MMT vs QE = BS

Here’s a question for punters out there.  What is the difference between Modern Monetary Theory (MMT) and Quantitative Easing (QE).

Wait for it.  Wait for it.  Wait for it.  NOTHING.  Absolutely nothing.

Ok.  There is a small difference.  Under MMT, the Treasury creates money by issuing IOUs.  Under QE, the Central Bank (RBA) creates money by issuing IOUs.

In both cases however, it is about creating money out of thin air.

So when RBA Governor Phillip Lowe:

described the concept of modern monetary theory as “trickery in financing.”

He is not arguing about printing money.  He is arguing about who controls the printing press.

So further says Lowe:

The best way for the government to finance its commitments is to go to the market rather than the central bank, he said.

Governor Lowe is engaging in his own trickery, rhetorical style.  The Government does not go to the central bank because governments like to pretend the private sector is buying government bonds when in fact all that is happening is that the government is selling government bonds to the banks who in turn sell them to the central bank.

This is not a debate about printing money.  This is a debate about who controls the printing press and we have an arrogant technocracy who think they know better.

Have a look at the RBA’s balance sheet:

Where does Governor Lowe think that the RBA got the resources, the over $150 billion of money, to buy assets?  He created the money out of thin air.

And for our friends in the United States who:

printed more money in June than in the first two centuries after its founding. Last month the U.S. budget deficit — $864 billion — was larger than the total debt incurred from 1776 through the end of 1979

Trickery in financing.  Yeah.

This is pretend economic activity.  This is not real.  There is no production created from this, except for the extra electricity generate (renewable of course) to run the RBA computers to account for all the extra money they “printed”.

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28 Responses to MMT vs QE = BS

  1. Roger

    This is pretend economic activity. This is not real.

    This is real:

    UK GDP ‘growth’ in 2nd 1/4 of 2020 was -20.4%

  2. Angus Black

    I thought MMT stood for Magic Mnney Tree…

    …and it seems I was right.

  3. JC

    Sparts

    You have no idea what you’re talking about if you think QE is just MMT by another name. QE is an attempt to stabilize nominal prices and incomes when there is a deflationary shock to the system.

    MMT is simply South American monetary economics introducted under another name and is used for governments to print money in order to maintain nominal spending. When the government needs cash, it ask the central bank to print some and deposit it into the governments account. MMT causes hyper-inflation.

    If you were correct suggesting the two things are the same then bond prices would be reacting to much higher inflation when QE is announced. Bond prices have not fallen – in fact they’ve risen and inflation is not seen to be taking off. In fact there is residual concern about deflation.

    QE is not the same thing.

  4. s

    The main difference is that with QE there is the feeling the money will need to be repaid at some point in the nebulous future but MMT that feeling is abandoned with and replaced with happy thoughts.

  5. 2dogs

    I have a question regarding the federal budget.

    Currently, it contains a rather large item called “grants to the states”.

    The question is: what is the “head of poer” under which these grants are made?

    There does not seem to be in item under section 51 of the constitution for this.

    Section 94 does allow this, BUT it only allows “surplus revenue” to be distributed.

    Are all “grants to the states” constitutionally invalid to the extent that they result in a federal budget deficit?

  6. 2dogs

    *” head of power”, dang nabbit.

  7. John Comnenus

    What could go wrong if MV = PQ?

  8. Jc. How does we stabilise prices then. It prints money to buy financial assets.

  9. 2dogs

    MMT causes hyper-inflation.

    I think the idea with MMT is that inflation is constrained by importing migrants to boost supply in labour markets and thus prevent wages from increasing.

    Works until your country becomes a hellhole where no-one wants to live.

  10. Roger

    The question is: what is the “head of poer” under which these grants are made?

    There does not seem to be in item under section 51 of the constitution for this.

    Section 94 does allow this, BUT it only allows “surplus revenue” to be distributed.

    Sect 96, 2dogs.

    The HC has interpreted the ‘terms and conditions’ mentioned therein very broadly.

  11. 2dogs

    The HC has interpreted the ‘terms and conditions’ mentioned therein very broadly.

    I see: it can give money to states to spend on things which it, itself, can not spend money on directly.

    Section 96 needs to be repealed.

  12. So glad I bought a legit gold detector lately.

  13. Roger

    I see: it can give money to states to spend on things which it, itself, can not spend money on directly.

    And the states, which supply the services people most rely on – health, education, law enforcement, etc. – have to go cap in hand to the Commonwealth and appeal for funding for said services.

    This dysfunction is not the fault of the Consitution itself but has developed over time, the principal cause being the C’wealth’s usurpation from the states of the power to levy income tax in 1942 as an emergency war measure. Lo and behold the war ended, the emergency passed but the legislation wasn’t repealed! But It only really became a problem with the growth of the Leviathan Commonwealth government under & after Whitlam, from which I fear we will only ever be delivered by a catastrophe.

  14. mundi

    Its a race for hyper inflation.

  15. Squirrel

    “…all that is happening is that the government is selling government bonds to the banks who in turn sell them to the central bank. ”

    There are people who will argue, until the proverbial cows come home, that this double shuffle makes it all OK – Daryl Kerrigan had the answer for them.

    It’s going to be a very long time before the curve (more like a skyrocket) in the RBA Balance Sheet graph above is flattened.

  16. John Comnenus

    Um the government isn’t selling bonds to the banks – they are selling them to the reserve bank which is printing money to pay for the “assets” they are buying.

  17. Exit Stage Right

    I wish I could run the household budget on the same terms as Governments run there’s.
    Magic Pudding economics!

  18. Professor Fred Lenin

    What will the Experts do when the government handouts stop in October and the small businesses which the lockdown has ruined do not re open ? UK figures estimate 40 per cent will not re open . What about the mortgage repayments going into default and lenders having to realise on properties re posessed ? What happens when the property bubble bursts ?what happens as government debt soars and lenders diminish their risks of mass defaults?what happens when the experts will know what to do will they? The bloody polliemuppets wont. Wonder if China will be punished for this act of Biological Warfare ?

  19. Professor Fred Lenin

    P.S. we could invade the Cayman Islands , plenty of funny money there ,ask Turnbull .

  20. Rohan

    So if I’m the guy that fixes the presses, I’m going to be paid a mint.

    Sweet.

  21. JC

    Spart

    Ideally we target nominal gdp as sumner has tirelessly argued. The monkey on the central bank end can move funds in of the system.

  22. JC

    whoops in or out of the system.

  23. Gold standard is the best.

    You can argue all you want, but as long as the government issues money, it should have to be on a gold standard. A bimetallic standard, a decent one like before it got watered down, works.

    The private sector ought to be a free for all. Crypto, tokens, Aldi fiat, private gold and silver, Ithica hours and money issued from IOUs or cheques, you name it.

  24. What the poster and most Libertarian-types are missing is the entire right hand side of the equation –> the SUPPLY side. If there are excess resources in the economy (unemployed folk) printing to employ folk to produce public sector goods and services induces them to wave their paychecks in front of the noses of business people who go wakey wakey and hire more unemployed folk to produces MORE GOODS AND SERVICES. That’s goods and services up the wazoo Dude – which offsets the added currency so no inflation. That’s value added. The solution is a Job Gty as part of a Full Employment Fiscal Policy.

  25. IRFM

    The growth in the asset base by the RBA is on a par with the growth of the asset base of the Geelong based Tower Building Society and we all know that ended in tears.

  26. JC
    #3547522, posted on August 14, 2020 at 2:47 pm
    QE is an attempt to stabilize nominal prices and incomes when there is a deflationary shock to the system.

    Is people cutting discretionary spending in expectation of swingeing tax hikes and removal of tax concessions considered deflationary?

    I guess if they introduce death duties we’ll just sell up and give it to the kids and they will squander it earlier, perhaps that’s the RBA’s next step?

  27. Hi all,

    I don’t normally engage in a libertarian moral philosophy masquerading as economics. Sadly that is what modern Austrian economics is but to TAFKAS, rather than have an endless thread of why you’re wrong and your research is sadly lacking I’ll just point you to an Austrian MMT person & that would be Ed Harrison at https://www.creditwritedowns.com/
    Enjoy!

  28. The sheer arrogance of Banana Republic Economics loons.

    “It’s okay, when this idea gets popular again, people won’t remember the pain it caused”.

    Anyone who is for MMT is basically a suicidal nutjob.

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