantillon effect works, those closest to the spigot and those holding the most assets absolutely rake the purchasing power of the general public specifically the lower and middle class. Keen=Keynesian stool pidgeon
Wow so if the government would just spend more money we'd all be rich 💰 ...
Or maybe all that's accomplished is a further and further debased currency 😟
*Depends how the money is spent. If it's spent on housing, education, healthcare, infrastructure and food sovereignty then yes people become richer. Today they spend on war and incarceration, then you get unproductive society.*
What about endogenous money creation? why does that not debase the currency?
@@Phil_D_Waller *You can't debase a free floating currency. The government can always raise taxes removing money from the economy forcing those that work for a living to get back on the plantation to produce. Not to mention theirs a lot of unemployed people that would gladly accept a job.*
@@selfreli7325 you dont understand anything mate- stand down, in fact give up ! you dont even understand endogenous money so sssshhh go away!
@@Phil_D_Wallerbank loans? I assume they create inflation as well
This is a powerful message. Factually, you don’t get Tesla or SpaceX without billions of government research grants to the development of battery technology and government spending to transition the US space program to the private sector. Tesla and SpaceX benefit without the financial liability. Just calling out these two firms as examples but the corollary follows.
That's right but doesn't really encompass what Keen is saying. Gov R&D grants are effectively part of public spending so fall under that but he's trying to show the whole economic model as a system that can be correctly accounted for using double entry bookkeeping
And your argument suggests all hard science is done by gov labs and not by the private sector ignores basic historic facts that show some major tech advancements would not have happened without gov R&D but that's a fraction of the R&D done by the private sector.
@@joythoughtHow much research would they do if the government didn't operate a patent office? The government is absolutely central to our economy...despite what Libertarian fantasists claim.
Subsidy
No! He uses “money” like it’s a set measure. It’s not. The more money that’s created, the less it’s worth. It’s almost like he’s saying you can get more “rope” if the government can give you more “length” by merely printing more “feet”. 😂 In the end, money is worthless. It’s goods and services we need. The government can’t “print” that.
The accounting is sound, it is separate from the real goods and services.
Just as in a game (basketball for example) the scoreboard doesn’t automatically update when a shot is made, the game and the scoreboard interact via game officials.
Inflation is not written off in MMT.
When we inspect the amount of Resources available on this Planet,
70% seems to be owned by the Nations associated with the BRICS Group.
The G-7 Guys need the goods available among that group of Nations.
@@Basta11 The establishment of MMT will be dictated by the Wealthy who select the names that appear on a Ballot.
The ability to keep the Workers working to haul the Garbage,
will seem like it has some issues?
Usury is the issue that needs to face examination.
Without Usury Capitalists would not like Capital so much.
Something to note: "crowding out" only matters when the income that the money is spent out actually creates an opportunity cost by being contingent on a job. When the government spends $40k on someone to be a soldier: someone is being a soldier rather than a potential employee for the private sector, or an entrepreneur for the private sector. When the government pays out welfare: that isn't necessarily crowding out its welfare recipients, because a welfare recipient can still work while getting that welfare.
Government spending doesn't crowd out private spending. Banks don't lend reserves or deposits to their customers, they create new money. Government spending on material/human resources in short supply can drive up inflation but the solution is to tax away spending power from unimportant areas of private sector activity (luxury goods, tobacco and alcohol production, etc.) and direct resources to public sector goals...affordable housing, schools, public transportation, healthcare, etc.
@@finchbevdale2069 You don't crowd out spending, but labor. The government can print all the money that it wants, and however much work it demands for the money it prints crowds out the private sector for labor. This isn't necessarily a good or bad thing, depending on what it demands of its workers, but it is still an opportunity cost. Like: if someone works as an engineer at NASA, they can't be an engineer at GE or Raytheon or do any other job: because they are spending that time working for NASA.
What an Awesome broadcast thanks Alf and ProfessorSteve Keen ❤
There is just one problem: money distribution. Negative balances for governments means positive inflows for those who receive governmental money. Not for the others.
...who then spend it themselves on other things in the private sector. When the government buys highway construction services wages are paid to construction workers who spend at the butcher baker and candlestick maker...and so on...without producing private sector debt and interest. If the government didn't spend, ALL economic activity would have to originate and end with private debt...and since banks want interest, you are now looking at a ponzi scheme which eventually blows up. See the 2008 crash and great recession which originated in government surpluses and weak banking regulations...thanks Clinton and Bush. Not.
The caveat of government deficits and borrowing creating equity versus private borrowing not creating equity is this: the government spends borrowed money more often on things that don't increase the WEALTH of the whole, whereas private borrowing more often results in WEALTH Increasing as a whole, that is real assets that increase quality of life.
Exactly backwards. I want more public education, healthcare services, affordable housing and environmental protection and no economic activity on tobacco, porn, polluting pick up trucks, tummy tucks and boob jobs, sugar-laden processed food...need I go on? The private sector is in many ways a cesspool.
We're mixing three things here that lead to using jargon and virtual objects just to look smart - it's like saying there are goblins and ghosts. The money created by the CB, the notes created by government and the currency in the bank accounts of banks are completely different things that we are mistakenly interchanging. If we use common sense and observe how IOUs (could be digital, paper, clay tablets or beads...) are exchanged for so called money issued by the CB, we see that the only thing the government deficit does is that it is exchanged for money from the CB and virtual currency from the banks. Since the banks themselves create their currency by simply keying it into the keyboard, the government receives the so-called currency of specific banks in exchange for the bonds (each bank effectively issues its own currency!) or, if it has an account with the CB, it receives money generated by the CB. Money and currency are nothing but vouchers for which real material things = labour (energy) and natural wealth are exchanged. If you have the ability to print money and force others to use it, it is an elegant form of slavery.
No ..if you look at your bank balance then go to the ATM and take out $60 it's money the same as sending an e-transfer or routing it through a credit card. What do you think your bank is producing if you live in the USA and gives you a mortgage? Pesos? What currency do you pay your US taxes in (assuming you live there)? Money is ultimately a system of account that helps keep track of your tax liability. The government doesn't use your money...you use it's money...to pay your taxes. Or else.
Weird, and yet it doesn’t feel like I have more more, everything costs more, and I’m getting nothing from the government spending. This guy is a nut
So, when government borrows from the future I don't have to pay it back with interest and in higher prices? That's ridiculous. Why are my taxes and prices keep going up than?
Am I right in thinking that when a government, as in the UK, imposes austerity, limiting the deficit, it leads to an increase in private debt and financial crises.
Something like that I think. A key point made in the video, at 10:15, is that when the gov runs a deficit then people have less need to borrow from the banks. The gov creates money without a liability attached. I wonder then if austerity is an action to increase privatisation and lower labor costs, i.e. wages, which increases reliance of money creation in the hands of the banks. I'm very confused by Labour implementation of austerity, then again I am American.
No mention here of inflation. We have all just seen that just like Milton Friedman told us back in the 80s creating more money while the amount of stuff (food, fuel, houses, cars etc) remains the same just creates inflation. To create wealth we need to produce more stuff. Creating money just fools people they are richer, an illusion that vanishes when they try to spend it. It also makes it easy for those controlling the process to divert funds.Great podcast bur only dealt with one dimension.
And because it completely ignores monetary inflation without an equal amount of economic growth (i.e. some degree of stagflation), there’s no mention of the Cantillion effect, which is every new “fugazi” unit of currency created out of thin air derives its purchasing power by the debasement of all existing currency, and that new purchasing power goes to whoever holds the newly created currency (i.e. the government).
So, while this double entry accounting example is technically correct, it implies that forever & ever people will be okay with being robbed of their savings by inflation, AND okay with that theft going to whatever special interest receives the new currency from the government (usually banks, or the already rich via asset price inflation).
This really shows why Peter Schiff is right and that more government is not the solution. The wealth will only become more concentrated. The public needs to learn this lesson (probably the very hard way), elect leaders who will strip the government of power, which returns power to private citizens to work, save, invest wisely, and not be robbed by inflation. Imagine if 100% of people of working age in society were incentivized to work without their wages being taxed to oblivion and any savings they managed to accumulate made worth less and less over time.
The money supply needs a standard of something. Whether gold, bitcoin, or something else they don’t control, the important part is the standard, the yard-stick by which the value of a dollar is known against.
@@stephenmosner5517 how does MMT apply here?
@@schumiisking Why Bretton Woods collapsed was due to increasingly evident deficit spending by the US government, along with the Eurodollar system being able to lend additional Eurodollars into existence, and so it became apparent that the gold no longer backed the currency at its stated rate. Since foreign dollars were redeemable for gold, it was easy to see for those who looked: Redeem your dollars for gold, and you were whole. Fail to do so, and you might get stuck with dollars backed by nothing.
And so, the US effectively backed the dollar with oil via the petrodollar arrangement with Saudi Arabia, and the system was extended. But now, as Luke Gromen points out, oil producers have figured out that saving their dollar surplus in US bonds is a losing deal. Because of ongoing and increasing US deficits, the bonds will never hold their value vs. oil. And so what is the fix? The fix is a peg of oil to gold. Gold has held its value vs. oil historically, bonds & dollars haven’t.
MMT and the Cantillion effect are only going to exacerbate this problem. Printing money to buy energy is going to result in more wealth going to those closest to the money, and production in the economy going down & down & down. Printing money will not produce oil or goods & services. It will result in fewer of both, which will eventually break the economy. MMT is destined to fail, and those in favor are probably stand to benefit from the money printing, or simply don’t understand that economics starts with supply. If there’s not supply of oil, goods, and services to start with, it doesn’t matter what demand is. Someone needs to produce these to begin with, and if they can’t do so profitably, then they won’t, and the supply won’t exist.
@@stephenmosner5517 Business only exists because of governments.
Yes. There are 2 variables in this equation. Money and stuff. The point of MMT is to say that money is really no object (literally) we can "print" indefinitely because these are simply database entries which is separate from the real stuff, its just numbers and accounting. Even paper and coins, we can always put bigger numbers in those things.
As Greenspan said "there’s nothing to prevent the federal government from creating as much money as it wants and paying it to somebody. The question is, how do you set up a system which assures that the real assets are created which those benefits are employed to purchase.”
Meaning, you'll definitely get your Social Security check, the issue is, how far will it go.
16:16 A little correction: Actually in some monetary systems the government is allowed to go into overdraft, for example in germany. In the case of germany it only allowed intra-day which means it must balance its account by the end of the day. This effectively means that the government could go into overdraft (therefore create equity for the banks) and then offer them bonds (which they can buy with the equity created by prior spending). The whole point of bonds is not to fund the government, it is to maintain the interest rate target by sterilizing the net effect of government spending on the amount of reserves so the central bank can buy and sell those bonds in open market operations to control the amount of reserves (which is the normal way the control the interbank lending interest rate).
The Nazi Guys did attempt to make Fiat Currency pay off.
They were convinced that it was a Bad plan in May of 1945.
Germany does not have its own monetary system. It uses the EURO and is subject to the Maastricht Treaty rules and regulations which allows Euro countries using the ECB to run deficits.
@@herbwiseman9084 I know that but still each country in the EMU has its own central bank (in case of Germany this is the German Bundesbank). And while all of the national central banks are conducting the monetary policy the ECB mandates its still the national central banks that run almost all of the operational business and also each country has additional national rules that are not subject of the Maastricht treaty and are national law. Allowing the german government to have an intra-day overdraft is one of those national rules. So what you said is not in any way at odds with what I said.
Also the construct of the Eurozone is much more complicated. Its not like the ECB does everything and replaced the national central banks completely. Actually it does very little and has very few accounts with itself (mainly the national central banks have an account + a few foreign central banks and some international institutions like the IMF).
The ECB primarily decides on the monetary policy which the national central banks carry out. It also tracks the balances between the national central banks in the TARGET2-System.
Amazing interview! It would be great to have Steve back!!
Professor Keen leaves out one critical element in that all money is created with an interest rate attached. He makes it sound like government spending is positive and adds to the value of the private sector. If you were to take all the money in circulation you could never pay back all the debt because the amount of debt in the system will always be more than money, due to having to pay interest. Recent stats show household debt=16.5 Trillion, current Federal Government debt=31 Trillion, State debt=1.2 Trillion, Local debt=2.3 Trillion, Unfunded liabilities=173 Trillion. In total roughly 223 Trillion, which is $667,000 for every man, woman and child! Compare this to the average savings per family of just $9300, or roughly $2300 per person. How on earth is a total debt load of $667k per person, versus savings of $2300 considered positive, or even neutral?? The fact is that total debt is compounding much faster than total income and there is no way out of this mess!
The "$31 trillion" in government "debt" is balanced by $31 trillion in private sector assets. this isn't a matter of opinion, it's a simple matter of accounting. The government issues the currency and can't run out. If the government stopped spending, there would be no net money creation and private sector debt would keep expanding until we have another massive financial crash. Keen predicted the 2008 crash.
@@finchbevdale2069 Private sector assets are not remotely distributed evenly across the population. Unless the government plans on illegally seizing the private sector assets to help pay down the now $34 Trillion in government debt, it absolutely matters what the debt levels are. Consider that now we are paying more interest on the debt than we do on military defense spending and interest is now the single largest expense item. How on earth can this be positive? Keen ignores these inconvenient truths.
There is no point in taking the government debt and dividing it by the population as if it was debt for the population. The government debt is the net financial asset of the population, not the debt. They must, by definition always have the money to "pay it back" as those are two sides of the same balance sheet. But of course there is absolutely no point in ever even trying to pay it back unless the private sector doesn't want to have any net financial assets. People who add up one side of balance sheets of different entities have frankly speaking no clue what money is to begin with. Savings are BY DEFINITION always exactly (to the penny) as high as debt. The world is a closed system. We take no credit from the mars and we do not trade with the moon. And debt is always and by definition offset by an asset.
The special thing about the government is that it is basically eternal and there is no due date at which the government should pay back it's debt at all. It will roll it over indefinitely. Also it does not promise anything for it's currency unless it has some kind of fixed exchange rate regime (which indeed means it can run out of what is promised in exchange). All it promises is that it will accept the currency in payment for taxes, fees and fines.
Also it is simply not true that there is "not enough money to pay interest" in the system. Of course banks create the money to pay the interest through an accounting exchange on the liability side (by paying themself loans, profit, rents, paying other for goods and services they need to do their business). And given there is no imagined risk that a government or central bank refuses to pay the interest rate on bonds is entirely a function of the support rate which the central bank sets itself.
Private debt is the unstable source of crisis, not government debt in its own currency.
@@trixn4285 "They must, by definition always have the money to "pay it back" --No, once the money is in private hands, the government cannot get it back unless it resorts to outright theft.
"Savings are BY DEFINITION always exactly (to the penny) as high as debt."--No again, because ALL money is loaned into existence with an interest rate attached to it. Thus the total debt outstanding is ALWAYS more than the total savings because of the growing interest. If interest rates were exactly zero, then yes your statement would be correct.
"And debt is always and by definition offset by an asset."--No because some assets are a mal investment and thus their value over a short or long period of time can drop or even go to zero. The asset can disappear but the debt doesn't.
"there is no due date at which the government should pay back it's debt at all. It will roll it over indefinitely."--This does not apply for the majority of countries because they need foreign investors to fund their deficit spending otherwise if they just print the money their currency can likely hyper inflate. Most countries CANNOT roll their debt over indefinitely because most foreign debt is demoninated in US dollars.
@@trixn4285 "always have the money to "pay it back" as those are two sides of the same balance sheet"--Since when does the public(ie you and me) share our balance sheet with the government? If you have an extra $10k in your bank account, do you tell the government, "you have access to my $10k since we share the same balance sheet". Hell no!
"Savings are BY DEFINITION always exactly (to the penny) as high as debt. "---Totally wrong!! All money is Loaned into existence with an interest rate attached to it. Thus the moment the first interest rate payment is due, the total owed is higher than the debtor received when the loan is created. Total debt outstanding is higher than total assets due to this interest rate. Even this doesn't account for mal investment, which is where the assets depreciate in value over time. Cars anyone?
" It will roll it over indefinitely."--Totally wrong again! Countless countries in the world rely on foreigner entities to fund a good portion of their government debt. The only way they can roll over the debt indefinitely is if they hyper inflate their currency and that is only when their debt is demoninated in the local currency. Much of worldwide debt is demoninated in dollars and thus they must have their fiscal house in order to entice foreign investors to buy their bonds.
It's still immoral for governments to spend more than they tax. The "asset" they create goes into the hands of the most connected first before being further distributed to the public. It must also be payed back with interest in the future.
its immoral even if ther were no priority to where the money went
I think that it was a point he was making, for the opposite, specifically that the debt does not have to be paid back at all
The government can never be truly neutral, as even 0 deficits creates winners and losers.
As the population grows, that creates new demand for money. Without deficits, hoarding would be the sensible play as the value of money would increase.
People hoarding money creates reduces the amount of money in circulation. This causes a deflation spiral - people with money will be benefiting from increasing purchasing power, people without - their goods and services for offer will go down in prices.
Lots of people will be unemployed as companies demand more from their existing workers rather than hiring more people. It’s not like people can opt out of the money system since the government still taxes in money regardless of medium of exchange.
Why? The government doesn't need to tax you to get money. It taxes you so you use its currency so it can use that currency to buy what it needs efficiently through a dynamic private sector as a matter of state security. It needs to be able to provision itself. The alternative would be to just use its army to expropriate everything and then you really would be a slave. Ultimately our monetary system is backed up by the government's monopoly on the use of force to settle disputes. That's why it's important that we have democracies and that we participate in them.
The only question is how much of this spending power should we ALLOW the government to have. Might compete with private sector via their activities. Might misspend. Might prop up certain special interest groups, which will then become entrenched.
I know right. Well explained but a bunch of Keynesian monetary malfeasance
The question is not just how much but also how - what does the government spend on? And what does it do with the things that it purchase? Does it serve public purpose to increase prosperity, well being, and social stability?
Or are we spending large amounts on expensive military adventures? Giving massive subsidies to people who don’t need nor deserve it?
Even the decision not to deficit spend and austerity, that too is a political decision.
@@Basta11 Agreed, it is all a question of what we collectively decide is best. Problem is that our political class is not interested in honesty and education of the public. There are tradeoffs in every decision. We should always be wary of too big a state. Every person is the defacto member of several special interest groups. They may be an expert in their field, but their perspectives and desires are at least partially subjective. No group deserves unchecked power via injection of unlimited govt resources.
@@Basta11 the 2 recent big wars was lke around 2T total. thats nothing compared to the general waste of the incompetent children in power
What WE Allow? Don't you mean, what THEY decide?
Until Bogus Voting is no longer manipulated, NOTHING WILL CHANGE.
Essentially the government is leveraging the publics equity with cash and debt. Like having a house worth 100k that has a line of credit with a low rate. The house keeps going up in value so the government keeps drawing down on their line of credit but the line of credit can't go above or maybe even up to the current value of the house because it can become unstable.
So the bookkeeping is right. But the total overall "value" vs debt is important to keep an eye on.
No the government goes into negative equity in order to produce positive equity in the private sector...it does leverage private sector equity. Government bonds sold to the banks are paid for with reserves, which were originally produced through deficits...they're not "borrowing" because they "need" the money per se (the government issues the government after all), it's done for artificial reasons such as made up rules forbidding the Treasury from running an overdraft at its own central bank and to help set interest rates in the economy.
Would love to watch Prof Steve Keen and Joseph Wang have a talk!
Sorry this makes no sense at all. If you follow this logic, goverments would never go bankrupt. But this is happening all the time in history. The people are the goverment and they have a giant liabilty in terms of debt service to bond holders, who do not have to be the people or banks of this state.
Governments choose to go bankrupt in their own fiat currency. A government only has to go bankrupt if they can't pay their bonds, and the only way they can't pay their bonds is if they have to pay something that they can't create.
If a government owes gold, it has to have gold to pay the gold -> it can go bankrupt.
If a non-US government has a bond in US and doesn't have the USD -> it can go bankrupt.
If it is its own currency it can create reserves and pay the bond that is due by issuing a new bond.
So what about the interest on that debt. Doesn't that keep growing and so the spending has to increase exponentially? Is that ok too?
Would the claims on other people/the financial assets not sum to zero because of interest owed on those debts?
I remember when I was in my very early twenties, around 20/21 yo, coming across the economic system/s of the world and being completely disheartened and disenfranchised. I wanted no part in it. It was so corrupt, broken and inflationary by design and the system literally serves its masters. I never recovered from it. I am hoping that with the rise of blockchain/DLT systems that we can overcome this system and build something better and fairer, baked right into its design. I only have half a hope though as I am seeing much of the same patterns emerging in blockchain/DLT, going so far as to replicate fractional-reserve banking and a centralization of authority to go with it.
I truly hope we can build something better.
Not that it is not obvious, but a clear example of how QE 'Is money printing' to those who argue QE is not money printing.
There is no point in taking the government debt and dividing it by the population as if it was debt for the population. The government debt is the net financial asset of the population, not the debt. They must, by definition always have the money to "pay it back" as those are two sides of the same balance sheet. But of course there is absolutely no point in ever even trying to pay it back unless the private sector doesn't want to have any net financial assets. People who add up one side of balance sheets of different entities have frankly speaking no clue what money is to begin with. Savings are BY DEFINITION always exactly (to the penny) as high as debt. The world is a closed system. We take no credit from the mars and we do not trade with the moon. And debt is always and by definition offset by an asset.
The special thing about the government is that it is basically eternal and there is no due date at which the government should pay back it's debt at all. It will roll it over indefinitely. Also it does not promise anything for it's currency unless it has some kind of fixed exchange rate regime (which indeed means it can run out of what is promised in exchange). All it promises is that it will accept the currency in payment for taxes, fees and fines.
Also it is simply not true that there is "not enough money to pay interest" in the system. Of course banks create the money to pay the interest through an accounting exchange on the liability side (by paying themself loans, profit, rents, paying other for goods and services they need to do their business). And given there is no imagined risk that a government or central bank refuses to pay the interest rate on bonds is entirely a function of the support rate which the central bank sets itself.
Private debt is the unstable source of crisis, not government debt in its own currency.
"always have the money to "pay it back" as those are two sides of the same balance sheet"--Since when does the public(ie you and me) share our balance sheet with the government? If you have an extra $10k in your bank account, do you tell the government, "you have access to my $10k since we share the same balance sheet". Hell no!
"Savings are BY DEFINITION always exactly (to the penny) as high as debt. "---Totally wrong!! All money is Loaned into existence with an interest rate attached to it. Thus the moment the first interest rate payment is due, the total owed is higher than the debtor received when the loan is created. Total debt outstanding is higher than total assets due to this interest rate. Even this doesn't account for mal investment, which is where the assets depreciate in value over time. Cars anyone?
" It will roll it over indefinitely."--Totally wrong again! Countless countries in the world rely on foreigner entities to fund a good portion of their government debt. The only way they can roll over the debt indefinitely is if they hyper inflate their currency and that is only when their debt is demoninated in the local currency. Much of worldwide debt is demoninated in dollars and thus they must have their fiscal house in order to entice foreign investors to buy their bonds.
It's like listening to a physicist explain how a perpetual motion machine works
Pretty much. Government money created out of thin air only has value by stealing it from the rest of the circulating supply of money, because it does nothing to add to the underlying value it's supposed to represent.
Impossible in theory, what are you implying?
@@HomelessHomeowner617 I'm not sure what the main takeaway of this video is. Maybe this from Alf: "If someone has managed to understand the vital concept that Treasury spending creates net worth for the private sector..."
Sounds like a lot of creating something out of nothing. Maybe i'm missing it.
@@libu6189 it’s is creating something out of nothing in a sense. Sovereign currency is a social construct like points in a game.
The Federal Reserve and commercial banks are the score keepers of the US dollar. Powers were granted by Congress.
Most sovereign currency comes in the form of either database entry (electronic signal), paper, or cheap metals (relative to melted down value).
These things have almost no intrinsic value yet here we are working and paying bills buying stuff. It’s because sovereign currency is infused with the power of the state, it’s ability to tax, fee, and fine, settle disputes with finality, and send you to prison should you not obey the laws.
@@Basta11...and some powerful people hate those realities...hence the misinformation peddled as "sound finance" by conservatives and neoclassical economists and billionaire funded "think" tanks.
Keen's long erroneous predictions on property was due to his denial on government involvement. It seems he's correcting that.
Pease please please do more of these
I love Prof. Keen but he makes me feel stupid .... I just don't get it.
How is this wealth created by .gov deficit, out of nothing, without productive work or a physical asset to balance the equation.
Its like he throws a spanner in my mechanical mind and it ceases up.
The government does not create the wealth, it commissions the creation of the wealth via its spending.
The money is borrowed from the future. Prof keen says governement never pays back its debt but instead just pays interest and rolls over(ie refinances its debt) and i think he is implying that therefore this debt is irrelevant. But ofcourse the cost of servicing this debt is relevant and has limits. And this only works in either a growing or inflationary economy.
its not created
@@vaan2900 Ok the money that Prof. Keen says will help the average Joe is 'commissioned', 'borrowed', 'made available' whatever you want to call it. So the new money depletes the purchasing power of the money that was already circulating. How is that good for average worker in an inflationary economy?
You are so naive to say that “one can argue that later on the govt can tax me more, ya… sure, but if we continue to think along these lines, but there are no liabilities attached to new money being created”. This is complete and utter madness and nonsense. This is what is called the deadweight loss. Where a tax increases linearly, the deadweight loss increases as the square of the tax increase. This means that when the size of a tax doubles, the base and height of the triangle double. Thus, doubling the tax increases the deadweight loss by a factor of 4. What’s more is that the government interference in a perfectly functioning market creates a demand shock and the actual inflationary pressure governments and central banks are supposed to be addressing in their mandates of keeping prices and wages stable. For such smart pseudo-intellectuals you cannot even understand the micro side of the equation and speak of the government never having to pay back as it destroys money…. This is insanity! The government not paying back it’s balance sheet obligations by repeated cycles of open market operations through the central bank facility is what raises the borrowing costs of the private sector as the central bank’s bloated assets (treasuries, MBS snd corporate bonds) it hold is the reason why 1. The sovereign credit rating is downgraded, 2. The prime rate is increased and 3. The govt has crowded out private borrowing. “The welfare state is the greatest confidence racket of all time. The government takes your money in taxes and then turns around and spends some of it to give you things. For this, you feel dependent on them, when in fact they are dependent on you.” Dr. Thomas Sowell. Your model is primitive, it does not consider the social hazard it creates and most definitely does not address the moral hazard of a bloated government sector that crowds out the C and I in the GDP formula. What primitive economics!
The government doesn't have to pay the money back provided the equity of the private market is going up. In other words the value of the private market is doing well. If the private market is not doing well the government cannot create more money on this smaller base without issues.
just like a Pozi scheme, it can only go up, and when it does not then the fun begins
Sorry I tune out MMTer’s cause they are living in an alternative universe that tries to create something for nothing. It’s already miserably failed and what caused all this crap to begin with.
Thank you. Its unethical really. i watched this just for the explanation. You have got to understand the enemy too
Yes Keen ignores thousands of years of history.
Commodities are to MMTers what garlic is to vampires and pineapples to pizza.
Thanks for the education Crack on!
Thanks Alf this is good stuff
Excellent
Steve , please explain this to Phillip Lowe , Governor of the RBA , he told Senator Rennick at recent estimates meeting , that the Government should go out to the market to raise money for Infrastructure finance . Senator Rennick wants the Interest cost / margin to remain in Australia .
Don't you reach a point at which the deficit spending becomes terminal and then destroys the value of the currency and the balance sheet of the entire country?
the real ponit is, you dfont ever want an entity that is the most incompetent, and most valuedestroying at using currency in history, to spend resources
Quite telling that the like is only three digits. Should be in the millions.
He's been saying the Australian housing market will crash for at least 20 years.
Like any other youtube or patron macro analyst. IMO they should upload their trading record to be accountable.
This interview is why you shouldn't listen to economists ever (And I'm an economist). Banks don't use reserves to purcahse bonds. They create the money out of thin air. Government spending doesn't create "net worth" it redistributes money around which is evened out by inflation (When inflation rises, net purchasing power remains constant, but a bigger share sits in government coffers) and that's WHY it crowds out the private sector. The word "inflation" wasn't mentioned once, which reveals both speakers' lack of understanding of what money is and how it works. If government "created" net worth by spending then Venezuela would be the richest country on Earth, closely followed by Argentina. Get off the ivory tower Prof. Keen, you clearly need it.
It's so easy to prove this is bullshit too: If it were true, governments would never default. Yet, on a long enough time horizon, governments **A L W A Y S** default. I'm always amazed at academics' ability to not see reality.
PSA: Money =/= Wealth
what frustrates me about Keen is that for years he harped on about how debt levels are too high and are not considered in economic models, now this!
Excellent Stuff! Keen is Brilliant and thanks for doing this
Except, epb macro research clearly shows how government spending crowds out private. Now, in the exact question you asked him about checks, maybe in that scenario it doesn't. That's a weird scenario as it's not really spending as much as it's direct transfers.
Correlation doesn't equal causation. EBP etc operate under a fantasy about how the system works. If you put Keen's work with an understanding of the much larger shadow banking system (e.g. the Eurodollar system) then you get a full picture of today's monetary system.
Inflationary money
Great questions and emphasis on the most important issues.
Well done👏🏿
Hmmmm, right away I have a problem.
The government does NOT 'own the country'.
The government reserves the right to extort resources from the inhabitants by force.
In fact the government has no liabilities. The inhabitants of the state ultimately are liable. The government spends on their behalf.
This is somewhat true.
Need this in italian to undestand better
I usually change the speed to 1.25 . For this had to slow it to 0.75. Fast talking Aussie
Well now show the offshore dollar market aka Euro dollar system, oh wait, nobody can, even though that’s where most of the US dollar is used(digital + denominated in US dollar), and with zero government or central bank oversight and regulations. What something like $80+ trillion now😅
Salute ✊🏿
On a related note, if central bank buys the govt bond(Quantitative easing or direct Deficit spending) do treasury pay interest (coupon) to the central bank ?
Could be just passing from one hand to another but for accounting purposes.. ?
Thanks
Pretty much. After paying for its own expenses, a dividend is given to member banks who "own" the Federal Reserve. (Banks must have shares in the Federal Reserve to have their banking charter in the first place so its not really ownership in a regular sense).
After that, most of the profit goes back to the treasury.
The funding to pay the interest comes from the same place - bond issuance in the case of deficit, tax receipts in the case of surplus.
www.federalreserve.gov/aboutthefed/section7.htm
Absolutely awesome ! Assets = Liabilities + owner's equity, or does it?
No. Assets - liabilities = OE
The central (Reserve) banks do not just create money that flows into the private sector. The Central (reserve) banks create both debt and money just like the private banks do and the debt which is in treasury bonds then becomes a liability for the private sector which is payable when those treasury bonds mature and have to be paid out. Taxes are the funds that pay out those maturing bonds because government has no money of itself other than taxes.
That is why money creation by the Central bank becomes a liability for the private sector which Keen purposefully ignores to put across false narrative. His motivation is the fact that he has invested so much effort in a failed explanations and software over the past 10 or more years that he is unwilling to acknowledge the reality of this situation which if done would show how wrong he is and display his false theory for all to easily see.
His only explanation of this is to tell others that his own Minsky software shows he is right. - hardly independent evidence !
The real independent evidence is in the fact that the process creation of money by the Central ( reserve) bank money is recorded on the balance sheet of the Central (reserve) bank as an asset and some years those assets are reduced due to the Central bank selling off those bonds or paying them out on maturity.
Treasury bonds are not liabilities for the private sector. I have never been called upon to pay my share of the national debt and neither have you. They’re liabilities of the govt. If you consider yourself to be the government, then it could be maybe, but it’s not your personal liability.
The bonds are sold because the TGA cannot go negative, as Steve Keen says, and also because in effect there is demand for a safe haven risk free asset. Issuing bonds satisfies the savings desires of the private sector as well as yes, foreigners. There is no reason to have it be this way and bonds don’t need to exist at all, if the legal change was made to the TGA.
Does this mean that if a Government does not "deficit spends" more than inflation times debt the public gets poorer in real terms?
Still watching Frank G Melbourne Australia 🇦🇺 ❤️
the bonds in reserves of others countries...worth nothing?..
Which means, inflation will not go down as long as US government deficit spend. Deficit spending keep supplying money on top of the $6trillion stimulus they released in the market. So Powell interest rate hike is totally useless. Treasury must stop deficit spending and increase tax.
But when the country runs a big current account deficit as well as government budget deficit the equity accrues overseas with trade counterparties
This is European banks not the US right?
Keen doesn0t take into account that when interest rise, cash is more valuable than longterm bonds, because of term premiums. Thus, you can have an *inlfationary* financial crisis.
Did you mean deflationary*?
@@rajasmasala good question. No. I meant inflationary, which has never happened before.
Until now, we had inflationary crisis (with price instability) and deflationary financial crisis (with financial instability). Never in the history of humankind we had an inflationary financial crisis. This is why it is so dangerous. But Keen is wrong, because he doesn't take into account instability in the USTs.
When Professor Keen refers to how Governments find $$s, is he including the unique issue with the US FED? We know that the US Financial $$ circulates throughout the world, as the chief "hegemon." All that money appears to come back to the US wherein The FED places all those billions/trillions into the Financial Markets to be used by the banks, and the entire Casino Gambling sphere were ONLY the wealthy make vast profits. Please explain.
...and Max Keiser!
What about 1 trillion spent in Iraq another trillion in Afghanistan. USA government spending. Doesn’t seem an asset
Thank you, great explanation
So if not a problem, then why not print 10 times as much?
As long as you own the financial system,SWIFT, have a reserve currency, control military and naval bases the world over, have a strong military,have advanced weaponry, have a good economy, geo-political advantages over others blah blah you can...Most powerful nations do it, issue debt and world buys it.
But you have to be careful else other nations may revolt, see it as abuse of reserve currency, cause inflation etc etc So, they do it slowly but sneakily. 100s of years ago Govs used to balance budget....we were on gold.....so there were more wars to get that gold/asset etc. Folks who criticize the current system dont know it took us 200+ years of bank runs, scams, instability, wars to get to a relatively stable financial system.
Credit creation done in a healthy manner has been a great boon for the world and we are way better off because of that. It prevents wars as well so nations arent killing each other over a finite asset/gold etc. Sure, there have been abuses of the current system and they need to be managed and improved but most folks, esp the noobs in crypto dont get it. Crypto will exist as a parallel system but plenty of good things in the current system + ongoing improvements to manage bad actors. I am not absolving the current system from all its shortcomings and many abuses and acts of greed - just saying there is plenty of good to re-build things on + cleanse the bad stuff (which is always a work in progress)
The richest people live in the countries with the highest government debt?
Gov. deficit spending doesn't increase money supply unless the Fed buys the debt with QE.
The problem is that FED will always buy the debt. That's why the government can continuously have spending deficits.
@@tpndtbk Fed is selling $95 billion per month right now. Major crowding out.
@@JamesG1126 yes, and they will soon buy again.
Actually I don't agree. The money supply is increased when the Treasury creates a new bond immediately. However, until the Government actually spends that newly created money the money supply available >>in the real economy
@@peterbeer8657 They have to sell that debt from existing money. Creation of a bond doesn't change money supply.
I disagree. Bank reserves are not money. Banks will not lend because the CB's deposit money into their bank accounts they have with them.
Highly misleading to say deficit spending increases public sector -what happens when the US gives Ukraine 100 billion in 6 months which public benefits??? Zelensky gets the money not the public ?!!!!!!! He gets rich we dont ! Although you are on a macro level correct you are misleading !
I still think it's possible he is a mad hatter.
And now you understand by not understanding it that they have created a system that's that complex that nearly no one understands it. Because otherwise that would have problems with people like you and me.
Regarding financial matters Keen still just does Not 'get it.'
He needs to go back to financial kindergarten and start learning what happens in reality.
Keen is totally wrong again when he says the government is more able to support financial claims. The reality is government does not support it's negative equity at all as he claims it does.
If it could support it's negative equity then where would that support come from? Not from itself since no institution be it government or a private sector institution can support it's own debts without input from someone else.
The reality of his misdirection in this matter is the private sector supports government deficits when the bonds that the government treasury creates and sells to the reserve bank mature and have to be paid out. Taxes collected from the private sector are the funds to pay off maturing treasury bonds.
If you ask him where the funds come from for government to support the claims created by deficits he will not be able to supply an answer.
No he has an answer and its previous deficit spending, it is you who doesn’t have the answer.
@@andrewprice8820 Try thinking about what you said. You are short on thinking that through just like Keen fails to.
It defies reality since it means previous debt was never paid out which is a pure Ponzi scheme where nothing is ever paid off and that defies the reality that all previous government debt which matures and is paid out in a maximum term of 30 years but mostly far shorter than that.
Keen has been absolutely dead wrong on Australian housing for a long long time. Even if Sydney comes down 25%
ponzi scheme
Keen wrong again. He bases his theory on a belief that governemnt money creation is essentially different from private bank money creation. It is essentialy the same being fiat credit money.
The reality is governemnt does NOT create money but merely borrows it from the reserve bank and it all has to be paid back. In time it is all paid back via taxes. the public pays those debts through taxes.
He says government issues bonds but that is not the true description at all. Government does not 'issue' bonds. It's treasury department creates bonds and it sells those government bonds to get money from the public and foreign entities. It is all borrowed money.
The reserve bank and Private banks create the money and lend it to borrowers.
All of the sovereign money today (such as Dollars, Pounds, Yen ) is credit fiat money created out of debt. There is no other sovereign money in the economy.
And where does the funds to buy those bonds come from? Previous deficit spending is the answer. Foreign entities can’t buy the bonds without it. Other institutions in the economy can’t get the funds without it.
Private banks do not create the funds that buy bonds, only the central bank can do that, which, remember, is part of the govt. Then that money is used to pay taxes later, and on and on it goes.
@@andrewprice8820 You are rationalising instead of following the money trail.
Firstly all of the officially designated money of countries today is fiat credit based money which is created by lending.
Most of the officially designated money in the economy at any time is created by private banks by them lending to their customers. It amounts to about 90% of all money in the economy. The rest is created by the country's central reserve bank (e.g. Federal reserve in the U.S).
That money created by private banks is used for all sorts of purposes.
It is simply absurd to believe that people do not buy bonds with money that has been created by the private banks since people do not divide the money in the economy into separate piles such as one created by the central reserve banks and another created by private banks.
Government money creation is different to that of private banks.
Money and debt are the same thing since about 5000 years, which also means that money always was fiat money.
Money is somebody elses debt. The debtors owe to others to accept the money too and to sell something for it.
And from this results the very difference of private money and government money.
Private banks do need people who ask for credit and go into debt. So banks depend upon their debtors. If the debtors fail to sell and to repay the debt, the bank runs into trouble and with it those, who do have money on the bank accounts, because without debtors, nobody owes to them accepting the money and sell them something for the money. The money did become worthless.
This is very different to government money. The government does not need somebody to ask for credit. The government indebts people by demanding a tax from them. So it is not dependent on finding debtors and by this it can create value for its money just by will. The only limit of the government is the capacity of debt it can create. The capacity of the population to produce and sell is not limitless.
@@ThomasVWorm Monney was not always fiat money. Who told you that.
It has varied from time to time and gld or other rare goods were often money or backed the currency.
The government designated money we have today is fiat credit based money. It is the same as any other fiat based money and is not identifiable in any way as being different when it is in the economy.
If you disagree then point out how it is different as you claimed.
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@@ThomasVWorm You say "Monney was not always fiat money. Who told you that.
It has varied from time to time and gld or other rare goods were often money or backed the currency.
The governemnt designated money we have today is fiat credit based money. It is the same as any other fiat based money and is not identifiable in any way as being different when it is in the economy.
If you disagree then point out how it is dffferent as you claimed.
There is no point in taking the government debt and dividing it by the population as if it was debt for the population. The government debt is the net financial asset of the population, not the debt. They must, by definition always have the money to "pay it back" as those are two sides of the same balance sheet. But of course there is absolutely no point in ever even trying to pay it back unless the private sector doesn't want to have any net financial assets. People who add up one side of balance sheets of different entities have frankly speaking no clue what money is to begin with. Savings are BY DEFINITION always exactly (to the penny) as high as debt. The world is a closed system. We take no credit from the mars and we do not trade with the moon. And debt is always and by definition offset by an asset.
The special thing about the government is that it is basically eternal and there is no due date at which the government should pay back it's debt at all. It will roll it over indefinitely. Also it does not promise anything for it's currency unless it has some kind of fixed exchange rate regime (which indeed means it can run out of what is promised in exchange). All it promises is that it will accept the currency in payment for taxes, fees and fines.
Also it is simply not true that there is "not enough money to pay interest" in the system. Of course banks create the money to pay the interest through an accounting exchange on the liability side (by paying themself loans, profit, rents, paying other for goods and services they need to do their business). And given there is no imagined risk that a government or central bank refuses to pay the interest rate on bonds is entirely a function of the support rate which the central bank sets itself.
Private debt is the unstable source of crisis, not government debt in its own currency.
"always have the money to "pay it back" as those are two sides of the same balance sheet"--Since when does the public(ie you and me) share our balance sheet with the government? If you have an extra $10k in your bank account, do you tell the government, "you have access to my $10k since we share the same balance sheet". Hell no!
"Savings are BY DEFINITION always exactly (to the penny) as high as debt. "---Totally wrong!! All money is Loaned into existence with an interest rate attached to it. Thus the moment the first interest rate payment is due, the total owed is higher than the debtor received when the loan is created. Total debt outstanding is higher than total assets due to this interest rate. Even this doesn't account for mal investment, which is where the assets depreciate in value over time. Cars anyone?
" It will roll it over indefinitely."--Totally wrong again! Countless countries in the world rely on foreigner entities to fund a good portion of their government debt. The only way they can roll over the debt indefinitely is if they hyper inflate their currency and that is only when their debt is demoninated in the local currency. Much of worldwide debt is demoninated in dollars and thus they must have their fiscal house in order to entice foreign investors to buy their bonds.