mfioretti: inflation*

Bookmarks on this page are managed by an admin user.

20 bookmark(s) - Sort by: Date ↓ / Title / Voting / - Bookmarks from other users for this tag

  1. After World War I the U.S. Government deviated from what had been traditional European policy – forgiving military support costs among the victors. U.S. officials demanded payment for the arms shipped to its Allies in the years before America entered the Great War in 1917. The Allies turned to Germany for reparations to pay these debts. Headed by John Maynard Keynes, British diplomats sought to clean their hands of responsibility for the consequences by promising that all the money they received from Germany would simply be forwarded to the U.S. Treasury.

    The sums were so unpayably high that Germany was driven into austerity and collapse. The nation suffered hyperinflation as the Reichsbank printed marks to throw onto the foreign exchange market. The currency declined, import prices soared, raising domestic prices as well. The debt deflation was much like that of Third World debtors a generation ago, and today’s southern European PIIGS (Portugal, Ireland, Italy, Greece and Spain).

    In a pretense that the reparations and Inter-Ally debt tangle could be made solvent, a triangular flow of payments was facilitated by a convoluted U.S. easy-money policy. American investors sought high returns by buying German local bonds; German municipalities turned over the dollars they received to the Reichsbank for domestic currency; and the Reichsbank used this foreign exchange to pay reparations to Britain and other Allies, enabling these countries to pay the United States what it demanded.

    But solutions based on attempts to keep debts of such magnitude in place by lending debtors the money to pay can only be temporary. The U.S. Federal Reserve sustained this triangular flow by holding down U.S. interest rates. This made it attractive for American investors to buy German municipal bonds and other high-yielding debts. It also deterred Wall Street from drawing funds away from Britain, which would have driven its economy deeper into austerity after the General Strike of 1926. But domestically, low U.S. interest rates and easy credit spurred a real estate bubble, followed by a stock market bubble that burst in 1929. The triangular flow of payments broke down in 1931, leaving a legacy of debt deflation burdening the U.S. and European economies. The Great Depression lasted until outbreak of World War II in 1939.

    Planning for the postwar period took shape as the war neared its end. U.S. diplomats had learned an important lesson. This time there would be no arms debts or reparations. The global financial system would be stabilized – on the basis of gold, and on creditor-oriented rules. By the end of the 1940s the Untied States held some 75 percent of the world’s monetary gold stock. That established the U.S. dollar as the world’s reserve currency, freely convertible into gold at the 1933 parity of $35 an ounce.
    It also implied that once again, as in the 1920s, European balance-of-payments deficits would have to be financed mainly by the United States. Recycling of official government credit was to be filtered via the IMF and World Bank, in which U.S. diplomats alone had veto power to reject policies they found not to be in their national interest. International financial “stability” thus became a global control mechanism – to maintain creditor-oriented rules centered in the United States.

    To obtain gold or dollars as backing for their own domestic monetary systems, other countries had to follow the trade and investment rules laid down by the United States. These rules called for relinquishing control over capital movements or restrictions on foreign takeovers of natural resources and the public domain as well as local industry and banking systems.

    By 1950 the dollar-based global economic system had become increasingly untenable. Gold continued flowing to the United States, strengthening the dollar – until the Korean War reversed matters. From 1951 through 1971 the United States ran a deepening balance-of-payments deficit, which stemmed entirely from overseas military spending. (Private-sector trade and investment was steadily in balance.)
    http://michael-hudson.com/2017/11/germanys-choice
    Voting 0
  2.  For a small but committed group of economists, academics, and activists who adhere to a doctrine called Modern Monetary Theory (MMT), though, #mintthecoin was the tip of the economic iceberg. The possibility of a $1 trillion coin represented more than mere monetary sophistry: It drove home their foundational point that fiat currency is a social construct, and that there are therefore no fiscal limits on how much a sovereign currency-issuing nation can spend.

     To a layperson, MMT can seem dizzyingly complex, but at its core is the belief that most of us have the economy backward. Conventional wisdom holds that the government taxes individuals and companies in order to fund its own spending. But the government—which is ultimately the source of all dollars, taxed or untaxed—pays or spends first and taxes later. When it funds programs, it literally spends money into existence, injecting cash into the economy. Taxes exist in order to control inflation by reducing the money supply, and to ensure that dollars, as the only currency accepted for tax payments, remain in demand.

    It follows that currency-issuing governments could (and, depending on how you lean politically, should) spend as much as they need to in order to guarantee full employment and other social goods. MMT’s adherents like to point out that the federal government never “runs out” of money to fund the military, but routinely invokes budget constraints to justify defunding social programs. Money, in other words, isn’t a scarce commodity like silver or gold. “To people who’ve worked in financial markets, who work at the Fed, this isn’t controversial at all,” says Galbraith, who, while not an adherent, can certainly be described as “MMT-friendly.”



    According to this small but increasingly vocal cohort of economists, including Bernie Sanders’s former chief economic adviser, once we change the way we think about money, we can provide for everyone: We don’t have to “find” the money to “pay” for universal health care by “cutting” the budget elsewhere. In fact, our government already works that way: Spending must precede taxation, or there would be no dollars in the economy to tax. It’s the political will to spend on certain things, not the money to afford it, that’s lacking.
    https://www.thenation.com/article/the...star-appeal-of-modern-monetary-theory
    Voting 0
  3. with things like self-driving cars, 3D printers and AI just over the horizon, more and more of the economy is going to become subject to rapid technological deflation.

    This is a deep point. No existing economic model knows how to deal with the accelerating pull of technological deflation.

    But Gada has a recommendation. And for folks who have been following Basic Income, it is a doozie. He recommends that by far the best, and perhaps the only, way to deal with technological deflation is to counteract its pull with a large and rapidly growing guaranteed income to every adult citizen.

    How large? Well, he reckons that right now in late 2016, the right number would be $5,000 a year per US citizen. Which is nice, but the real kicker comes when he looks at how quickly this stipend would have to grow just to keep pace with technological deflation. The answer? About 20% a year.

    For those who can’t be bothered with math, at an annual growth rate of 20%, this Basic Income would build to $25,000 a year by 2025 and over $100,000 a year by the early 2030’s.
    https://medium.com/emergent-culture/a...-basic-income-b1b7bf622845#.td7zebl84
    Voting 0
  4. countries such as Bulgaria and Romania, which have recent histories of currency instability and financial crises, also are quite heavy users of cash.

    But the real point isn’t that Germans love cash. It’s that—for the same historical reasons—they loathe debt. (Armchair anthropologists have also long noted that German word for debt—Schulden—comes from the word for guilt, Schuld.)

    Levels of consumer debt in Germany are remarkably low. German aversion to mortgage debt is part of the reason why the country has some of the lowest homeownership rates in the developed world. Just 33% of Germans said they had a credit card back in 2011. And most of those hardly ever get used. In 2013, only 18% of payments in Germany were made via cards, compared to 50% in France and 59% in the UK.

    The national preference for cash, then, seems to be the flip side of aversion to debt, which, in turn, can be interpreted as a sign of deep-seated doubt about the future. (German businesspeople are also notorious for their pessimism about the future.) And fear of the future, of course, is rooted in the past.

    In other words, the German tendency to settle up in cash undeniably reflects the fact that for much of the last century, Germany has been either on the brink of, in the midst of, or struggling to recover from, disaster.
    http://qz.com/262595/why-germans-pay-cash-for-almost-everything
    Voting 0
  5. Imagine a bank that pays negative interest. Depositors are actually charged to keep their money in an account. Crazy as it sounds, several of Europe’s central banks have cut key interest rates below zero and kept them there for more than a year. Now Japan is trying it, too. For some, it’s a bid to reinvigorate an economy with other options exhausted. Others want to push foreigners to move their money somewhere else. Either way, it’s an unorthodox choice that has distorted financial markets and triggered warnings that the strategy could backfire. If negative interest rates work, however, they may mark the start of a new era for the world’s central banks.
    http://www.bloombergview.com/quicktake/negative-interest-rates
    Voting 0
  6. Statistics show that, in Japan over that last 30 to 40 years, GDP has grown while the overall unemployment rate, wage coefficient, Gini coefficient (a common measure of income disparity) and life satisfaction have all become worse. All of the "myths of economic growth" turned out to be just that - myths. While only a few people believe in the myth of economic growth concerning economic disparity, why do over half of people still believe the myths of economic growth concerning unemployment and wages? People feel differently about happiness, but what are the reasons for these differences?
    http://www.japanfs.org/en/news/archiv...nfs-en+%28Japan+for+sustainability%29
    Tags: , , , , by M. Fioretti (2014-12-29)
    Voting 0
  7. The sudden slump in oil prices, which have fallen 15% in the past three months, has sent tremors through the capitals of the world’s great oil powers, many of whom could face testing budget crunches if the tendency persists.

    Higher output coupled with weaker demand from China and Europe has driven the price of crude down to $85 – its lowest for four years. The US also now produces 65% more oil than it did five years ago following the boom in shale production. The rise has contributed to the global glut of crude and allowed the US to import 3.1 million fewer barrels of oil a day compared with its peak in 2005. Prices are now well below the level on which many oil exporters have based their budgets.

    If prices remain weak – and many forecasters suggest they will – then from Moscow to Caracas and from Lagos to Tehran governments will start to feel the impact on macroeconomic policy.
    http://www.theguardian.com/news/datab...w-oil-prices-chill-producer-economies
    Voting 0
  8. The Fed, it seems, has finally run out of other ammo. It has to taper its quantitative easing program, which is eating up the Treasuries and mortgage-backed securities needed as collateral for the repo market that is the engine of the bankers’ shell game. The Fed’s Zero Interest Rate Policy (ZIRP) has also done serious collateral damage. The banks that get the money just put it in interest-bearing Federal Reserve accounts or buy foreign debt or speculate with it; and the profits go back to the 1%, who park it offshore to avoid taxes. Worse, any increase in the money supply from increased borrowing increases the overall debt burden and compounding finance costs, which are already a major constraint on economic growth.

    Meanwhile, the economy continues to teeter on the edge of deflation. The Fed needs to pump up the money supply and stimulate demand in some other way. All else having failed, it is reduced to trying what money reformers have been advocating for decades — get money into the pockets of the people who actually spend it on goods and services.
    http://ellenbrown.com/2014/09/01/even...-it-time-to-rain-money-on-main-street
    Voting 0
  9. Germany was able to achieve large gains in competitiveness without deflation, because Spain and others were willing to accept inflation well above 2 percent. But now the eurozone has overall core inflation below 1 percent, which means that Spain can only achieve internal devaluation through crippling deflation.

    The Germans, in other words, aren’t asking the southern Europeans to emulate them; they’re demanding that they accomplish a feat Germany never had to manage, and which hardly anyone has ever managed.
    http://krugman.blogs.nytimes.com/2013...smid=tw-NytimesKrugman&seid=auto&_r=0
    Voting 0
  10. I’m very passionate about the new economy. I love fablabs, tool libraries, community-owned shops, coops, car shares, remakerys, repair cafés, free shops and all the other great innovations that we’re seeing. But I think we need to keep our feet on the ground and also understand the value of traditional businesses with traditional hierarchies and profit making drivers.



    Is the new economy about the wholesale rejection of hierarchies, profits, globalisation or monocultures? Or is it about understanding what’s appropriate where and when?
    http://blog.p2pfoundation.net/the-new...h-the-eyes-of-a-reconomist/2013/04/26
    Voting 0

Top of the page

First / Previous / Next / Last / Page 1 of 2 Online Bookmarks of M. Fioretti: Tags: inflation

About - Propulsed by SemanticScuttle