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The decline and fall of the American middle class

http://mmtwiki.org/wiki/Inflation

Intro

Modern monetary theory (MMT) is a economic theory, alternative to that generally presented to even advanced students, which seeks to explain the [macro-economic] level in a modern economic system from the standpoint of monetary economics ​ ​.

Although the origin of MMT is relatively recent, at least some of its roots can be traced to some observations and suggestions advanced by some well known authors ​. From this standpoint, MMT can be considered a synthesis and development of several previous lines of analysis, which had lay unexplored by some considerable length. ​

In doing so, MMT theorists carry out a critique, more or less implicit, of some assumptions and interpretations, which are normally not explored in [heterodox economics] ​.

MMT inherits ​ from chartalism the perception about the origen and function of money and from functional finance the proposal that the State's economic policies should be about economic development ​ or, at least, about producing full employment ​ , which would lead to what the classicals called "progressive state" ​.

Some basis of MMT

General description

MMT provides a broad theoretical macroeconomic framework based on the recognition that fiat currency systems are in fact public monopolies per se, and introduce imperfect competition to the monetary system itself, and that the imposition of taxes coupled with insufficient government spending generates unemployment in the private sector.

An understanding of MMT allows us to appreciate how unemployment occurs and to detail the role that government can play in maintaining its near universal dual mandates of price stability and full employment. ​

Lerner thought that the government should always use its capacity to achieve full employment and price stability. In modern monetary theory (MMT) we express this responsibility as “advancing public purpose” `​

also from there:

In his 1943 book (page 354) we read:

The central idea is that government fiscal policy, its spending and taxing, its borrowing and repayment of loans, its issue of new money and its withdrawal of money, shall all be undertaken with an eye only to the results of these actions on the economy and not to any established traditional doctrine about what is sound and what is unsound. This principle of judging only by effects has been applied in many other fields of human activity, where it is known as the method of science opposed to scholasticism. The principle of judging fiscal measures by the way they work or function in the economy we may call Functional Finance …

Government should adjust its rates of expenditure and taxation such that total spending in the economy is neither more nor less than that which is sufficient to purchase the full employment level of output at current prices. If this means there is a deficit, greater borrowing, “printing money,” etc., then these things in themselves are neither good nor bad, they are simply the means to the desired ends of full employment and price stability …

This is why I always criticise the mainstream use of fiscal rules as being divorced from a functional context. It may be that a budget surplus is necessary at some point in time – for example, if net exports are very strong and fiscal policy has to contract spending to take the inflationary pressures out of the economy. This will be a rare situation but in those cases I would as a proponent of MMT advocate fiscal surpluses.

(end of quote)

"What Jamie and the MMT school say is that as long as a Government can issue its own currency, and has not incurred debt in foreign currencies making it subject to its bankers, then it can never default on its debts, because it has “run out of money” (become insolvent). It can voluntarily decide to default, i.e. refuse to spend to fulfill its obligations, for various political reasons. But if it has an understanding of its real monetary powers and the will to persist, it can never be forced to default because of decisions made by banks, other nations which hold its debts, or international credit agencies which either foolishly or malevolently, downgrade its credit even though it cannot default. So, Governments sovereign in their own currency never present any solvency risk to investors, or to creditors they’ve made promises to, however great their deficits or national debts may be. ​

Critique to the usual interpretation of the quantitative theory

The [quantitative theory of money] affirms that the price of goods and services is determined, exactly ​, by the quantity of money in circulation multiplied by the speed of circulation of that money ​. Hence, there is a "strong, positive relationship between growth in the money stock and inflation". ​

That perception was formalized, by Irving Fisher ​ , in the equation of exchange, which normally is presented thus:

MV = PQ

where M= etc

All that is generally interpreted as meaning that there is a certain quantity of money which, given several conditions ​ ​ , will maintain price stability. Since -it is further assumed- the main source of fluctuations (increments, in practice) in the money supply is the State ​, it is suggested this should reduce such fluctuations, by reducing its expenditure. ​

MMT critiques that at two levels: theoretically it starts with the assumptions ​, on which MMT is not alone ​. By instance, even in the orthodox framework it is accepted that, if there is no full employment, etc, an increase in the money supply could lead to an increase in production, not in prices ​. However, even when it is the case that most present day societies do not enjoy full employment, it is often argued, in contemporary political and economic discourse, that public expenditure will lead to inflation. ​ ​.

In addition it argues that the inferences derived from the equation are not theoretically sound. The fact is that the two sides of the equation represent two different realms, the nominal and the real respectively. Such relation cannot, by itself, tell us anything about causation. From the equation itself, there is no reason that, following and increase in “money”, there must be an increase in price. Thus, the well known dictum ‘‘inflation is always and everywhere a monetary phenomenon’’ does not, extrictly, follows from the equation ​ ​. In fact, MMT postulates, such increments in price due to monetary expantion are an exception ​ ​.

Consecuently MMT suggests that the usual interpretation misunderstand the nature of the relation represented in the theory/equation, due, fundamentally, to a misapprehension of the nature and role of money in a modern society. (see below). However, this should not be construed to mean that MMT perception is that QTM is wrong in principle. MMTers accept that, were the money supply to grow beyond the ability of an economic system to produce real goods as counterpart to the money, it could well result in inflation ​ ​ .

At a practicall level, the critique centers in the well known difficulties ​ that partidaries of the QT have had with the definition ​, specification ​ ​ and measuring ​ necessary in order to use of "quantity of money" as an standard and/or target , specially in relation to the application of the general principle (or long run perception) to the actual practice o short run policies ​; difficulties which eventually lead M Friedman to claim: "The use of quantity of money as a target has not been a success," ​

Consecuently, MMTers prefer to use the Investments and Saving (IS) equation ​ ​​ :

Y = C + I + G + NX

where Y= GDP; C= Consumption; I= investment; G= Government expending; NX is the balance of trade (Exports - imports)

That equation —first proposed formally by Dornbusch (1976) but better known as being the IS component of the Mundell-Fleming Model ​ — has the advantage that can be applied directly as an accounting tool to calculate the National Income ​ ​; requiring fewer assumptions and offering greater flexibility than the QTM ​ ​.

General MMT's framework

(all what follows from Roche’s Understanding The Modern Monetary System

In MMT’s view, the usual explanation of the role of money is based in an intellectual framework which is a legacy of the old gold standard system, while the explanation required is that which apply to modern nations, which are monetarily autonomous, are monopoly suppliers of their own currency and exist within a freely floating exchange rate system.

At a difference of the monetary system based on gold (or any other good) exchange and parity, modern money is created by the State, which is therefore in the position, at least in principle, to finance its activities without limit. The private sector is forced to accept such situation because the State only accept the money it produces as payment for taxes, etc. (this view is directly derived from Chartalism).

In modern parlance, that means that money is exogenous of the economic system as such, it is created freely by the state.

It is erroneous therefore to analyze public expenditure and finances as they were similar to that of the private sector. At a difference to the modern state, actors in the private sector (individuals or enterprises, etc) can become bankrupt, that is to say, run out of money to finance their purchases and debts. It is (or more accurately, it was) possible to conceive, in the old system -money based in some form of parity with a given merchandize- an State running out of the sufficient quantities of such merchandize (say, gold or silver or even another state' currency) to fund its expenditure. But an state which can print its own currency can not run out of money, so long as it retains that independence to print money at need and does not adquire debt denominated in foreign currency.

That position seems to require a freelly floating rate of exchange. If a country pegs its money to any other, it is, effectively, imposing upon itself a form of fixed rate o standard, not with gold, but with another's currency. A floating exchange rate is, from this perspective, a requisite sine qua non for countries to have the freedom to give themselves the space to implement the economic policies, especifically in relation to the production and valuing of money, which they might deem necessary.

It follows that money is little more than a promissory note issued by the State in which this admits it will pay the bearer a certain amount of money, equivalent to the face value of the note (in other words, the State will exchange such notes for others of equal nominal value "on request"). Such notes enter in circulation when the State delivers then to the banking system and have "value" until returned to the State as dischargment of some citizen's duty to pay taxes.

From all that it seem possible to suggest the following principles:

• The National government is the monopoly controller of currency. Such currency is created by the State and it only ceases to exist when used to pay taxes or equivalent to that State.

• The modern floating exchange rate system helps to maintain equilibrium and flexibility in the global economy.

• Therefore, a modern monetary system can best be thought of as a system of debits and credits where government deficit spending credits the private sector and payment of taxes debits the private sector.

In other words, MMT seeks to explain the monetary system of a nation operating a fiat currency which involves an autonomous monetary system, monopoly supply of currency by the State and floating exchange rates at international level. MMT describes how a government creates, destroys and utilizes its monetary unit and also how the private sector utilizes the state’s monetary unit for its own benefit.

Origins and roles of money

Modern money is created and destroyed by the State -in the form of legal national currency o tender- in two complimentary forms: a. it creates it by crediting private institutions or individuals accounts (which can take the form of issuing checks, such as those for welfare entitlements, payment to state employees, etc, and then printing the notes if necessary). and b: it destroys it either regularly (via taxes, etc) and, occasionally, by selling bonds to the same institutions and individuals, which means those institutions transfer their money to the State, transforming cash in “reserves”.

It is important to keep in mind that, in MMT’s view, the function of neither taxes or bonds is to finance the State, it is, literally, to destroy money. The monetary cycle that the State’s transactions give rise to in their dealings with the banking system (that is to say, the treasury and central bank transaction with the private banks) are denominated the “vertical money functions”. Those between the private banks among themselves (and with private individuals) are called “horizontal money functions” or horizontal system.

The horizontal money system describes how the banking system utilizes the money created by the State to finance the transactions in the economic system as a whole. A characteristic of the horizontal system is that its transactions are contractual (either implicit or not) or represent exchanges, of, in principle, equal values, in other words, always reduce to zero: someone’s expenses equal someone’s else income. Somebody’s deposit is someone else debt. If one lends, other issues an IOU. etc. This means that the horizontal system does not create money, though, by its use as capital, can increase real assets. The issue of money by the State (the vertical system) (p 4), on the other hand, does not create either a debt of the banks or other recipients with the State nor real assets, but its introduction in the private sector does increases private sector financial assets. In consequence, MMT suggest the most appropriate way to measure the effects of money in the system is through the formula (originally proposed by Kutznetsz and generalized by Keynes)

Moore, Basil, 1988, Horizontalists and Verticalists, Cambridge: Cambridge University Press.

• Moore, Basil (1988). Horizontalists and Verticalists: The Macroeconomics of Credit Money, Cambridge University Press. ISBN 0521350794

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ From:

http://neweconomicperspectives.blogspot.com/2011/03/modern-monetary-theory-and-mr-paul.html

It is an obvious fact that the U.S. government’s liability is unlike those of the private sector, because only the government pays by using its own liability and there is no limit to which it can issue those. This has been an important point of departure for MMT, but it has been recognized by some of your saltwater colleagues as well. And yet, they have not been able to provide the intellectual leadership to move us forward.

Let’s take Mr. Woodford, for example -- a saltwater star economist, who developed the Fiscal Theory of the Price Level (FTPL), which I must admit I have criticized considerably. Problems with FTPL and DSGE models, notwithstanding, Woodford has recognized the obvious fact that sovereign currency nations cannot default on their obligations: “A subtler question is whether it makes sense to suppose that actual market institutions do not actually impose a constraint … upon governments (whether logically necessary or not), given that we believe that they impose such borrowing limits upon households and firms. The best answer to this question, I believe, is to note that a government that issues debt denominated in its own currency is in a different situation than from that of private borrowers, in that its debt is a promise only to deliver more of its own liabilities. (A Treasury bond is simply a promise to pay dollars at various future dates, but these dollars are simply additional government liabilities, that happen to be non-interest-earning.) There is thus no possible doubt about the government’s technical ability to deliver what it has promised…” (Woodford 2000, p. 32) Even more surprisingly, Woodford has used this logic to make the point that: “it is possible for a government to finance transfers to an initial old generation by issuing debt that it then ‘rolls over’ forever, without ever raising taxes” (2000, p. 30). In other words, programs like Social Security are forever sustainable! Some may wonder why an economist of Mr. Woodford’s standing would make such a claim and yet remain silent at a time when Social Security, the most popular American social safety-net, is under attack by deficit hawks. The reason is because recognizing a simple and obvious fact does not provide the tools for intellectual leadership.

Does the recognition that sovereign governments like the U.S. (he calls these Non-Ricardian Regimes) cannot possibly default on their obligations tell us anything about what fiscal policy should look like? NO, it does not. Does it give guidance on what stabilization policy must look like? Absolutely not. There is nothing in this work of use for economic policy. The reason is that the recognition of this obvious fact has been coupled with a whole series of flawed assumptions, problematic models, and dubious transmission mechanisms, which lead him to conclude that government spending is inherently inflationary.

You too made this logical leap and argued that in normal circumstances when: “we’re no longer in a liquidity trap, running large deficits without access to bond markets is a recipe for very high inflation, perhaps even hyperinflation”. (NYT, March 25, 2011) There is a problem with this claim. As MMT has demonstrated through the use of double-entry book-keeping, in reality, the government always spends by crediting bank accounts, i.e., by creating ‘money’. Yet, considering the inflation data, we’d be hard pressed to make the case that government spending in the postwar era has set unsustainable inflationary processes in motion, much less hyperinflation. Inflation is not a function of too many liabilities in circulation. But both you and Mr. Woodford are assuming that this is the case. There is another problem with your arguments. You are saying that because government spending has to be financed by the private sector, it can be held hostage by the bond vigilantes. In other words, you argue, the government still needs someone to buy its debt before it can spend. This is not the case as we have explained in detail in our blogs. But even if we assume for a moment that this were the case, how are these bond vigilantes going to finance the government debt? What will they use to buy these bonds? The answer, of course, is reserves. The next logical question would be: how did these reserves get into the hands of the vigilantes in the first place? And since we know that reserves come from one place only – the government – they have to be spent into existence first before they can be used to buy bonds. In other words, government spending is financed through reserve creation by the Fed, not through borrowing from the private sector. We know of course that the Fed cannot force reserves on the banking system (Post Keynesians have made this point for decades, but mainstream economists have come around to understand this too). When the federal government spends, however, be that on military aircraft, Collateralized Debt Obligations, or Social Security, the Fed clears all government spending by crediting the bank accounts of Boeing, Goldman Sachs, or grandma (or anyone else for that matter who gets payments from the government, be they in the form of contracts, bailouts, or income assistance). This is how government spending creates reserves. Bond sales only drain any excess reserves from the system, to allow the Fed to hit its interest rate target, sales which are no longer needed since the Fed started paying interest on reserves (see here).

Fed direct lending and temporary or permanent OMOs do not change the net financial wealth of the private sector. However, government spending does! When the government spends, private agents get reserves in their bank accounts. The banking sector will then convert these excess reserves into interest bearing assets—Treasuries. Bond sales are only undertaken by the Fed to drain reserves from the banking system and hit its interest rate target. Reserves come first and borrowing comes later. It is government spending that adds net new financial assets to the private sector. If you prefer to use Friedman’s analogy, helicopter drops of money are fiscal operations.

Also, when the government sends everyone a check in the mail (think of the Clinton or Bush Jr. tax cuts), the Fed clears them and creates what Bernanke has called ‘money financed tax cuts’. Bernanke has clearly stated that there is no limit to which the government can finance these. “Under a fiat (that is, paper) money system, a government (in practice, the central bank in cooperation with other agencies) should always be able to generate increased nominal spending and inflation, even when the short-term nominal interest rate is at zero... The U.S. government has a technology, called a printing press (or, today, its electronic equivalent) that allows it to produce as many U.S. dollars as it wishes at essentially no cost.” (Bernanke 2002)

In fact, Bernanke prefers money financed tax cuts to any other type of ‘alternative monetary policy measure’ (see Bernanke 1999). He prefers fiscal policy as a stabilization policy (or to use his vernacular he prefers these types of fiscal components, see here for details). Bernanke has also stated that we are not using taxpayer money to finance these fiscal components, just like we are not using taxpayer money when we lend to banks. The way the government spends or lends is by crediting bank accounts to private agents. Scott Pelley: “Is that tax money that the Fed is spending?”

Chairman Bernanke: “It’s not tax money. The banks have accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed.”

Mr. Krugman, you have also made this claim, namely that the government will eventually run into difficulty meeting its long-term obligations. My question is, if the Fed can clear any tax cut check that we get in the mail today, it can certainly clear the social security checks we will get in the future. If the government faced no technical limits to buying toxic financial assets, it clearly can pay for grandma’s social security today and mine in the future. More than that, the government can buy the labor of the unemployed today and put them to work on useful projects. The important question is what can we buy with these checks? MMT has always argued that we have to get past the illusion of financial constraints to start asking the meaningful questions of what the real resource constraints of our economy are and how to employ the idle resources to overcome these constraints in order to provide for the young, poor, unemployed and elderly and to increase the standard of living for all.

There are many economists who still don’t ‘get’ these obvious facts, but a number of saltwater economists do. Yet, ‘getting’ these obvious facts is not enough. We have to, indeed we must, engage in a conversation about the kind of spending we should be financing. Clearly we can finance any kind, but different types of spending will produce different real outcomes. Spending on anything politicians want without limit is absolutely the wrong conclusion to draw from recognizing the obvious fact that sovereign governments do not go bankrupt without self imposed political constraints (e.g., debt limits). Instead, we must ask the question: should the government be buying the junk of the financial sector or should it be buying the productive services of the unemployed? What type of government spending would pose greater risk of inflation than others, when would that happen, and in which sectors?

I’ve already argued that the mainstream cannot offer intellectual leadership on this last question because it assumes inflationary effects from government spending, all evidence to the contrary. MMT can and does fill this intellectual void. We have explained the problems with the traditional view of inflation and have ourselves offered policies for price stability. This work has also been concerned with true inflation beyond full employment and has offered a recipe to address it. We are worried about hyperinflation, and have carefully explained why Zimbabwe and Weimar Germany are extreme and unlikely special cases. From inception, we have been concerned with real economic problems like unemployment, and have argued that we can and must put the unemployed resources to work. We have objected to the inhumane notion economists hold that we can use unemployment to fight inflation and have provided alternatives. We have spelled out the key ingredients of what responsible fiscal policy would look like. We have offered specific policy proposals for addressing this crisis and our long term real economic challenges – policies, such as a payroll tax holiday and the job guarantee. We have argued that Social Security is not broken and that we can always make payments to the retired, but we have been very concerned with what the elderly can buy with these payments. We have always focused on the real productive capacity of the economy and whether it can generate the goods and services that the elderly will need. We have worried about the environment and have suggested specific policies for environmental renewal and sustainability. And on and on and on…..

from

http://www.mecpoc.org/2011/06/what-monetary-economics-is-about/

In a monetary economy, “money” designates two aspects of contractual payments: First, it is the unit of account by which one side of contractual debt is denominated. Second, it is the generally accepted means that settles that debt, i.e., the object that by virtue of transfer will discharge debt. This means that if I buy a cup of coffee that costs one unit of a dollar, this is the unit of account of my debt, and I can pay my debt only by delivering one unit of a dollar, this being the means of settling my debt. When giving and receiving are driven by hierarchical or gift-with-reciprocity relations, there is no need to make use of a means of settlement, except in organized non-monetary economies where this is but a document representative of a real claim. In contrast, the means of settlement in a monetary economy is a nonredeemable credit, carrying nominal value, monopolistically issued by a politically sovereign state that claims the right to declare it to be the ultimate means of payment of residents’ liabilities, notably taxes, towards that state.

The above definition of the subject matter of monetary economics contrasts with the definition of the subject matter of economics as embraced in the general equilibrium track. In the latter, free individuals engage in good-faith trade activities, for present and inter-temporal exchange, in a natural condition where resources are considered fixed and wants are considered unlimited. Agents are willing to trade something real (i.e., their time and efforts) for something else real (i.e., a consumption good), where money is a convenient medium of exchange that serves to lower the costs of organizing and managing a barter system.

A logical consequence of assuming free (barter-like) exchange activities in a natural condition of unlimited wants and fixed resources is that all resources should always be “fully utilized” (i.e., used as desired) given the assumed spontaneous tendency not to leave idle any resource that could still satisfy someone’s wants. This optimal result can be prevented only if someone (an individual or a group) has the power to prevent such outcome, either out of individual interest or out of ignorance. Accordingly, the general equilibrium paradigm describes economics as the study of the efficient allocation of scarce resources among alternative uses. In this logic, policy efforts should thus aim at eliminating restrictions and preventing imperfections that produce sub-optimal economic efficiency. Although it disregards the contractual and monetary nature of giving and receiving, this paradigm remains a deeply rooted belief in a significant portion of modern economics, only partly shattered when economic events develop adversely in contemporary monetary economies.

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from http://www.mecpoc.org/2011/07/%20a-paradigm-for-understanding-monetary-economies/

One chief reason why human societies differ from each other is because of the different ways in which they combine diverse means of transferring value. Contemporary societies are called “monetary” because contractual obligations play the largest part, albeit other means are practiced to a lesser extent.
Gift-with-reciprocity practices are common within circles of family relationships, friendships and with volunteering activities.....

Hierarchical relationships are ordinarily found within state and private organizations such as households, private associations including business companies (and, to be sure, within criminal organizations) as well as between the politically sovereign nation state and its citizens (e.g., taxation). In contrast, contractual obligations with monetary settlement are the prevailing means of transferring value in contemporary societies, especially with respect to the provision of labor services and newly produced output. They unquestionably offer a powerful and effective means to organize physical and human resources as well as to deal with rising specialization and complexity of production. Pervasively monetary production activities create their own distinctive consequences for an economy and also inevitably pose unique challenges.

As Smith claimed, a nation’s real wealth is measured by its capacity to produce output, even in monetary economies. And, as Keynes maintained, because one side of every contract gets denominated in nominal units of account, individuals inevitably deal with flows and stocks measured in nominal values. Individuals living in a monetary economy thus develop both an interest in spending their money to obtain real values and a concern for seeking to obtain access to nominal flows as well as storing nominal value. An understanding of monetary economies, then, can hardly build on an extension of the barter system and should instead address the specific characteristics of monetary economies along the following lines:

a) In monetary economies, economic relations are contractual. When economic entities enter into contracts, they create real and nominal claims that expire on the execution date. b) In the process, units of account and real values get transferred. Given that the monetary side of contracts is settled by delivery of a state-issued nonredeemable nominal claim, this should be investigated as a public monopoly. c) Because contractual obligations generate nominal claims and monetary flows, monetary accounting of contractual relations and their consequences provides economic units with a score-keeping method. d) The nominal value of financial and real assets (the latter including capital goods) is what one believes their net expected inflow of units of account is worth today. Our views about future outcomes thus influence our perception of current nominal values. e) Because nominal claims and liabilities produce a highly interdependent and ever-shifting system, any attempt to make forecasts can hardly be based on probabilities extracted from past samples. Thus, the process of expectations formation is subject to ontological (as opposed to epistemic) uncertainty that cannot be permanently reduced. f) Individuals attempt to contain the consequences of uncertainty by devising institutional arrangements, including wage and other forward contracts. These make nominal flows more predictable. Given that labor services are offered in exchange for a nominal remuneration in a wage contract, failure of individuals to find buyers of their wage contracts is called unemployment. This is a measure of a lack of use of existing labor resources in the process of value creation.

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From G on line http://www.guardian.co.uk/business/2011/aug/26/ben-bernanke-markets-live-blog

10.34am: So what can we expect from Bernanke at Jackson Hole later today? ING analyst Rob Carnell sets out the options. Remember always that the Jackson Hole speech is not a policy setting speech, and at best, can serve as a useful conduit for Fed sentiment in advance of an FOMC meeting. But just weeks after one of the most riven-with dissent FOMC meetings in history, this seems highly unlikely. However, Bernanke could re-iterate some of the options available to the Fed, noting that they will do "whatever is necessary" to ensure the smooth functioning of markets and return to growth of the economy. Option 1: Hinting at more QE. Fairly unlikely, at least not until headline inflation begins to dip, as it surely will with energy prices in full retreat. But any actual change in policy would be unlikely until November at the earliest. Further economic weakness and market fragility would be required. Option 2: The "Twist": Actually, what is being called a "twist" operation is nothing of the sort. That involved trying to push up short rates whilst bringing long rates down, whilst the Fed would on this occasion merely try to bring long rates down. The Fed's Bullard has noted that such policies would not ve very effective. Option 3: Specify targets for longer dated maturities – so for example, say that they will keep the 10Y treasury yield at 2% for 12 months. Achieving that, however, might involve more QE, so unlikely for the same reasons. Option 4: Specify a price level target – this might require inflation to rise above the normal levels associated with price stability for a short period in order to achieve the target. However, it would be more useful as a tool to combat deflation – which doesn't exist in the US. Moreover, how to achieve the target? More QE…? Same problems as option 1. Option 5: Cutting the rate of interest paid on excess reserves: Might help to free up liquidity, especially if a negative rate were employed. Bernanke has in the past suggested that technical difficulties with such an approach make it an unlikely choice. Option 6: Provide explicit guidance about the continuation of short term policy accommodation. This is already being used. It didn't seem too effective when the Bank of Canada tried it though. Moreover, when push comes to shove, such commitments are contingent on conditions, and can be broken, as the BoC commitment was. All in all, we take the view that this speech will not provide the clear guidance for policy that some market participants wish to see, and at best, will contain some general words of comfort and support, without anything material to back them up.

11.46am: Bernanke is of course known as "helicopter Ben," but will he live up to his nickname today? It refers to a speech he once gave in which he argued that authorities could drop money from helicopters to solve liquidity crises if need be. The idea was first mooted by the famous economist Milton Friedman, though. Bernanke, a former Princeton University professor and expert on the Great Depression, has been at the helm of the Fed since the beginning of 2006, when he was appointed by George Bush to replace Alan Greenspan. He previously served as chairman of the Council of Economic Advisers.

1.10pm: While we're counting down the minutes to the US GDP data - with Bernanke's speech less than two hours away now - here are a couple of readers' comments on the Fed chairman's options. Masistios says: Bernanke does have one more bunny to pull out of the hat in my opinion. QE1 - sort of worked, in terms of stopping the freefall and putting a floor under the collapse. QE2 - sort of didn't work, in terms of fooling us all into thinking everything was OK (the wishful thinking "wealth effect"). Experts blame us for failing to understand that QE was not "printing money" and wouldn't necessarily automatically lead to spiralling inflation. But I think it was down to the much more commonsense view that you can't justify markets soaring to the heights they last saw when economies were booming - in the middle of what is clearly an economic bust - it just didn't make logical sense and markets looked like they were simply defying gravity. QE3 - could sort of work, not by putting the money into the markets and trying to fool the public that everything is OK but by doing the reverse; by getting the money directly into public circulation (targetted deals with venture capitalists and business angels etc), giving everyone with ideas for new businesses a leg up. Increased business activity would fool the markets that everything was, well if not OK, at least not as bad as it could be. The only way this will work long term, in my humble opinion, is by shifting debt somewhere else though and allowing the real economy to start with a clean slate while dealing with debt over a longer time period. It will be interesting to see what Bernanke does. A QE3 which looks just like QE2 would make him look desperate and clueless. No QE3 at all would make him look just clueless but a QE3 exercise aimed at a different target group will be a difficult tightrope act needing much reassurance that he and his team can not only walk the rope but juggle at the same time as whistling dixie and playing the trombone. Ben Bernanke

3.19 pm As I have emphasized on previous occasions, without significant policy changes, the finances of the federal government will inevitably spiral out of control, risking severe economic and financial damage.

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QE and Inflation

http://www.resourceinvestor.com/News/2011/3/Pages/Commodities-Inflation-and-QE.aspx

http://www.businessweek.com/news/2011-01-27/china-s-gao-says-qe-devaluing-money-stoking-inflation.html

http://uk.reuters.com/article/2011/02/25/uk-boe-inflation-idUKTRE71O5JM20110225

http://blogs.thisismoney.co.uk/2009/08/the-qe-drug-warren-buffetts-inflation-worry.html The QE drug: Warren Buffett's inflation worry http://mikenormaneconomics.blogspot.com/2011/05/qe-inflation-and-walking-under-ladders.html QE, inflation and walking under ladders. What these things have in common.

http://www.zerohedge.com/article/strategic-alpha-qe-greece-and-uk-inflation

http://www.reuters.com/article/2011/08/22/us-markets-precious-idUSTRE7781Q420110822 http://www.cobdencentre.org/2011/07/rob-arnott-qe-fed-inflation-weimar-germany-investor-confidence-more/

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Jayati Ghosh is one of the world's leading economists. She is professor of Economics at Jawaharlal Nehru university, New Delhi, and the executive secretary of International Development Economics Associates (Ideas)

Spooked into austerity, we dig our own economic grave Policy discussion on both sides of the Atlantic is dominated by extreme fiscal hawks, who wrongly see public spending as the problem rather than at least part of the solution. The emphasis on fiscal rectitude is accompanied by the inability to rein in finance. All this condemns economies to financial instability, depressed and even contracting GDP and worsening conditions for ordinary citizens.

Part of the problem is that the bulk of the mainstream economics profession has forgotten basic Keynesian macroeconomics, and so is unable to offer even the most obvious advice. But the other aspect of the problem is deeper, reflecting the class configurations that create and intensify the mess. The choice between increasingly futile and counterproductive monetary easing and dithering about policies oriented to more austerity to satisfy bond markets is ultimately a political one, reflecting the continued power of finance. There are some voices of sanity. The 2011 Unctad trade and development report makes the point that fiscal tightening, especially in the advanced economies, is likely to be self-defeating. It will reduce GDP growth and revenues – not just bad news for a sustained recovery but counterproductive for fiscal consolidation. What is happening in Greece confirms this analysis. After aggressive cutbacks in public spending forced by the EU-IMF bailout, the economy shrank at an annual rate of 7.3% in the second quarter of 2011. This far exceeds the most pessimistic projections of the IMF or the EU. Since tax revenues can hardly improve now, even with the most sweeping attempts at better collection, fiscal balances will improve only with further public spending cuts. Even so, public-debt-to-GDP ratios will deteriorate. The point is that fiscal space is not a static variable. Expansionary policies increase demand and revenues and therefore generate more tax revenues. It makes much more sense to grow out of debt than to plunge into a downward spiral worsened by public austerity.

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post anti QTM

http://smarttaxes.org/2011/07/22/the-quanity-theory-of-money-bullshit/

“I’ve tried to show in the most logical way I am capable, of why we shouldn’t fear increasing the amount of money at times like this. Now that you’ve seen the basis for the “Quantity Theory of Money” and the assumptions that it relies on, I hope you see that it is bullshit. While it may be “technically” true when its assumptions are true, the assumptions it relies on are rarely, if ever, true. I hope you can also use this knowledge to explain to your right-wing and (more importantly) not-so-right-wing friends why they don’t have to feel uneasy about budget deficits. That way you can pivot back to talking about unemployment. This is the sort of thing that Obama and congressional Democrats should be doing, but since they aren’t, it’s up to us and other grassroots activists to do so. (link to full article)

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There has been a consensus in macroeconomics that inflation is a monetary phenomenon (that is; the result of the growth rate of money in excess of potential output) in the long-run. Of course, this does not mean that nothing else affects inflation, especially in the short-run. Although inflation has been under control for two decades in developed and many developing countries, inflation has been continuing as a big problem, especially in some developing countries. There could be a political economy explanation for the effect of corruption and rent-seeking on inflation. Our empirical results show that there is a positive effect from corruption on inflation in a cross-country study, even when the growth rate of money supply is included in the regression. However, those countries which have higher inflation rates have higher money supply growth rates. Therefore, corruption mainly provides an explanation for higher money growth rates.

http://www.dmk.ir/Dorsapax/userfiles/file/Corruption,%20Monetary%20Policy,%20and%20Inflation%20A%20Cross-Country%20E.pdf

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FRom New Zealand http://www.rbnz.govt.nz/research/discusspapers/dp01_02.pdf Money in the Era of Inflation Targeting

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http://www.jstor.org/pss/4538364

Money, Interest Rates, and Monetarist Policy: Some More Unpleasant Monetarist Arithmetic? Randall Wray

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IMF

Public Debt, Money Supply, and Inflation: A Cross-Country Study

This paper provides comprehensive empirical evidence that supports the predictions of Sargent and Wallace's “unpleasant monetarist arithmetic” that an increase in public debt is typically inflationary in countries with large public debt

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Friedman (1970): “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output”

in The counter-revolution in monetary theory: first Wincott memorial lecture, delivered at the Senate House, University of London, 16 September, 1970 p 24

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http://www.guardian.co.uk/business/2011/sep/15/world-banks-flood-markets-with-dollars Europe's debt crisis prompts central banks to provide dollar liquidity

Fears of a deepening of Europe's debt crisis have prompted the world's leading central banks to pump US dollars into the financial system, in a co-ordinated action designed to boost market confidence. The Bank of England joined the US Federal Reserve, the European Central Bank, the Swiss National Bank and the Bank of Japan on Thursday to announce that they would flood money markets with dollars over the coming months. The move, on the third anniversary of the collapse of the US investment bank Lehman Brothers, sent shares soaring in banks heavily exposed to debt default by Greece and the other struggling members of the 17-nation eurozone.

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General description of QTM by

Nouriel Roubini http://people.stern.nyu.edu/nroubini/NOTES/HAND6.HTM Handout for Chapter 6: Money and Inflation

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Frederic S. Mkhkin (1984): The Causes of Inflation

The most persuasive evidence that Friedman cites to support his propo- sition is the fact that in every case where a country's inflation rate is high for any sustained period of time, its rate of money supply growth is also high. This evidence for the decade spanning 1972-82 is shown in the scat- ter diagram in Figure 1, which plots the average rate of inflation for 52 countries against the average rate of money growth in this period.3 The well known relation between money growth and inflation is illustrated by the regression line plotted in the figure, and the correlation between infla- tion and money growth is found to be 0.96. The country with the highest rate of inflation in this period, Argentina, is also found to have the highest rate of money growth, while the country with the lowest rate of inflation, Switzerland, is also the country with the lowest rate of money growth. An important feature of this evidence is that it focuses on sustained or core inflation, that is, a situation where the price level is continually rising. Friedman's sweeping statement that inflation is always and everywhere a monetary phenomenon thus focuses on the long-run phenomenon of in- flation and is not concerned with temporary inflations in which the up- ward movement in the price level is not a continuing process. If Friedman's proposition did refer to temporary inflations, then it could easily be refuted by numerous counter examples.

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from http://currentinflationrate.net/causes-of-inflation/ INFLATION

So what causes it? Here’s an answer from Ludwig von Mises: “The most important thing to remember is that inflation is not an act of God, that inflation is not a catastrophe of the elements or a disease that comes like the plague. Inflation is a policy.” (Economic Policy p. 72 in http://mises.org/quotes.aspx?action=subject&subject=Inflation)

The simplest answer is that inflation is caused by the government.

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Anna J. Schwartz

http://www.cato.org/pubs/journal/cj28n2/cj28n2-9.pdf Monetary Policy and the Legacy of Milton Friedman p 258-259 Friedman’s perspective had a more durable influence on anti- inflation policy than the cost-push and incomes-policy perspective taken by his 1970s critics. Central banks’ adoption of inflation target- ing in recent decades reflects an acceptance of Friedman’s position that monetary restraint is both necessary and sufficient for inflation control.

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Looking for "inflation is caused by the government." --- "Inflation" is not "rising prices." Rising prices are caused by inflation, that is, by the inflation of the supply of money. When the government inflates the supply of money, it causes prices to rise from http://www.kevincraig.us/inflation.htm (blog)

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Kuznets importance, according to Nobel prize org

http://www.nobelprize.org/nobel_prizes/economics/laureates/1971/press.html

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Kuznets

His study, "National Income and its Composition, 1919 to 1938," was influential worldwide. It provided the method many countries use to determine their growth national product. It was published in 1941.

from http://www.boston.com/globe/search/stories/nobel/1985/1985aj.html

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something re growt http://mpra.ub.uni-muenchen.de/12174/1/MPRA_paper_12174.pdf

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Warren Young and William Darity, Jr. http://www.econ.ucdavis.edu/faculty/kdhoover/pdf/Hope/Young.pdf IS-LM-BP: an inquest]

In our previous work, we examined the development of the early mathematical 

models of IS-LM closed economy vintage (Darity and Young, 1995). In this paper, we attempt to do the same for the open economy version of IS-LM.

Fleming’s model into what he called the 

“Mundell-Fleming” model (1976-1980). This section also deals with Dornbusch’s contribution to the IS-LM-BP story, that is, his “Mundell-Fleming” synthesis and its extensions.

  Up to now, it has been customary to refer to the open economy equilibrium 

macromodel as the “Mundell-Fleming model”. We have dealt with Mundell’s own view of Fleming’s work above.

As Mundell attributes the coining of the term "Mundell-Fleming model" to Dornbusch (Mundell 2002, 6, 11), we must turn to Dornbusch’s contributions to ascertain what he actually meant when he referred to the "Mundell-Fleming model" in his writings,

Krueger was, therefore, the first to provide a generalized equational system linking Mundell’s “analysis” with that of Fleming and Rhomberg.

       Krueger initially dealt with the special case of " fiscal policy" under fixed rates 

as analyzed by Fleming and Rhomberg. As she wrote (1965, 203) "the Rhomberg- Fleming result hinges on the assumption that government expenditures are not accompanied by any issuance of money. This in turn results in an increase in the interest rate. If capital flows are sufficiently responsive to interest-rate changes, and if the government did not issue any money as the level of income rose, this particular form of " fiscal policy" could generate a balance-of-payments improvement, but it is attributable to the rising interest rate, and not to government expenditures per se.”

p 41 end the Niehans conclusions are of importance because they run counter to the established Mundell- Fleming view that monetary policy is most effective under flexible rates with capital mobility, and that a monetary expansion under these conditions will lead to an expansion in output and employment, and that it will cause a trade surplus and capital p 42 begining outflow". This is the first time that Dornbusch puts Mundell’s analysis and Fleming's 1962 model together, albeit in exchange rate-income space, " following", as he put it " Mundell (1968)" (1976 b, 233). He then proceeds to " consider ... the modification to the Mundell-Fleming model that arises from exchange rate expectations, or the endogeneity, in the short run of the domestic interest rate" (1976 b, 235).

Dornbusch on Mundell and Fleming and “Mundell-Fleming”: 1976-1980

       In two subsequent papers published in 1976, Dornbusch further refined his 

proposed "Mundell-Fleming model” emphasizing its connection with flexible rates and the efficacy of monetary policy. For example, in his JPE paper (1976c), entitled “Expectations and Exchange Rate Dynamics” Dornbusch not only talked about the “Mundell-Fleming model" and " Mundell-Fleming results", but also coined the term “Mundell-Fleming world" (1976 c, 1170 note 13, 1173). In Dornbusch’s next article, with Krugman, entitled "Flexible Exchange Rates in the Short Run", published in Brookings Papers (1976d), they define the Mundell-Fleming model as a flexible rate

model. As they put it (1976d, 548) "the Mundell-Fleming approach to macroeconomics under flexible rates emphasizes interdependence and capital mobility". This definition antedates an identical one in Dornbusch’s later textbook, Open Economy Macroeconomics (1980). In their paper Dornbusch and Krugman formally develop a two-country "Mundell-Fleming model". Interestingly enough, their model is very similar to that proposed by Metzler (1942), albeit with flexible rates, but they only refer to the 1950 Laursen-Metzler paper (1976d, 542-543). p 43

Dornbusch, R. _________. 1976b. Exchange Rate Expectations and Monetary Policy. Journal of International Economics 6: 231-44 _________. 1976c. Expectations and Exchange Rate Dynamics. Journal of Political Economy 84.6:1161-76 Dornbusch, R. and P. Krugman. 1976d. Flexible Exchange Rates in the Short Run. Brookings Papers on Economic Activity 3: 537-575

___________. 1980b . Open Economy Macroeconomics. New York: Basic Books

Mundell–Fleming model

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IS-LM-BP

Famous http://paper.blog.eonet.jp/Feldstein_and_Horioka_1980.pdf

Savings stay within countries, contrary to suggestions

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A correct, empirically-based understanding of The Fed’s role in credit markets leads one logically to the conclusion that the primary argument Supply-Siders have always used to justify tax cuts for wealthy citizens is actually quite spurious.  If interest rates are ever too high, it isn’t because there is too little money being saved in the economy; it’s because The Fed has intentionally reduced the supply of loanable funds in the economy to ensure that interest rates will be “too high.”  If savings levels are dropping, but the Fed still wants interest rates to remain low, it would simply buy Treasuries in the bond market---increasing the supply of loanable funds---until interest rates are as low as it desires.

http://nontrivialpursuits.org/savings_investment.htm

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Michael Bar : Saving and Investment

The process of economic growth depends, among other things, on the ability of firms to expand their productive capacity through investment in additional equipment. Firms can finance their investment from retained earnings (also called undistributed profits or business saving) or borrow funds from households who save. In this chapter we discuss the relationship between saving and investment in the macroeconomy, and present a theory of saving and investment. We will examine what factors affect investment decisions by the firms and saving decisions by the households, and how those decisions are affected by government policies.

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Behzad Diba (2004) MACROECONOMICS Saving, Investment, and the Trade Balance

These notes provide a simplified rendition of the saving-investment identity implied by the National Income and Product Accounts. The relationships derived below also provide a framework for thinking about long-run equilibrium in an open economy.

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http://faculty.euc.ac.cy/ssavvides/ECO102-NOTES.PDF/ECO102-Ch26--Saving%20and%20Investment.pdf

2. Saving and Investment in the National Income Accounts

Some Important Identities Remember that GDP can be divided up into four components: consumption, investment, government purchases, and net exports.

Y = C + I + G + NX

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James K Galbraith

Conclusion: A government that issues its own currency and owes its debt in that currency cannot be insolvent.

in http://pragcap.com/james-galbraith-responds-to-paul-krugman JAMES GALBRAITH RESPONDS TO PAUL KRUGMAN

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http://socialdemocracy21stcentury.blogspot.com/2010/07/galbraith-versus-krugman-on-deficit.html Krugman is undoubtedly referring to Modern Monetary Theory (MMT)/neo-Chartalism. However, he is wrong to accuse neo-Chartalists of thinking that “deficits are never a problem.” In fact, Modern Monetary Theory says that, even though deficits are not “financially” constrained, they face real constraints in available resources, capacity utilization, the unemployment level, the exchange rate, the external balance, and inflation rate.

Krugman has misunderstood Galbraith. If we look at what Galbraith actually says, it is very clear:

[sc there is a] common belief that the government must borrow in order to spend, and thus that the government faces “funding risks” in private markets. Such risks exist … for private individuals, for companies, for state and local governments, and for national governments such as Greece that have ceded monetary sovereignty to a central bank. But the situation of the United States government is quite different. The U.S. government spends (and the Federal Reserve lends) in a very simple way. It does so by writing checks – in fact simply by marking up numbers in a computer. Those numbers then appear in the bank accounts of the payees, who may be government employees, private contractors, or the recipients of federal transfer programs. The effect of government check-writing is to create a deposit in the banking system. This is a “free reserve.” Banks of course prefer to earn interest on their reserves. Thus they demand a US Treasury bond, which pays more interest without incurring any form of credit or default risk … The Treasury can meet that demand, or not, at its option – it can permit, or not permit, the stock of US Treasury bonds in circulation to increase. So long as U.S. banks are required to accept U.S. government checks – which is to say so long as the Republic exists – then the government can and does spend without borrowing, if it chooses to do so. And, if it chooses to issue Treasuries to meet the demand, it can do that as well. There is never a shortfall of demand for Treasury bonds; Treasury auctions do not fail …. Insolvency, bankruptcy, or even higher real interest rates are not among the actual risks to this system. The actual risks in this system are (to a minor degree) inflation, and to a larger degree, depreciation of the dollar.

http://www.angrybearblog.com/2010/07/professor-jamie-galbraiths-testimony-to.html

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from: http://socialdemocracy21stcentury.blogspot.com/2010_07_01_archive.html Recent empirical work on whether this is actually true has not been kind to the quantity theory: The quantity theory of money is based on two propositions. First, in the long run, there is proportionality between money growth and inflation, i.e., when money growth increases by x% inflation also rises by x% .... We subjected these statements to empirical tests using a sample which covers most countries in the world during the last 30 years. Our findings can be summarised as follows. First, when analysing the full sample of countries, we find a strong positive relation between the long-run growth rate of money and inflation. However, this relation is not proportional. Our second finding is that this strong link between inflation and money growth is almost wholly due to the presence of high-inflation or hyperinflation countries in the sample. The relation between inflation and money growth for low-inflation countries (on average less than 10% per year over 30 years) is weak, if not absent (De Grauwe and Polan 2005: 256).

Our results have some implications for the question regarding the use of the money stock as an intermediate target in monetary policy …. The ECB bases this strategy on the view that ‘‘inflation is always and everywhere a monetary phenomenon.’’ This may be true for high-inflation countries. Our results, however, indicate that there is no evidence for this statement in relatively low-inflation environments … In these environments, money growth is not a useful signal of inflationary conditions, because it is dominated by ‘‘noise’’ originating from velocity shocks. It also follows that the use of the money stock as a guide for steering policies towards price stability is not likely to be useful for countries with a history of low inflation (De Grauwe and Polan 2005: 258).

change of subject in site (to a critique of actual theo)

Keynes correctly argued that neither kd nor Y is constant. Pre-Keynesians assumed that Y was constant because of their foolish belief that a free market economy was nearly always in, or moving towards, equilibrium (i.e., full employment and full use of resources). By contrast, Keynes, in his criticism of equation 3, argued that in the absence of full employment, Y will not be constant. Thus the theory breaks down, especially in a recession, depression or even in periods during expansions in the business cycle where full employment is not reached.

In reality, the quantity theory also makes an assumption that is fundamentally false. The quantity theory assumes this: (1) an exogenous money supply; (2) a stable V or kd in equation (3) above; (3) a stable Y in equations (2) and (3) above, and (4) equilibrium or near equilibrium (high capacity utilization/high employment). First, we have already seen that (2) and (3) are false. The velocity of money is unstable, subject to shocks and moves pro-cyclically (Leo 2005). If the economy is not at full employment (and has less than full capacity utilization), then Y will actually rise as income rises, and the price level could remain stable in the face of this rising money supply/income.

Secondly, what about (1)? Neoclassical Keynesians accepted the idea of an exogenous money supply determined by the central bank (as did Keynes himself), and notably Keynes never broke with the quantity theory of money fully, despite his criticisms. But today Post Keynesian economists have shown that we have an essentially endogenous money supply, so that assumption (1) is wrong. In a modern economy, money is endogenous in the sense that most money is credit money created by banks in response to demand for it from the private sector. As Steve Keen has argued, the point made by endogenous money theorists is that we don’t live in a fiat-money system, but in a credit-money system which has had a relatively small and subservient fiat money system tacked onto it …. Calling our current financial system a “fiat money” or “fractional reserve banking system” is akin to the blind man who classified an elephant as a snake, because he felt its trunk. We live in a credit money system with a fiat money subsystem that has some independence, but certainly doesn’t rule the monetary roost—far from it. Steve Keen, “The Roving Cavaliers of Credit,” Debt Watch, January 31st, 2009 Thirdly, in a recession capacity utilization is low and unemployment is high. The quantity theory also ignores imports in open economies, which can keep inflation low.

It follows that the quantity theory is thus fundamentally false. It can be noted that even Austrian economists reject it as a simplistic theory (see my post The Austrian Theory of Inflation: Myths and Reality).

The fiction that the Federal Reserve controls the growth rates of monetary aggregates officially ended in 1993, but in practice had ended in 1982. In a 2003 interview with the Financial Times, even Friedman himself admitted that monetary targeting as a central bank policy was a failure: prepare to be amazed: Milton Friedman has changed his mind. “The use of quantity of money as a target has not been a success,” concedes the grand old man of conservative economics. “I’m not sure I would as of today push it as hard as I once did.” Simon London, “Lunch with the FT – Milton Friedman,” Financial Times (7 June 2003) Are there cases when the quantity theory of money can actually be a reasonable predictor of inflation? To do so, the economy in question must have these characteristics: (1) an exogenous money supply; (2) full or near full employment; (3) high capacity utilization; (4) relatively closed to trade; stable velocity of circulation.

De Grauwe, P. and Polan, M. 2005. “Is Inflation Always and Everywhere a Monetary Phenomenon?,” Scandinavian Journal of Economics 107: 239–259.

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Today, the failure behind the recovery forecast is conflated with the failure of the stimulus itself and the same thing is happening again. Those who failed most miserably to forewarn against the financial crisis have, as a consequence, regained their voices as scourges of deficits and public debt. There is a chorus of doom as those who once thought the new paradigm could go on forever are now inveighed against living beyond our means and foretell federal bankruptcy and the collapse of the dollar and the world monetary system amongst other scary fairy tales. This includes such luminaries as the leadership of the International Monetary Fund and of all things, the analytical division of Standard and Poor’s — an enterprise on which one might hope at least a small amount of modesty might have developed or devolved in the wake of recent events.

and lots more re (implicitly re) efficient markets (Jimmy argues fraud is central to financial markets):

So it’s our task, it seems to me, against the odds, to build a new line of resistance. And I’ll wind up by saying that I think that line must have at least the following elements in it: Third, a full analysis of the criminal activity that destroyed the banking sector, including its technological foundation, so as to quell the illusion that these markets can effectively be restored to anything like their form of 4 or 5 years ago. As part of this, obviously, it would be useful to have a renewed commitment to expose crime, to punish the guilty, and enforce the laws. Post Keynesian Economists for a More Effective FBI, I think is a splinter organization I would be happy to sponsor and solicit your membership in. in http://my.firedoglake.com/selise/2011/08/01/james-k-galbraith-the-final-death-and-next-life-of-maynard-keynes/#more-44464