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TED Stephanie Kelton: The big myth of government deficits

Intro

When things break, we have an opportunity. We can pick up the pieces and put them back together the old way, or we can look for better ways to build.

Covid broke everything. It put a spotlight on the many deficits in our economy —in employment, education, health care, housing— and it showed how inequality made it all worse.

Here in the US and around the world, governments did some extraordinary things. They sent money to people directly to help them buy food and pay rent. They provided free Covid testing and expanded health care to cover more of the population. They gave money to businesses to help keep them afloat while much of the economy was temporarily shut down. They offered debt relief to millions of people who borrowed money to go to college. They did all of this and more without raising taxes or having a prolonged battle over the usual question of how to pay for it.

How will you pay for it?

To me, this was exciting, and I'm an economist, so I don't say that a lot. But as someone who's been trying to change the way we think about deficits and government spending, I saw this as an opportunity to show why government budgets don't work like household budgets. Why all of their red ink is really our black ink. And why our nation can afford to keep investing in the things we need even after spending trillions to fight the pandemic.

For a while, it looked like the US and other countries were starting to break the mold on the old way of thinking about deficits and taxes. But now here we are, just a handful of months after all of that bold action, and we're sliding back into our old habits of thought.

Can we build affordable housing and fix crumbling infrastructure? Can we expand Medicare to include dental, vision and hearing? Can we tackle our climate crisis? As Congress debates these questions, everyone is back to asking, how will you pay for it?

It's the wrong question. In fact, the right questions don't involve money at all. Instead of worrying about where the financing will come from, we should be asking, are these things worth doing and do we have the real resources, the people, the equipment, the raw materials and the technology to do them? Well, they make society better off. And do we have the political will to act?

Finding the money

I'm one of a handful of economists who contributed to the body of academic scholarship known as MMT or Modern Monetary Theory.

MMT provides an accurate description of how a fiat currency like the US dollar or the British pound actually works. It reminds us that we're no longer on a gold standard, so finding the money to pay for the things we need is never an issue for countries like the US or the UK. If we're going to fix what's broken in our economy, we have to fix the way we think about the limits on government spending. Let me give you an example of the kind of broken gold standard thinking that still permeates our discourse.

Back in 1983, the prime minister of Great Britain, Margaret Thatcher, said these words: "If the state wishes to spend more, it can do so only by borrowing your savings or by taxing you more, and it is no good thinking that someone else will pay. That someone else is you. There is no such thing as public money. There is only taxpayers' money."

Maybe you've heard the contemporary version of Thatcher's dictum. "There is no magic money tree." It's just another way of saying that everything must be paid for and that the taxpayer is ultimately on the hook for whatever the government spends.

It sounds worrying. As individuals, we know that when we borrow money to go to college, start a business or buy a home, we're personally saddled with that debt. We have to find the money to pay it back. Taking on too much personal debt can lead to all sorts of problems. Even small businesses and large corporations have to walk a fine line when it comes to debt. But the federal government is fundamentally different. Unlike the rest of us, Congress never has to check the balance in its bank account to figure out whether it can afford to spend more. As the issuer of the currency, the federal government can never run out of money. It can afford to buy whatever is available and for sale in its own currency. Now that might mean spending on roads and bridges, a military arsenal or hospitals and schools. Finding the votes to pass a spending bill can be hard, but finding the money is never a problem. They just create it.

So here's how it works. Whenever Congress and the president agree to spend more, the government's bank, the Federal Reserve, works with the rest of the financial system to get that money into our accounts. Everything's done electronically, so there's no physical printing of money involved. If you got a 1,400-dollar check from the federal government earlier this year, or if your company received money to help cover payroll and other expenses, then you received some of the newly minted digital dollars that were created to support our economy. No taxpayers were involved in that process. It was all done using nothing more than a computer keyboard.

So why are we hearing so much about the need to raise taxes to pay for infrastructure and make other investments in our economy? In a word, deficits. We've all been conditioned to worry about deficits, so lawmakers are looking for ways to spend more without adding to the deficit. That's what this whole pay-for game is about.

Deficits

Unfortunately, deficits have gotten a bad rap. They're almost always seen in a negative light. And I would like to change that. When we hear the word "deficit," we probably think of a deficiency or shortfall. A deficit always sounds ominous. So when we hear that the federal government just ran a three-trillion-dollar budget deficit, it can sound worrying. And it can even anger people.

But there's another way to think about government deficits.

Just as a six becomes a nine when we view it from a different angle, a government deficit becomes a financial surplus when we look at it from another perspective

TED Stephanie Kelton: The big myth of government deficits [00:08:39]

A deficit hawk might look at this picture and see nothing but a sea of worrying red ink.

TED Stephanie Kelton: The big myth of government deficits [00:08:51]

That's not how I look at it. Here's what I see.

TED Stephanie Kelton: The big myth of government deficits [00:09:02]

I see what's happening on the other side of the government's ledger.

When the government spends more than it taxes away from us, it makes a financial contribution to some other part of the economy. Their red ink is our black ink.

When you look at it this way, it becomes clear that every deficit is good for someone. The question is for whom and what are those deficits being used to accomplish?

It matters how the money is spent and who ends up with the resulting surplus. Tax cuts that deliver huge windfalls for those at the top without sparking investment and opportunity for the rest of the population don't make good use of deficits. On the other hand, spending trillions to support the economy during the pandemic put the deficit to good use. We just had the shortest recession in US history. To me, that was fiscally responsible Being responsible shouldn't mean running the government's finances like a household. Instead of trying to keep the deficit in check, Congress should be focused on keeping inflation in check. That's the real limit on spending and it's the thing to watch out for if you're thinking about spending trillions on things like infrastructure, health care and free college.

Instead of asking, "How will we pay for it?," Congress should be asking, "How will we resource it?"

To answer that question, think of people, factories, equipment and raw materials like wood and iron. If we're going to build high-speed rail, fix crumbling infrastructure and green our economy, then we'll need concrete, steel and lumber. We'll need construction workers, architects and engineers. We'll need companies that can fill thousands of orders for solar panels, EV charging stations and electric school buses. If our economy has the productive capacity to quickly supply all of those things, then we can easily resource it. Or take health care or free college. Paying the bills to expand Medicare, to include dental, vision and hearing is easy. The challenge is making sure we have enough dentists, optometrists and audiologists to treat everyone who needs care

 And if you want to resource free college, then you need the faculty, the classrooms and the dormitories to teach and house more students. In a full-employment economy, all of the resources you need are, well, fully employed. There's no spare capacity anywhere in the system. So if the government suddenly tried to make all of these investments at once, it would quickly discover that it doesn't have the people or the building materials to do the work. To get the resources it needs, it would have to compete with the private sector, bidding up wages and prices. That would be inflationary and it would be fiscally irresponsible. We are a long way from full employment. We have the resources we need to begin repairing our broken systems. But we have to believe it's possible.

We can't let words like debt and deficits hold us back. With a better understanding of public money, where it comes from and how it works we can take aim at the many real deficits that are bearing down on us. In every crisis lies an opportunity. We can pick up the pieces and try to reassemble the fragile systems that were in place before the pandemic or we can build anew, shaping our bountiful resources into the kind of world we want to live in, one that cares for our people and our planet. I truly hope we choose to be bold.

Thank you.

As China's Xi Jinping visits Europe, Ukraine, trade and investment are likely to top the agenda

Ukraine, trade and investment are expected to dominate Chinese leader Xi Jinping's first trip to Europe in five years, which starts in France on Monday

TAIPEI, Taiwan -- Ukraine, trade and investment are expected to dominate Chinese leader Xi Jinping’s first trip to Europe in five years, as the Asian giant rebuilds its foreign relations after a prolonged absence during the Covid-19 pandemic.

Xi will start the tour in Paris on Monday, meeting with French President Emmanuel Macron, who has been stressing the idea of European strategic autonomy from the U.S. On a visit to Beijing last year, Macron courted controversy by saying France would not necessarily always align with the U.S. in foreign policy, an apparent reference to American support for the self-governing republic of Taiwan, which China claims as its own territory to be annexed by force if necessary.

After leaving France, Xi will visit Hungary and Serbia, both seen as China-friendly and close to Russian President Vladimir Putin, rebuffing Western criticism of his full-scale invasion of Ukraine.

Xi’s European visits will be closely followed in Washington for signs of diminishing support for its key foreign policy goals.

The Chinese leader will arrive in France just as Paris is putting the finishing touches on its preparations for hosting the Summer Olympics, an event in which China invests huge amount of national prestige.

France sees Xi's visit, which officially marks 60 years of French-Chinese diplomatic relations, as an important diplomatic moment, and wants to focus on China’s broader relations with the EU. Macron invited European Commission President Ursula von der Leyen to the talks Monday.

It comes a month before Macron, who positions himself as the diplomatic leader of Europe, hosts Biden for a similar state visit.

It is also a sign of “the good vibes from Macron’s visit to China in April last year," said Kerry Brown, professor of Chinese Studies and director of the Lau China Institute at King’s College London.

“This is a highly strategic visit to Europe by Xi. And in his itinerary you can divine the runes of Chinese policy on Europe now, bolstering the traditional links as far as possible, and reinforcing new ones,” Brown said.

Xi's is also visiting Budapest, where Hungarian Prime Minister Viktor Orbán, in power for 14 years, is facing political challenges from the opposition over his authoritarian style.

Hungary has straddled a middle ground between its membership in the EU and NATO and an unusual openness to diplomatic and trade relationships with eastern autocracies such as Russia and China.

Orbán, a right-wing populist who has forged close ties with Russia, delayed Sweden’s entry into NATO for months. China has cited NATO expansion as provoking Russia to invade Ukraine.

Hungary is the first EU member to participate in Xi's signature Belt and Road Initiative that seeks to build billions of dollars of roads, ports, power plants and other infrastructure across Asia, Africa and beyond.

Orbán was the only EU leader to attend a conference in Beijing on the BRI, which has been criticized for burying participating countries in debt and failing to deliver on promised investments, something that prompted Italy to drop out last year.

Despite that, Hungary’s government has deepened its economic ties with China, with the proliferation of Chinese electric vehicle (EV) battery factories across the country gaining the most attention. Near Debrecen, Hungary’s second-largest city, construction is underway of a nearly 550-acre, 7.3 billion euro ($7.9 billion) EV battery plant, Hungary’s largest-ever foreign direct investment.

China has also invested heavily in infrastructure to link Hungary with its southern neighbor Serbia, Xi's next stop on his European tour.

In 2014, Hungary and Serbia concluded an agreement with Beijing to modernize the railway between their capitals of Budapest and Belgrade, part of a Belt and Road plan to link up with the Chinese-controlled port of Piraeus in Greece, to the south, an entry point for Chinese goods to Central and Eastern Europe.

The more than $2 billion project is expected to be completed in 2026, after numerous delays.

In Serbia, Xi will hold talks with President Aleksandar Vucic, with whose government China has built strong relations.

The two countries have a long history of friendship, particularly since 1999, when NATO bombed the Chinese embassy in Belgrade, killing three Chinese nationals, during the air war to end Serbia’s brutal crackdown on ethnic Albanian separatists in Kosovo.

The U.S. apologized, saying faulty target selection was to blame, but the incident led to violent attacks on U.S. diplomatic installations in China and fueled anti-American sentiment in both countries that endures to this day.

In 2022, shortly after the Russian assault on Ukraine, Serbia took semi-secret delivery of a sophisticated Chinese anti-aircraft system flown in on six Chinese Air Force Y-20 transport planes. The arms delivery over the territory of at least two NATO member states, Turkey and Bulgaria, was seen by experts as a demonstration of China’s growing global reach.

China claims neutrality in the Ukraine conflict but Xi and Putin declared their governments had a “no limits friendship” before Moscow’s attack on Ukraine. China has refused to call the Russian assault an invasion and has been accused of bolstering Russia’s capacity to produce weapons and its military advantage against Ukraine, which is awaiting tens of billions in Western military aid.

A U.S. military aid bill passed last week allots $61 billion for Ukraine, as well as $8 billion to counter Chinese threats in Taiwan and the Indo-Pacific, which China has condemned as a dangerous provocation.

China’s foreign ministry said the U.S. position on Chinese defense trade with Russia was hypocritical when considered alongside the amount of military assistance Washington is providing to Kyiv.

China denies selling arms to Russia and the U.S. says it has found no direct evidence of such evidence of such. However, China does sell machine tools, microelectronics and other technology that Moscow in turn is using to produce missiles, tanks, aircraft and other weaponry for use in its war against Ukraine, according to a U.S. assessment.

The mortgage reform that could unleash the next big US stimulus

Freddie Mac wants to enter the secondary home equity loan market in a win-win for the government, Wall Street and consumers

What if I told you there could be an unprecedented stimulus injection into the US economy that will cost the government nothing and add not $1 to the national deficit? As early as this summer, a proposed move could begin to unleash almost $1tn into consumers’ wallets. By the autumn, it could be on its way to $2tn.

Last month, the government-sponsored mortgage finance agency Freddie Mac filed a proposal with its regulator, the Federal Housing Finance Agency, to enter into the secondary mortgage market, otherwise known as home equity loans. This was a smart move by Freddie, and the FHFA will do a lot of good by approving it. Despite the more than $32tn in equity on homeowner balance sheets, very little of it has been tapped through home equity loans.

In 2007, just before the financial crisis, there was more than $700bn in home equity loans outstanding. Today, there is roughly $350bn. Home prices have risen more than 70 per cent since then, so why have home equity loans halved?

After the financial crisis, banks have actively taken down their mortgage exposure. Bank of America, for example, has cut its home equity loan portfolio from more than $150bn in 2009 to $25bn. And in 2022, more than 50 per cent of home loans originated from non-traditional operators. These non-bank companies don’t have the balance sheets to hold loans as the banks had traditionally done, so unless they can sell the loans they originate to Freddie, its fellow housing agencies Fannie Mae and Ginnie Mae, or private investors, they don’t originate them.

There is a robust and well-oiled mortgage-backed securities machine for first mortgages in which Fannie, Freddie or Ginnie buys mortgages, pools them and sells them as mortgage-backed securities to private investors on the open market, facilitated by Wall Street firms. This process dramatically increases liquidity in the market. None of this liquidity exists in the second mortgage market.

The Freddie Mac proposal could change all that, and it could not come at a better time. Most people in the US are feeling the sting of persistent inflation, but older Americans living on a fixed income have been hit particularly hard. Insurance costs for homeowners have risen well over 11 per cent over three years while they are paying more tax. US property tax revenues have risen 26 per cent over the past three years.

That is probably why seniors have taken on more debt than any other age group over the past few years. Today, they hold 23 per cent of all consumer debt, double their share in 1999. These trends should seem counterintuitive, as typically younger individuals and older individuals would be at either side of the bell curve of total consumer debt outstanding with less debt.

Prior to the financial crisis, this was how the balance of consumer debt was distributed. Now, almost half of all seniors are at risk of a financial shock with less than six weeks of liquid savings. This means that if they face an unexpected medical expense, a sudden home repair or a rapid increase in property taxes and insurance, they have no safety net. This vulnerability makes older adults a highly receptive audience to home equity products, provided they are reasonably priced and relatively easy to access.

The proposed Freddie Mac second mortgage/home equity proposal, if implemented effectively, could be a lifeline for these households, offering them financial flexibility. It sets up guidelines to protect both the borrower and Freddie Mac that are likely to be the template for future moves by Fannie Mae and Ginnie Mae. Freddie will only buy the second mortgages of borrowers that it already has a first mortgage with, and the combined loan-to-value of both the first and the second mortgage cannot exceed 80 per cent of the value of the property. The current loan-to-value of Freddie’s mortgage portfolio is 52 per cent. Thus, we estimate Freddie could unlock $980bn in equity for homeowners.

If Fannie Mae and Ginnie Mac follow Freddie Mac’s lead into buying second mortgages, we estimate the secondary home equity loan market could exceed $3tn. By opening up the securitisation market for second mortgages, not only would more institutions be inclined to originate the loans, but the cost to borrowers would meaningfully decline with more finance providers. It would also provide big stimulus to an economy and consumer that appear to be slowing down without adding a dime to government debt. Rarely have I seen such a true win-win scenario for the government, Wall Street and the US consumer.

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Resulta que sí hay límites objetivos al imperialismo crematocrático.
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Cita de: el malo en Mayo 01, 2024, 12:50:13 pm

Respecto a los millones y millones de inmigrantes que nos faltan, ya lo dijo Sebastián, que aquí cabíamos 60 millones.

Qué bonito sería el mundo si nos llegaran 37 millones de inmigrantes cualificados, respetuosos de la Ley y las costumbres españolas, con ganas de trabajar y de desarrollar sus vidas aquí, aportando valor a nuestra economía.

La realidad es que ese tipo de perfil (cualificado, con ganas de trabajar, que cumple la Ley y se adapta -más o menos- al lugar de destino) corresponde a los 35.000 españoles que salen huyendo cada mes de España para poder ganarse la vida. No quiero caer en tópicos, pero es cierto, exportamos talento e importamos, con honrosas excepciones, la purria que no es capaz de ganarse la vida en otros países. El otro tabú del que no se habla en los medios, tan ocupados ellos con sus golden visas y con los millones de extranjeros comprando vivienda en el barrio de Salamanca.

No hay día que no lea al menos 5 noticias de crímenes cometidos por inmigrantes a calzón quitado, sin esconderse, sin preocuparles de que haya cámaras, y enfrentándose violentamente con la Policía.

Lo he puesto más atrás, esto sólo se soluciona dando un escarmiento ejemplar y público a quién ha permitido y fomentado esto.

Antes de seguir leyéndoles voy a añadir un par de puntos a mi comentario de ayer.

Hoy son elecciones municipales en Londres. Tengo en la mano el librito que nos mandan con el programa de todos los candidatos. Les resumo lo que veo.

- Hay 11 candidatos (incluído el actual alcalde Sadiq Khan), 5 mujeres y 6 hombres (no es que importe, pero dejo el dato)
- Prácticamente todos hablan de más policía y más control contra el crimen, en concreto los apuñalamientos.
- 6 quieren dar marcha atrás en las zonas de bajas emisiones y 3 quitar las restricciones (ridículas) de 20mph en zonas residenciales.
- sólo 3 de ellos hablan de tener un Londes más "ecológico".
- 2 dicen abiertamente que son cristianos, para una de ellas el lema es "stand up to woke" y el primer punto del programa es acabar con las políticas "de identidad". El otro es abiertamente anti inmigración.
- todos quieren más "affordable housing" (hasta los conservadores).

Y por si no ha salido todavía, Reino Unido ya ha empezado con las detenciones para deportar a ilegales a Ruanda:

https://www.telegraph.co.uk/news/2024/05/01/first-migrants-rwanda-flights-detained-raids/

Igual estoy equivocado y todo esto no es más que propaganda electoral, pero me da la sensación de que el Imperio ya empieza a poner el freno a las tonterías.. eso se lo dejan a los vasallos.