mfioretti: money* + economy*

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  1.  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.
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  2. 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.
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  3. The IMMR believes that our money system has mutated over the years in response to technology, regulation, de-regulation, and globalisation. The result is an unfair system which does not work in the public interest.

    The IMMR has identified the following problems with the current money system:

    * Unsustainable indebtedness: Because all money is issued as credit, debt increases at the same rate as the money supply.

    * Financial instability: Money creation is pro-cyclical – too much is created in a boom, and too little in a recession, causing the pronounced boom and bust cycle.

    * Anti-democratic: Because the government relies on commercial banks to create money, the government has to borrow more, and we have to pay higher taxes.

    * Perpetual expansion: In order to service large amounts of debt the economy has to grow, even when markets are saturated and resources depleted
    Tags: , , , by M. Fioretti (2013-08-07)
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  4. Buenos Aires è vicina al fallimento a causa delle politiche valutarie sbagliate del governo. E può rappresentare una lezione per l'euro: lo sganciamento da un cambio insostenibile deve essere gestito con intelligenza, evitando di ricadere negli errori del passato
    Tags: , , , , , by M. Fioretti (2013-07-08)
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  5. Answers to why the German economy thrived while other European economies have struggled often point to successful belt-tightening and government policy during the past decade. The Hartz reforms of the early 2000s -- a set of welfare and labor-market measures that cut benefits and made it easier for firms to create less well-protected and often temporary low-wage jobs -- are said to have reduced labor costs and encouraged more people to work. Meanwhile, fiscal responsibility, which the German constitution mandates, supposedly underwrote Germany’s strong economic performance. German policymakers, in turn, have preached austerity and structural labor-market changes as the model for other European countries looking to foster competitiveness, boost growth, and increase employment.

    Yet the sources of Germany’s economic revival and continued success were not primarily labor-market reforms or fiscal conservatism but decade-long adjustments in business and labor relations coupled with Germany’s place in the monetary union. Long before the Hartz reforms, German manufacturing firms, faced with growing global competition, started to impose wage restraints and adjust working time and pay while granting job security for skilled workers.
    Tags: , , , , , by M. Fioretti (2013-06-22)
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  6. Here, we necessarily enter the world of symbols intrinsically tied to political consciousness. When people enter a political union, they are raised to pay homage to a particular set of symbols (i.e. a flag, a set of stock images, national heroes). The value of the currency is then tied to these symbols, and a threat to the currency is seen to be a threat not only to the symbols, but also to the people who have been raised with them.

    This problem has been aggravated by the transition to paper and, later, digital currency. The wisdom of central issuing agencies of paper notes for centuries was that it had to be backed by specie (i.e. gold) of a certain amount, or the value of the paper object would be destroyed. Moreover, it is an often cited maxim that a government in a time of perceived crisis can never find the necessary willpower to avoid printing money.

    This problem, widely noted for centuries, was offset by a different sort of innovation — the introduction of government debt on the open market, a way by which the government could gain money in a crisis without massively inflating its currency. This process, helped by the innovation of British banks, made the world wide bond markets become the basis for governments in need of immediate capital infusion.

    when the true gold is lacking, the ability to convince people you have the ability to create it from nothing is extremely important. Here, simply showing something shiny to the masses is often sufficient — at many points in history, these alchemists have been able to convince both masses and monarchs to partake in their fool’s gold. Although in these cases a collapse is inevitable, very often these charlatans have escaped with a large amount of coins taken from the public purse.

    The present system is especially prone to this problem. For most of the innovations outlined above, America played second fiddle. While the increased rule of finance involved Europe in a number of small wars and revolutions, Americans were busy spreading across an untamed continent. Their assumption of the royal mantle at the head of finance was not quite deliberate, it was more the product of their massive economy fueled by the incredible industry of their citizens. Americans worked hard and built a lot.

    The simple truth at this moment is that there is a great sloshing about of capital derived from the ability of people to repackage debt and sell it as assets, but a great loss as governments lose the ability to ensure the value of their own currencies, parading naked due to corrupt advisors who make both the governments and their citizens a laughingstock.
    Tags: , , , , , by M. Fioretti (2013-06-03)
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  7. Goldbugs and bitbugs alike seem to long for a pristine monetary standard, untouched by human frailty. But that’s an impossible dream. Money is, as Paul Samuelson once declared, a “social contrivance,” not something that stands outside society. Even when people relied on gold and silver coins, what made those coins useful wasn’t the precious metals they contained, it was the expectation that other people would accept them as payment.

    Actually, you’d expect the Winklevosses, of all people, to get this, because in a way money is like a social network, which is useful only to the extent that other people use it. But I guess some people are just bothered by the notion that money is a human thing, and want the benefits of the monetary network without the social part. Sorry, it can’t be done
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  8. To the extent that bitcoin attempts to emulate the Gold Standard, if a large portion of economic activity is denominated in bitcoin, the dilemmas of the 1920s will return to plague the bitcoin economy. Finance will either have to find ways of introducing bitcoin denominated securities, 1920s-style, that will cause asset bubbles to form or the bitcoin political economy will nosedive into a deflationary spiral that either causes untold hardship amongst its users or leads them, as is more likely, to abandon bitcoin altogether.
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  9. Nonetheless, Bitcoin raises some interesting questions. One is whether it might undermine the modern state -- which, for many of its libertarian-anarchist advocates, is the whole idea.

    Technology enabled governments to grow more powerful and more centralized in the 19th and 20th centuries, as Tyler Cowen, an economist at George Mason University, has argued. The intriguing possibility is that technologies of the 21st century -- such as Bitcoin -- might push the other way.

    Physical cash is used in a rapidly shrinking share of transactions: 27 percent in 2011, 23 percent by 2017, and so on, according to Javelin Strategy & Research, a financial-services research firm. The central banks of Sweden and Nigeria have both declared goals of a cashless economy. In Europe, the volume of non-cash transactions is forecasted to rise by 7 percent per year, despite economic stagnation.

    What's going on? First, a global shift to mobile payments and credit and debit cards. Second, a rise in online retail -- one that could put 15 to 20 percent of all retail sales online in the U.S., U.K., China, and Europe, according to Bain & Company.

    Electronic payments aren't new. Bitcoin's only innovations are its status as an independent currency and its decentralized network design. But those differences might make Bitcoin -- or rather, crypto-currency in general -- an existential threat to the modern liberal state. If widely adopted, crypto-currencies would cripple government in three central functions: taxation, police and macroeconomic stabilization. That is exactly what Bitcoin's biggest fans are hoping.
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  10. none of us in living memory has had experience with a currency that rises in value. The emergence of Bitcoin — a digital currency that has grown in purchasing power over time — has changed that experience dramatically. As a free-market currency, it does what currency should do, which is increase in value over time.

    Conversely, government currencies usually fall in value. That’s the only kind of currency we’ve known throughout our lives. This reality affects our personal financial decisions in ways that we aren’t always aware of. We’ve come to assume that there is no inherent prize to be won by merely holding money.

    With paper money, governments and central banks are in a position to punish holding money. Because it can be created without limit, discipline vanishes. Individuals, families, businesses, and government can ramp up spending without limit and avoid the consequences of their behavior. There’s no reason for them not to be profligate.

    Every expert will tell you that the state has to create and manage that money. If we do not do that, we’ll have chaos on our hands. Bitcoin proves the opposite, that a money can emerge from within the market itself, based purely on voluntary behavior, and needs no privileged elites to manage it.

    That is an essential postulate of the free society. When government gets hold of the money, freedom is in peril. When the market makes and manages money, freedom has a built-in reinforcement in half of every transaction. In short, just based on our experience with Bitcoin so far, we see the conventional wisdom of a century completely turned on its head. Fantastic!
    Tags: , , , by M. Fioretti (2013-04-25)
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