Monday, March 26, 2012

Is MMR just politics?

Still trying to get my head around what the material differences are between MMR and MMT. MMR claims to be "economics without politics" and when someone claims to be "without politics" I've found that they are, essentially, very political indeed. In fairness, in today's society how can one now be. Pace Lenin, "you may not be interested in politics..." etc.

MMR seems to claim that MMT does not focus enough on private sector credit expansion and banks (what Mosler calls the horizontal element) and fixates excessively on the Government deficits (vertical element). This is news to me, as I came to MMT through bank operations, and think that it considers and embraces both. Indeed, hard to make sense of the monetary system without looking at both, even though operationally the lines are not always as clear as one would like.

Maybe "economics without politics" just means libertarian politics, which tries to take politics out of the financial system altogether? There is a natrual affinity between Austrians, gold bugs, and libertarians precisely because of this interest in making things less political. So, what I first dismissed as a cynical platitude, I now salute as a clever pun on words.

Pull from the comments:
'Actually, MMT’s design to bring the state back to “center stage” is wrong. There’s no “money monopolist”. There’s no “Without a government deficit, there would be no private saving.” There’s no rationale for setting prices. There’s no rationale for the job guarantee. That’s the whole point. When you visualize the picture correctly...MMT’s desire to bring the state “back to center stage” is wrong.'
--Cullen Roche,
This is purely a list of political oughts, so I guess that is at the heart of what MMR is. An (ironically) pro-bank political take on MMT. Because the Government is a "money monopolist" if your definition of "money" is NFA(e). There's over $10T worth of this stuff outstanding, and it's doing something, and it only has one source. You cannot ignore it, you need to understand it. And there are rationals for setting prices and the job guarantee -- rationales I find unconvincing -- but to deny their very existence is an exaggeration.

If MMR is all about facts, then why exaggerate and say things that just aren't true?

Finally, I don't see MMT as desiring to bring the state "back to center stage" but simply looking at things as they are. The State already occupies some stage -- center, left, right, forward, aft, whatever -- and the stage occupied in a fiat economy is simply different from a stage occupied in a gold-standard economy. This is a fact, not a political position, just as a country that uses a foreign currency locally is different from one that uses its own. You may disagree with the degree of sovereignty a state has, or should have, but that's different from refusing to recognize what actually is.


Blogger paul meli said...

You've gone and stepped in it now.

10:13 AM  
Blogger Ramanan said...

"Because the Government is a "money monopolist" if your definition of "money" is NFA(e). "

Sorry where is money defined as NFA (e)?

By the way if I merge the domestic private sector and the overseas sector to form a funny named "nongovernment sector" (which includes foreign governments also don't forget) here's a situation you can think of:

The government is indebted in foreign currency with no corresponding assets in foreign currency.

So we have the government debt in both domestic and foreign currencies.

This is the NFA(e) of the "nongovernment sector". Surely no monopoly of the NFA(e) right ;-)

But you will change definitions to domestically denominated debt. But that's not NFA(e)!

Don't forget it is extremely difficult to make a statement without a loophole in macroeconomics.

So it's better to first define things carefully and then try to make one if it's possible.

But the redefinitions will take you far away from original and standard definitions - such as what you did to define money.

10:37 AM  
Blogger NeilW said...

Modern Monetarism Really.

The one thing Friedman was good at was marketing. The idea was largely bonkers.

But its the same focus - full employment is left to the fairies. That means the wage share starts to go down and starts the accumulation process to the 'haves' at the expense of the
'have nots'. Even though that means prices are higher than they need to be and profits lower.

Since you are accommodating non-government sector net savings, you are by definition supporting those able to save. Primarily the very wealthy.

We don't need another to create another neo-classical synthesis. We need a complete change of air. A system that sacrifices the livelihoods of some three million people on the altar of ideology is not an acceptable design.

11:00 AM  
Blogger winterspeak said...


"Money" is a vague term. NFA(e) is one valid, and very precise, definition of "money". There are others too.

And yes, merging domestic and overseas sectors gives you a strangely named "nongovernment sector" which includes foreign governments -- probably better to call it non-currency issuing sector. Or you could call it (in the US example) US$-issuers vs US$-users, but that sort of begs the whole question.

Either way, an entity can be both a currency-user and currency-issuer if it operates in a mixed currency regime (which is very common).

A NFA(e) is a nominal financial asset, and therefore needs to be specified in a particular currency. A hundred dollars is different from a hundred yen. USA can produce dollars. Japan can produce yen. USA can hold yen. Japan can hold dollars.

All of this is perfectly obvious, straightforward, and in keeping with what NFA(e) is.

11:02 AM  
Blogger winterspeak said...


Why do you call MMR monetarism?

I'm not sure it's entirely fair to say monetarism left full employment to the fairies. It's true that, since monetarists don't understand how banks work, they have no mechanism for reserves to actually do anything in the economy they are functionally left with nothing more than the Confidence fairy, but they don't know (and don't accept) they have no mechanism. They think they're being helpful, they just aren't.

Likewise, I don't think we need to go as far as a JG to not leave full employment to the fairies either.

So why is MMR reconstituted monetarism?

11:06 AM  
Blogger paul meli said...

"The government is indebted in foreign currency with no corresponding assets in foreign currency. "


The non-government sector refers to the economy of dollars - to the extent that foreign entities hold dollar-denominated net financial assets. The government is not "indebted" in foreign currency to any significant extent.

There is no reason to bring foreign currency into this as that is a separate issue and brings no clarity to the discussion.

Again you are interjecting confusion where there is none.

"Don't forget it is extremely difficult to make a statement without a loophole in macroeconomics."

Maybe so but math doesn't have loopholes. We are generally talking about a closed sytem that is at it's essence very simple. One can throw in all the "loopholes" one wants without changing anything. It means nothing it it can't be expressed within the system in math form.

This only appears to to be confusing to those without some frame of reference or anchor.

11:14 AM  
Blogger Ramanan said...


If the definition is kept vague, then claims about the defined term are more vague.

On NFA(e) the point I was trying to make was the following.

Imagine Hungary. The "non-government" sector's NFA is the debt of the Hungarian government in various forms such as Forint notes to HUF denominated debt and foreign currency debt such as debt in EUR. (Because there are other issuers of debt in EUR).

Surely the Hungarian government is not the monopoly issuer of EUR denominated debt and hence not the monopoly issuer of NFA(e).

11:19 AM  
Blogger Ramanan said...


Not wrong.

Sectors are "Sectors".

"Again you are interjecting confusion where there is none."

Because it is typical to use a simple mental model around here and generalize it without making any qualification whatsoever.

11:21 AM  
Blogger TuneInto said...

Both MMT and MMR are wasting valuable time arguing with each other. Enough already - you are all coming off as a bunch of cry babies. Meanwhile the masses continue to get hood winked by mainstream economists.... something you all ought to be focused on. Grow up and move on.

11:26 AM  
Blogger paul meli said...

We don't need no stinkin' qualifications. As is typical with you we dance around in the fog and never get anywhere unless we discuss things on your terms only.

Here's your "sectors" model…

…got any problems with that?

11:46 AM  
Blogger paul meli said...

Sorry for the "we".

Speaking for myself only.

11:51 AM  
Blogger winterspeak said...


Someone can hold more than one kind of NFA(e). So I can hold $100US and 100Ft.

The US Govt is monopoly issuer of NF(US$)A(e). The Hungarian Govt is monopoly issuer of NF(Ft)A(e).

This is simple and not controversial. What's your point?

11:59 AM  
Blogger NeilW said...

"So why is MMR reconstituted monetarism?"

I didn't say that. I said Modern Monetarism Really.

Because its all about the marketing and the politics, with an agenda that falls into the 'neat, plausible and wrong' category.

"Likewise, I don't think we need to go as far as a JG to not leave full employment to the fairies either."

I know you don't, and we'll have to agree to disagree on that point.

12:20 PM  
Blogger Ramanan said...


…got any problems with that?"

If you really want me to point out errors and omissions, then here it goes ...

"Net Savings" is a loosely defined word. If you want to think of a stock, then almost everyone includes nonfinancial assets in describing balance sheets but you will keep insisting that your way is the best way.

You do not tell me what the "net savings" of foreigners is just like you try to tell this for the "non-government sector" is (which includes foreign governments).

Then you define domestic sector and a foreign sector. The correct way to describe this is say there's (domestic) government, domestic private sector and the foreign sector OR say there's the (domestic) government sector, private sector and the rest of the world. All this is because domestic sectors can be foreign controlled ones.

Anyway what's your point?

12:51 PM  
Blogger Ramanan said...

"Govt is monopoly issuer of NF(Ft)A(e).

This is simple and not controversial. What's your point?"


Okay NF(Ft)A(e).. But the Hungarian government is neither the monopoly issuer of money nor NFA(e)

12:53 PM  
Blogger paul meli said...


"Both MMT and MMR are wasting valuable time arguing with each other…"

MMT proponents are wasting valuable time I suppose…

MMR hasn't (in my view) brought anything new into the discussion.

On the other hand adversarial discussions make us think.

It just seems to me that most of the discussions with the (self-identified) MMR proponents (of what I am unsure) tend to go down the rabbit hole with no clearly-defined point.

12:53 PM  
Blogger paul meli said...

"Anyway what's your point?"

Well, there's a little equation in that graphic that says precisely what net savings is. It isn't real complicated. It'a a really short and simple expression.

Then it is pretty clear where those net savings are distributed while defining the closed system at the same time. The closed system for dollar-denominated net financial assets that is which is what we are discussing (I thought).

A pretty succinct and simple mathematical model which, by the way, you haven't found anything mathematically wrong with yet. Or if you have you've kept it to yourself.

I did notice some poster here introduced some argument about Hungarian NFA's or something. I haven't figured out what point that was supposed to make.

1:02 PM  
Blogger paul meli said...

"…almost everyone includes nonfinancial assets in describing balance sheets…"

We're discussing MMT here - Modern Monetary Theory.

The theory that focuses on the financial asset section of balance sheets.

Because we "measure" wealth in terms of dollars, the unit of account.

I haven't seen too many corporate earnings reports expressing net profits in acreage or how many Mona Lisa's the company earned.

1:09 PM  
Anonymous Anonymous said...

Well, it seems to me that they have gotten way off on the wrong track. MMR is at its core some people who more or less like MMT, but who think the job guarantee is crazy, scary socialism. So it's MMT minus those parts of MMT that provide the argument for a job guarantee or employer of last resort program. MMRers have argued - as I recall - that such a program would provide a floor under wages but not a ceiling over wages, and thus would not have the the price stabilizing effects the JG's defenders claim it would.

So it seems to me that the natural point of focus for MMR would be price theory, with particular emphasis the relation of wages to prices, the function of buffer stock programs, etc.

But instead they have gone off and talked about everything but the JG, prices and price stability. The involved discussion of saving and net saving, and the nature of the government currency monopoly, has been misdirected by MMR and doesn't get MMR where they want to go.

MMT comes out of a Keynesian and post-Keynesian tradition which focuses a great deal on aggregate demand, and that's where the S-I business comes in mostly. MMTers tend to refer to S-I in Godley's identity and national income accounting as "net saving". MMRers don't like that because they think it is misleading. They also think MMTers have been too sloppy in sometimes just using the word "saving" when they mean "net saving." Fine, let's call S-I "shmaving." Could we now get back to the substantive claims MMT makes about schmaving instead of wallowing in semantic pedantry?

S is by definition the income of the private domestic sector minus the amount the private domestic sector spends on consumption, minus the amount the private domestic sector spends on paying taxes. So schmaving is by definition the income of the entire private domestic sector minus consumption minus tax payments minus spending on capital investment.

And by the way, capital investment here is the net capital investment of the whole private domestic sector. If some households buy a financial asset from a firm worth $1 million, and the firm spends the $1 million on a new factory, then the total capital investment here is $1 million, not $2 million. You subtract the capital spending on the factory from S when computing S-I, not all the steps of financial intermediation lying between the initial income recipient and the final capital investment. Also, the purchase of a factor by a firm will likely be some other firms income, and thus part of that firm's individual "S". So remember we are considering here only the total S and I of the whole domestic private sector.

2:18 PM  
Anonymous Anonymous said...

[... cont.]

MMT claims that in a two-sector model the net government balance of payments into the domestic private sector is the negative of whatever is the net domestic private sector balance of payments out of the sector. So the private sector surplus is the government sector deficit, and any government sector surplus will be a private sector deficit.

If we are considering three sectors, the story is different. It would be possible for the government sector and the private sector to both be in surplus if the balance of payments to the foreign sector is negative. But if there is a trade deficit, and the country is paying more to the foreign sector than it is receiving, the other two sectors can't be simultaneously in surplus.

These are flow equations, they measure volumes of transactions or changes in stocks during an interval of time - for example a single quarter. Now if from one quarter to another - to take one example - the external balance of payments doesn't change, then if the private sector increases the amount of its income that it does not consume and that it does not pay in taxes and that it does not net invest in capital spending, then the government deficit must increase.

And even if the domestic private sector decreases that amount - that is, if schamving S-I goes down - then so long as schamving remains positive and the external balance doesn't change, the government must continue to run a deficit.

If S-I is negative during some time period, then the domestic private sector as a whole is losing money to the other sectors. The total quantity on its total financial balance sheet is going down.

Since the private sector is where the real economy is, and where prices are set in markets according to monetary transactions, I would argue that such a phenomenon is typically (though not necessarily) deflationary.

This has nothing inherently to do with the job guarantee. It is an independent aspect of MMT. MMT has argued that government deficits - that is, net injections of financial assets - are needed to support private sector demand and nominal spending when the private sector is saving - that is, adding to its overall financial stocks.

Note that the government spending in question is the spending of the whole government sector. If the Treasury sells bonds worth $1 million to private sector dealers for $950,000, and the dealers then sell those bonds to the Treasury for $975,000, then the government has spent $25,000, even if the $950,000 from the private sector purchase just sits in the Treasury account. I bring this last point up because some of the MMRers seem to be under the impression that MMT says that the only way the government spends and adds net financial assets to the non-governmental sector is through Treasury spending, and so when MMT says that increases in non-governmental net financial assets must be provided by government, it is not talking only about Treasury spending and not central bank purchases.

Spending by the Fed into the financial sector is seem by MMT as primarily reactive and accommodative: a subsequent response to the prior lending initiatives of lending institutions. Spending by the Treasury is seen as more pro-active: a way of directly boosting real economy transactions. So if MMT tends to emphasize Treasury spending more than banking channel reserve account boosts, that is because it sees the former as a way of making things happen in the real economy, and the latter as only a way of accommodating initiatives that have already happened. MMT accepts that the government generally should and must accommodate these initiatives of private sector lenders, because if it doesn't it will cause liquidity problems and higher interest rates. But it also argues - contra the assertions of many monetarists - that it can't cause those private sector initiatives to occur by boosting reserves.

2:21 PM  
Blogger winterspeak said...


There are over 10T of NF(US$)A(e) in existence today. They came from somewhere.

Similarly, there is some quantity of NF(Ft)A(e) out there. It too came from somewhere (although a different somewhere than NF(US$)A(e)).

Please tell me where you think all the NF(US$)A(e) came from. Please also tell me where you think all the NF(Ft)A(e) came from.

2:21 PM  
Blogger winterspeak said...


Really? This is all just about ELR?

2:27 PM  
Anonymous Anonymous said...

Well that's where it all started WS: a big debate on Pragcap about ELR and whether it was or was not partly constitutive of MMT; a few people claiming that there needed to be an alt-MMT without commitment to the job guarantee because the job guarantee was too radical and socialistic for the mainstream to swallow (one guy even offered money if someone would take on the job of promoting the JG-less version of MMT); some folks suggesting there could be an MMT-Austrian fusion without the job guarantee; lots of spitballs shot at Bill Mitchell, etc. It grew from there, but it seems to me that the JG is still the crux of the matter.

3:13 PM  
Blogger winterspeak said...

Dan: Thanks. That's totally insane btw., and also totally lost in the I=S etc. brouhaha.

I don't think the ELR/JG is an essential part of MMT. It's just a policy prescription. If Krugman and Mankiw can both be good monetarists, there is no reason why people who are for or against ELR/JG cannot be good MMTers.

MMT-Austrian fusion I cannot see, unless Austrians drop their gold standard fixation.

4:19 PM  
Blogger NeilW said...

"I don't think the ELR/JG is an essential part of MMT. It's just a policy prescription."

It's not just a policy prescription.

ELR is fundamental to MMT as all the MMT academics have pointed out. It is how they ensure that the distribution circulation works properly - preventing the wage share from dropping (and for that matter rising).

The choice is an unemployed buffer stock, or an employed buffer stock.

Because MMT is about full employment and price stability. And you can't get that without the employed buffer stock as a matter of theory as well as fact.

The unemployed buffer stock ensures that more people remain outside the normal economy than the employed buffer stock - because people who are currently employed are fractionally less risky to hire.

If you don't fund the unemployed buffer stock properly (and neither MMR nor the mainstream have any proposals for that), then you get what we have now - a downward spiral in the wage share, accumulation of all those NFA(e) by just a few people and a constant rise in private indebtedness leading to Minsky Moments. You can dampen that with proper monetary operations, but it will still happen.

If you do fund the unemployment buffer properly - via an income guarantee - then you get less output than the job guarantee and likely perverse incentives.

However if you think getting the voters to agree to a JG wage for working is a hard sell, try getting the voters to agree to a JG wage for doing nothing.

But really the alternatives are ELR or BiG in some form. To get the economic distribution to work, you have to feed the money in at the bottom and let it bubble up to the top.

So the debate ought to be between ELR and BiG.

Anything else and you're doing neo-classical economics with proper monetary operations.

And the economic system would condemn at a population about as big as Los Angeles to living in drainpipes and dumpster diving - as a matter of design.

We know that because that is what is happening now.

11:39 PM  
Anonymous Anonymous said...

For more on what Neil is saying, see here:

12:23 AM  
Blogger Oliver Davey said...

Re the Ft vs USD thing. There is a question about the realm that is policy relevant.

Is the US government responsible for a: its citizens, b: its residents or c: all who use its currency?

Related question: Is the US government responsible for full employment within its borders, for all who hold its passport or also in Panama or Lebanon?

Or, regarding Hungary: Is it realistic to expect the Hungarian government to stand by those of its citizens who took on Ft denominated debt but to drop those who took on EUR or CHF denominated debt?

One way to look at it is by asking what could be done better in future and, related to this, to what extent cross border activities can realitically be separated. The other is to ask what should be done about what has already happened.

4:46 AM  
Blogger paul meli said...


Assets - Liabilities = Net Worth; and:

dollar Assets (NFA) - Liabilities = Net Savings; Then

real Assets + dollar Assets - Liabilities = Net Worth;

real Assets + (Net Savings + Liabilities) - Liabilities = Net Worth;

Net Worth = real Assets + Net Savings; Thus:

Credit "drives" (MMR position, not controversial) or can drive the economy but cannot (controversial to MMR) add to wealth.

It seems the argument MMR/Ramanan and others are making is that we can't separate out the analysis of flows without including non-financial assets as savings because those forms of "savings" are also on balance sheets and the accounting demands we include them.

Further, it appears that they think that since the non-government includes NFA held by foreigners it follows that the money-creation powers of the foreign entities are somehow brought into the equation making the system more complex than the one presented by MMT.

They simply do not understand closed systems or their properties - that is where they go wrong and although the concepts are quite simple many people (most) do not or cannot see the interactions and constraints of those systems - it is impenetrable to them. It causes their view of systems to be orders of magnitude more complex than reality and introduces much confusion. They try to break the system down to a rules-based system (like accounting) that allows one to see "how" but not "why".

Oh, and I am in favor of the JG or something like it as I see no alternative other than suffering for millions of people. Smarter people than I am will figure out how to make it work.

4:48 AM  
Blogger Ramanan said...


"Please also tell me where you think all the NF(Ft)A(e) came from."

A bit irrelevant because you started off with NFA(e) and shifted to NFA(Ft)A(e).

The general point of my comments was to point that you have vague terms. You first started by saying money is NFA and the public has a monopoly on this. You accepted that money is vague but that shows that there is no monopoly on money because it a monopoly on something vague.

My only purpose of bringing Hungary was to show that even NFA(e) is vague.


Do you think there is some other issuer of GE bonds ?

It's said that the government or the central bank is the monopoly issuer of currency *notes*. This is because earlier banks also issued these notes and governments managed to take this under its control. It's a bit counterproductive to stretch this monopoly to other things.

6:02 AM  
Blogger Ramanan said...

"Credit "drives" (MMR position, not controversial) or can drive the economy but cannot (controversial to MMR) add to wealth.

It seems the argument MMR/Ramanan and others are making ..."

Wrong. Credit creates wealth. Look at the amount of nonfinancial assets in the Federal Reserve Flow of Funds.

That's wealth but you insist that it isn't?

6:04 AM  
Blogger paul meli said...


"Wrong. Credit creates wealth. Look at the amount of nonfinancial assets in the Federal Reserve Flow of Funds."

Credit allows wealth to be transferred from one agent within the closed system to another but it isn't mandatory. Agents can just pay cash. Within a closed system, because credit dollars are constrained by an equal off-setting liability net wealth cannot be increased overall unless you ignore the offsetting liabilities, which balance sheets do not.

It's true that wealth accumulated as non-financial assets can appear to increase in value and make it seem as though wealth overall is increasing. The problem here is that the wealth you are talking about is "paper wealth" and does not become real wealth until it is realized through a transaction. Then paper becomes real. Wealth accumulated on paper is called a "bubble" if it is in excess of the ability, in the aggregate, to monetize it i.e the dollars don't exist to monetize the gains. Credit dollars can't do this job because those dollars are "earmarked" to return to the banking system, like taxes. Those dollars are "spoken for".

The argument then comes down to where do the dollars come from that monetize the wealth gain? There are two possibilities - the wealth can be realized as a transfer from another agent in the closed system or it can be realized as a fiscal transfer from net government spending. In other words gains can be realized either at someone else's expense or through net government spending. TINA.

At the end of the day upon reconciliation of a budget cycle (a snapshot in time) if in the net all balance sheets in sum add up to a net increase in dollar-denominated financial assets (taking into account dollar liabilities on the same balance sheets) over the previous cycle then that wealth came from net government spending.

If you are looking to the FoF tables to make your argument you are barking up the wrong tree, plus it's the hard way to do it. You are combining estimates of paper wealth, which is "mushy" or "soft" to the exact nature of math and accounting of actual objects (NFA) within a closed system, which is "hard".

Numbers in a nominal sense behave as an incompressible fluid within a closed system or circuit. You can't make something from nothing in a closed system of NFA, each unit of which is accounted for in the system as it is created.

6:57 AM  
Blogger winterspeak said...


I only explicitly specified a currency associated with NFA(e) when you asked me to be more precise. Since we were talking about Governments issuing currencies I thought it was obvious that a Government can only issue the currency that it is sovereign over; ie. Japan can issue yen but not dollars. Or, if you prefer, Japan can issue NF(Yen)A(e) but not NF(US$)A(e).

Still, if you want to believe that the US Gov and Hungarian Gov are somehow in the same place with respect to issuing forints be my guest.

My position remains that the US Gov is a money monopolist, in the sense that only it can (and does) create US$ denominated net financial assets. These NFAs are one form of money--an important form I would argue--but not the only form as "money" is a vague term. As an empirically observation, there are over $10T of these things out there, but there are other things out there as well.

NEIL: I don't know what BiG is, but I think it is a fact that ELR is a policy prescription and not a description of reality because, as of right now, we don't have an ELR!

ELR may flow logically from MMT, but the realm of good policy involves more than monetary operations--there's public choice and all sorts of other things as well. So, you can believe MMT, you can see how ELR flows logically from it, but you can still think that ELR is a bad idea for reasons outside of MMT.

Just like you can see how supporting Free Trade flows logically from theories of free markets and comparative advantage and still believe that fully free trade is a bad idea as policy. Or not.

But it's not right to say to someone "you don't believe in comparative advantage because you don't support totally Free Trade" because the person may be giving weight to other (reasonable) factors.

10:16 AM  
Blogger Ramanan said...


Be clear - the US Federal Reserve has the monopoly on currency notes not on currency itself!

On NFA - well, that's a strange way of presenting it. "Creating NFA". It looks like the only way because you chose it the way to define it.

From the US households' viewpoint, this statement is hardly true.

The household sector directly or indirectly holds much more non-government securities than government paper. Can I then say that the non-government securities market is the monopoly issuer of the NFA for the household sector?

"Still, if you want to believe that the US Gov and Hungarian Gov are somehow in the same place with respect to issuing forints be my guest."

You comeback with a wrong point. I said you confused the public debt denominated in Forints to the whole of public debt itself, forcing you to invent NF(Ft)A(e).

While it is true that assuming the case of a closed economy, the private sector's net financial assets is the public debt but it's completely confused to say that the government is the monopoly creator of "NFA". NFA is a contextual thing such as the NFA of the household sector. It is not reserved to one artificial consolidation of the domestic private and foreign sectors.

This syntax issue extends to the whole of MMT.

The funniest thing in recent time which caught my attention is the non-government sector (which includes foreign governments!).

11:27 AM  
Blogger paul meli said...

"…The funniest thing in recent time which caught my attention is the non-government sector (which includes foreign governments!)."


I'm glad that your lack of your comprehension skills gives you a giggle every now and then. Inexpensive fun.

The non-government sector includes foreign holders of dollars and dollar-denominated financial assets.

From a system pespective foreign holders of dollars are no different than domestic NFA holders. All it claims is that those holdings (about $4 Trillion) account for part of the total that has been created.

No further assumptions regarding the closed system are necessary.

You are aware aren't you that one can define the boundaries of a closed system as one chooses for convenience. Carelessly-chosen boundaries can render an equation indeterminant. Keep things simple, obviously not your mantra.

How you get from there to the inclusion of foreign governments in our financial flows is beyond me.

You are with each comment further illustrating the fact that you have no understanding of systems or properties thereof.

12:01 PM  
Blogger winterspeak said...


Of course! It all comes down to what you're trying to illustrate. The US Govt has this thing called the "national debt" -- what is it? Some contexts make this clear, other contexts make cloudy.

And it certainly is funny to think of a non-government sector which includes foreign governments, but if you think in terms of currency issuers (for a particular currency) vs currency users (for that same currency) then it all makes sense. And remember -- the non-government sector also includes states and city government!

And the US Fed does have a monopoly on currency (not currency *notes*, although it also has a monopoly on that) if you define currency the way I have been. Or if you think about currency as what the national debt is in the currency-user (non US-Fed) sector.

There interesting thing about defining currency-user as "non US-Fed" is that it calls into question whether the Treasury is a currency user or issuer. Something that's been discussed many times.

12:01 PM  
Blogger Ramanan said...

"From a system pespective foreign holders of dollars are no different than domestic NFA holders. All it claims is that those holdings (about $4 Trillion) account for part of the total that has been created."


Sectoral balances are *sectoral* balances as I said. They are not currency+sectoral balances.

The national accountants take sectors and calculate the stocks of assets and liabilities in all currencies including the domestic one and then calculate one balance sheet for each sector.

Whether the People Bank of China is an issuer of USD is irrelevant as to whether it is to be called the nongovernment sector.

English is not so inflexible as to include the People Bank of China in the "non-government sector". If national accountants have a good set of definitons why not use it?

12:18 PM  
Blogger Ramanan said...

"whether it is to be called the nongovernment sector."

Whether the People Bank of China is an issuer of USD is irrelevant as to whether it is to be dumped in the so called nongovernment sector.

12:20 PM  
Blogger Ramanan said...


"And remember -- the non-government sector also includes states and city government!"

Wynne Godley who realized the importance of the sectoral balances and made it popular included State and Local governments in the government sector.

The Federal Reserve's Flow of Funds also does that.

"if you define currency the way I have been"

Currency is used in a wide sense such as the US dollar a unit of account. And this is the only sense which makes sense to me. You have other definitions?

In another loose sense I could use currency as anything which one can use for everyday transactions. But I can't buy Apples with a 30 year government bond.

12:26 PM  
Blogger Игры рынка said...

Paul: "The non-government sector includes foreign holders of dollars and dollar-denominated financial assets."

If you want to have a *closed*system* you need to include holders of non-dollar-denominated assets. *Macro* economy is about ... macro and not some sub-sector however important it is.

8:10 AM  
Blogger Игры рынка said...

Paul, for instance, US residents are the largest foreign holder of eurozone financial assets (approximately 1 trln euro). Your personal "closed system" mental model implies that 1 trln euro (that is about 1.3 trln USD) is in any macro and behavioral sense is functionally the same as zero and thus you ignore it.

1.3 trln USD of eurozone financial assets represent about 13% of USD NFA overall. That is a major and clearly non-negligible addition to the global stock of 10 trln of USD NFAs only half of which is probably held by US residents.

8:32 AM  
Blogger winterspeak said...

Игры рынка:

I don't think that's quite fair.

The discussion is about whether the state is a "money monopolist" or not. Of course, that depends on your definition of "money" but certainly for at least one definition of money, it's true.

The US can hold 1T euros, but this is worth 1T euros. The source of these euros was not Ben Bernanke. And the value of these euros in $US is contingent and changes. Just as the what real assets exactly you can swap for $US is contingent and changes, but the quantity of $US denominated liability those assets can settle remains constant. I can always settle a $100 debt with a $100 bill. I may or may not be able to afford a cup of coffee with it.

So, it is not accurate to take some outstanding amount of NF(euro)A(e), calculate it's value at current exchange rates in terms of NF(US$)A(e), and then claim it is NF(US$)A(e). It is more accurate to say that there is x amount of NF(euro)A(e) and y amount of NF(US$)A(e).

10:58 AM  
Blogger Игры рынка said...

WS, the ultimate question is about macro-economic theory capable of explaining and guiding the decision-making relevant for a *country* and not some *monetary* sector. The USD monopoly might be an interesting philosophical question. But contrary to Paul's claim about closed systems, even the US economy is far away from being a closed system. As such the USD monopoly discussion is nothing more than a fancy discussion. Whatever the outcome it is definitely not enough for a macroeconomic theory. A closed USD system will not tell you much about what drives the US economy and what decisions to take at any point of time. And please note that US and USD enjoy a very special position. If such logic does not even apply to the US, the value of it to the rest of the world is much smaller if not zero. So if/when eurozone blows apart it will be too late to drink mineral water (as we say). In its insistence on "there is no crisis which fiscal policy can not deal with" MMT effectively behaves itself like mainstream Greenspan who preferred bubbles to form and blow up and then focus on cleaning the mess up. Well, in medical sciences prevention is the first and critical step to health. For instance, contrary to whatever MMT says (especially billy) Japan is on a very unsustainable path. If there is a sudden change in the mood, and 20 years is a period long enough for a new generation to take power, and younger people start spending the savings of their parents, you might easily see an uncontrollable spiral of spending / interest rate speculation / asset price increases / and maybe even very high inflation. This might become the fact which will kill MMT. Not recognizing and even denying such a possibility is too short-sighted for a macro-economic theory.

11:41 AM  
Blogger Geoff said...

Try spending your Euros in the US, or better yet pay taxes with them, and see where that gets you.

12:28 PM  
Blogger Игры рынка said...

Why so much fetish with taxes and spending euros in the US? As it is the only thing that matters. It is not me who is coming to the US with my euros. It is the US residents who hold significant financial claims which have nothing to do with the US government gun-pointing skills or other US agents but which potentially have significant influence on economic decision making in the US.

12:42 PM  
Blogger Geoff said...

Игры рынка:

I copy and pasted your name because I have no idea how to type it. How would you type your name, or at least pronounce it, in English?

I''m not sure what your fetish is with US residents who hold financial claims in other currencies. They aren't relevent. Now, foreign residents who hold USD claims is another story.

Regarding Japan, if they suddenly started overspending, raising taxes would do the trick.

2:48 PM  
Blogger winterspeak said...

Игры рынка:

For a macro-economic theory to explain and guide decision making relevant for a *country*, it may need to take into account that country's monetary sector.

"The veil of money" just begs the question, it does not grapple with it.

We all agree that when a country prints too much money, it is being irresponsible and not managing its economy well. Turns out that printing too little money (or unprinting too much money if you prefer) is also a problem.

3:06 PM  

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