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Dude’s an ultra
Bonus: https://nitter.net/uncle_authority/status/1721967810241335347#m
I guess the Deprogram guys are the Three Stooges now? But the joke doesn’t really work
MMT has always asserted that inflation risk is only a problem when you have full employment and resource utilization has been maxed out. That increasing money supply leads to inflation is a monetarist (neoclassical) myth, with little empirical evidence to support.
The problem with most countries that follow neoclassical economic theory (which is pretty much every country today) is that they spend too little, and when the government does not spend, there is not enough money to go around, people will have to borrow/take out loans from private creditors, which benefit the bankers/finance capitalists.
Hudson is right that hyperinflation almost always occur because of foreign debt, and in the case of Weimar Republic it was because of the forced reparation by the Allies (who were in turn forced by the US to repay the debt financing the war effort). This was detailed in his book Super Imperialism.
Yeah I'm working through reading Super Imperialism right now actually, I read the first few chapters but got distracted by something else a while back, I'll probably have to start over. So I got to the part about the system of circular payments between Germany, the Allies, and the US. Thanks for explaining more about what MMT says on inflation.
So basically, in the US for example, the government could afford to spend a lot more domestically without risking inflation because employment isn't maxed out and there's a lot of productive things the money could be spent on to improve the economy, so you don't end up with "more money chasing the same amount of goods" as the traditional (neoclassical) wisdom goes? That also makes sense to me.
I think Hudson goes on to describe how a huge amount of US dollars flow out of the country through both the trade deficit and US government (military mostly) spending abroad, end up in the hands of foreign central banks who can't do much with them other than buy US Treasury bills and that this new circular flow of money (with the US as debtor this time instead of creditor like the post WW1 era) forms the basis of US dominance over the world financial market. But I'm not sure how this part interacts with the basic MMT ideas above. Would Hudson say, basically, that the US could/should be spending its money domestically in the way that MMT says it can instead of doing Super Imperialism by flooding dollars out to the world?
TL;DR: Dollar hegemony has nothing to do with the ability of US government to spend domestically. It simply allows the US imperialist to get free lunches from across the world. But they’re two separate issues.
A lot of people get confused by this. But it’s two separate issues:
First, it’s not so much about spending domestically, but the fact that the neoliberal government refuses to deficit spend and instead chooses to adhere to austerity (spending not too much than than what you “earn”). It treats government spending as if you would treat your own household spending, which is nonsense because the government is the currency issuer (it literally is the one that creates the money), whereas as individual households you do not have that power.
What this entails is that since the government is not spending (government spending = private sector saving), there is not enough net new asset that flows into the pockets of the citizens (private sector), and to fuel the economy the private sector (businesses, consumers) has to take on loans from private financial institutions. This results in the rise of debt owed to private creditors, where the profit and earnings of private businesses and citizens now flow into the banking sector.
What MMT is prescribing is simply that government spend as much as it wants without even looking at how much it “earns” (taxes), and this is typically done by some kind of large scale infrastructure building program. This public spending creates jobs (new hospitals and schools need to be built, more demands for goods and services, more suppliers are needed etc.), improve the wages and living standards (less reliant on taking loans from banks, while new hospitals and schools reshape the surrounding environment that improves the quality of living etc.)
Even if inflation happens, so what? If wages are increasing faster than inflation, what’s there to worry about? This was what happened during the War Economy in the United States during WWII - full employment, all industries repurposed for the war effort - and brought the country out of the Great Depression in just a few years.
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Now, on to the second part, which is how dollar hegemony relates to all we have just said? Actually, not much at all. It doesn’t affect the US government’s ability to spend domestically.
It is important to note that, in this context, dollar hegemony simply means that the US can get “free lunches” from all across the world by printing dollars out of thin air. Because every country needs dollar (because they owed debt in dollar, or because they need to import essential goods priced in dollar, because it is a reserve currency that is accepted by everyone relative to other currencies etc.), so long as they are willing to export their goods and services to America to receive dollar, the US can simply print as much dollar as needed to pay for them (i.e. essentially for free).
These exporters, upon receiving the dollar and after using a portion of them to import American goods (or other goods sold in dollar), will have to keep their surplus dollar somewhere. Since they are not allowed to purchase critical American industries, their best bet is to buy US treasuries to earn interests. As such, the surplus dollars are recycled back to the US treasuries, which in turn allows the US to spend even more dollars overseas (to build military bases surrounding their countries, for example) since the surplus has already been absorbed back into the US treasury.
In other words, the US treasury acts as a vehicle to absorb the imbalance in the balance of payment caused by America printing money out of thin air to get free lunches from overseas.
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That’s it - it’s the mainstream narrative that is confusing a lot of people: America borrows from China! We are debt slaves to China! If China wants us to repay our trillion dollar debt (actually down to $800 billion now), then our country will go bankrupt!
Actually, it’s more like this: China is a net exporter to America - China receives payment in dollar - China stores the surplus dollar in US treasury (“lending to the US government”) - Chinese holding of treasury bonds mature - time for US government to pay up! - Federal Reserve credits the exact amount of money (created out of thin air) back to China’s account in the Federal Reserve plus interests - China again not knowing what to do with the dollars - China buys more US treasuries with the money they just got back - rinse and repeat.
As you can see, none of this impacts the US government’s ability to spend domestically, like giving free healthcare to everyone.
Great explanation, that really helped some things click for me. Thank you!
this is pretty deeply misleading. dollar demand from other countries (the petrodollar, china being developmentally chained to the us, etc) props up the exchange rate of the dollar and therefore also limits inflationary pressure on imports. the upshot is that fed can print money to cover fiscal deficits or stabilize the domestic economy w/ qe without worrying so much about inflation hurting americans because it's distributed across the entire world while the benefits are only realized here. there's only so much productive capacity to draw on and dollar hegemony allows the us to effectively shift its spending abroad and its concentration of wealth at home. e.g.:
some domestic owners of the dollar may see higher wages but the trillions of dollars of t-bonds and hard currency held by china, japan, latin america, and the arab world see only devaluation