I interviewed economist Pavlina Tcherneva about Modern Monetary Theory. MMT is HUGELY RELEVANT to cryptocurrency because many of the systemic criticisms of cryptocurrency -- that it is fundamentally without value, that it is by definition a bubble, that it is definitively inflationary -- are undermined by MMT.
Check out the interview and let me know your thoughts in a reply!
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Very happy to see someone posting about MMT. You've just earned yourself a follower.
thank you! I find the topic super interesting.
My mind is blown a little bit, I'm trying to wrap my head around the idea that deficit does not matter, and what does matter is what we are spending the money on. For the longest time I have firmly believed that inflation and in the case of the US dollar hyperinflation is without a doubt the road to poverty.
That being said, I had never thought of the fact that technically we have been printing money in the billions per day without a major consequence for a long time now, so...
The difficult question is... Why do we get away with it? Why is it that the US can print billions of dollars a day, hyper inflate the currency and still call itself the most powerful economy in the word.
What are then the metrics we are using to determine this?
Sometimes I find it useful to fall back to basics.
Powerful economy doesn't mean that you have less fiat tokens to represent the same amount valuable assets. It means that there is more real valuable resources being traded around.
If each paper bill represents an amount of something owed to someone by someone else, then it is logically attributed some value.
It is also logical that the economy doesn't need to become weak because the amount of such tokens circulating increases as the amount of goods and services available for trade increases.
There are a few things in the interveiw about how money initially came to be that are too simplistic. She says that the reason people were said to agree on gold was only due to intrinsic properties with no mention of scarcity which is perhaps the most important factor to consider when discussing inflation of all things.
Just my opinion of course. Not a scholar.
America gets away with their large debt and printing of money because the American economy is very strong compared to the world, and that America has the most political and cultural power out of any country. Most currencies are dependent on the USD being stable for them to have value, including the Chinese Yuan. Although Asia won big during the GFC, they were only able to take advantage of the situation, which a number of countries could have done.
Another reason is that the US national debt has not exceeded the GDP. If it does exceed GDP the economy will start to fall since trust will decrease significantly. America can keep piling up debt as long as the GDP grows consistently, which it looks like it will for a while to come.
They get away with their large debt because it isn't really a debt. For example, the portion that is Government securities is nothing more than a type of savings account. To pay it back, all the Government has to do is shift the balance from the savings account (securities account) to the deposit account (reserve account). Almost the entire debt would be wiped out at a keystroke.
The US has a floating currency, as does the UK, Canada, Australia, Japan, and many others. This means that they can create money every time they spend.
If people jack up their prices and there isn't enough money being spent to support those higher prices, then they'll probably come back down. However, if there's enough money being spent in the economy to support the higher prices, then they stay high. That's inflation.
As the government spends, the amount of money in circulation increases. To avoid hyperinflation, they need to remove some of that money from circulation. This is accomplished by taxing people. Taxation is deemed preferable to hyperinflation.
Hey @davidpakman if you talk to Pavlina again it would be great to hear her thoughts on fractional reserve banking. I'm assuming that fits into the government creates money not barter because the fractional reserve banking system is something that the government created and legitimizes. And to a certain extent taxes are just another kind of debt. The governmen gives itself power to levy taxes and that creates and enduring debt obligation from every citizen which it can raise money on by selling more debt (bonds). If the US government had no power to levy taxes would anyone ever want to buy our bonds?
great idea!
I notice you didn't talk about cryptocurrencies with her - I was guessing you'd get into that later. Tying cryptocurrencies and my comment about fractional reserve banking together - I've so far seen no cryptocurrency that supports the notion of FRB - you can't just magic coins out of thin air based on how many are in your wallet. To me that's one huge difference between cryptocurrencies and fiat currencies (and sorry, I'm probably totally messing up use of the words "currency" and "money" here, I'm no expert for sure!
When everyone is saying Bitcoin or whatever is a Ponzi scheme I never hear anyone mention that. It's not just the government that print money, banks make it out of thing air at a 10:1 ratio of "real money" to their debt derived money. IMO that makes Bitcoin etc. far superior. You don't have 10x the real money leveraged off future payments of debt at an interest rate. As I said, I'm not expert but the way I read it, if we all stopped paying our debts - mortgages, student loans, credit cards etc, then 9/10 of all money would just be worthless and our economy would collapse over night. Doesn't this explain why Republicans are always passing laws to eliminate use of bankruptcy for us "little people"? They want to make sure we never consider stopping paying our debt and delcaring bankruptcy as a solution to our financial problems!
Interesting stuff David - thanks for bringing in Pavlina for the interview. I hope you can talk about the intersection of what Pavlina says and cryptocurrency in a later conversation. As best I can tell it sounds like she would say MMT would deny that Bitcoin, Litecoin, anything-coin is a currency because it is not what any government demands payment of taxes in.
I have an alternative view - what if we say Bitcoin (or whatever) is established by the authority of we the people (all people not just Americans). If we start demanding payment using it then we establish it as our currency. I mean theoretically, at least in America, government is supposed to be of, by, and for the people. Clearly that hasn't been the case for a long time either because the government wasn't representative of us in its makeup - just an elite crowd, or now because they are beholden to wealth and its preservation via the legalized bribery and corruption that SCOTUS has enshrined. So we the people actually creating and backing Bitcoin (et al) is just an end-run around that system. The "Sorry mates, we don't like your authoritarian money, we have our own now" and g-dang it seems to be popular. Some people may see the increasing value of Bitcoin as a bubble, the other perspective is it is the collective devaluing of fiat currency.
One other point Pavlina makes that really resonated - that deficit is really just the difference between what the government spent and what it taxed to pay for that spending. It's the difference that stays in our pockets. But when you look at income and wealth distribution you find that 25% of all Americans have no net wealth at all. And they aren't, for the most part, living a profligate lifestyle either. And the vast majority of the rest that have wealth don't have much wealth at all either. That debt - it's a measure of how much money we have poured into the top 1,2,3,4,5% of society.
However, I might argue that the "savings" she says deficit creates rather assumes that what the money was spent on did some good for the people. If the deficit is $0 and then the government gives $1T of that to people who will offshore that money and invest outside of the country then that generates no net savings. Even a war costing $1T is better than giving $1T to people who don't need it because at least in theory it creates jobs in the defense industry etc.
The National Debt isn't really a debt. For the most part, it's savings.
When the government wants to 'borrow', they sell securities (bonds). What does a bond look like? Is it a piece of paper with fancy writing on it? No. It's numbers in an account on a computer at the Fed.
When banks buy securities, they use the money from their reserve accounts at the Fed. These are the equivalent of deposit accounts that you or I may have at a commercial bank. Instead of receiving a piece of paper, the balance of their securities account goes up. This is the equivalent of a savings account that you or I may have.
So, government borrowing (at a Federal level) is nothing more than the shifting of balances from a banks deposit account to their savings account. The Government then says "the amount that's been put into the savings account is no longer in circulation, which means that we can spend an equal amount into circulation without causing inflation." The Government is actually wrong about money having been removed from circulation because the bank never intended for it to enter circulation in the first place, but that's another story.
Good points. But it occurs to me that the view "National Debt" is savings hypothesis is
flawedoffset by the fact that a large amount of those debts are owned by foreign entities. Okay, so they are still someones savings, but noone in our country and hence not a true reflection of the health of our nations savings. At the extreme end none of the debt could be held by Americans! Unless these foreign entities are active trade partners that we have a trade surplas with (i.e. most definitely not China) then those overseas savings don't really do us any good, in fact I'd hazard a guess they are net negative that enriches other countries who don't share our values by payment of interest to them.According to Wikipedia as of 2014, 47% of all public debt was owned by foreign entities. Wow. I wonder how different the US would be if it was all held by Americans? Maybe people would have a completely different relationship to the national debt which is more in line with your "Savings" description. The interest would enrich our economy, and the government would be beholden to us, not overseas entities when making economic and fiscal decisions. What a novelty.
Another factor in the equation... is that banks make money too - using debt. That whole fractional reserve thing that basically amplifies debt in the system. I don't see any discussions about how cryptocurrencies and blockchain based tokens differ from real banking because of the lack of fractional reserve banking. You can say what you will about BTC being a Ponzi scheme but no one, to my knowledge, is magically creating Bitcoin out of thin air using debt.
It's common to hear people in the US media lament the $1 trillion debt that's owed to China. This 'debt' is nothing more than $1 trillion in savings that China has in their account at the Fed.
You are correct to say that it's not a true reflection of the host nation's savings, but data exists to help you figure out that amount.
If the savings will continue to be saved (including the interest), then I don't think it will make the kind of difference that you're thinking of. If the savers decide to spend the money, then things will change.
You're also correct that banks create money (well, credit that gets used as money). However, they don't use the fractional reserve model that you see in textbooks and You Tube videos. Instead, they use something called the credit creation model. In a nutshell, banks can create as much credit as they like (with fewer constraints than fractional reserve). What matters to them is whether or not they can find credit-worthy borrowers.
Bitcoin is a form of 'acknowledgement money' - it acknowledges the fact that someone did 'work' to mine it. However, unlike work that you or I do, the acknowledgement that Bitcoin provides lasts forever and doesn't diminish over time (though the price fluctuates). The credit money that banks create gets destroyed when it's paid back to banks, just as the money (effectively tax credits) that the central bank creates on behalf of Government get destroyed when paid back to the Federal Government in taxes.
All currencies, whether backed by gold, or completely limited to the digital realm, derive their value from its users. We give it value by agreeing it has value. Even gold itself as a currency only has value because of its agreed value. When you think about it, the only reason gold has any value as a currency is because it's too soft to be used like other metals and because it's rare. You can't make it, only find it, and it's hard to find.
Gold has value as a base for currency because there is going to be a roughly consistent amount of it at all times and it has inherent value since it is physical and a metal. Fiat currencies have less value than gold-backed currency in times of economy uncertainty because of the lack of trust. Like we saw in the GFC, bailing out the banks, forgiving any sort of debt, or simply printing more money (as is common in poorer countries) will devalue the currency because there is no assurance that the currency will be useful. The gold standard meant that every piece of currency could be exchanged for something with inherent value.
The gold standard also meant that excessive government spending was less likely to happen, because it is very difficult to obtain more gold. If a bank failed, the government would have a difficult time bailing them out. It limited the damage that a reckless government could do.
Cryptocurrency is completely different to fiat currencies and the gold standard and it currently has so much value due to the unregulated nature of it. Anything free and unregulated will prosper, even if there are bumps along the line. An unregulated crypto market will be successful and the big threat is government regulation.
Have you considered how gold futures push up the price of gold?
Largely irrelevant because a gold-backed currency is the primary trading currency. Bitcoin specifically is more like an investment than a currency because it's not being traded as much as it should, but is treated as a future value generator.
Given that there isn't a single gold-backed sovereign currency, I'd say that it would be very relevant if a country were to consider switching to one (though I can't imagine anyone wanting to put such a constraint on themselves).
Who's treating Bitcoin as a future value generator? It's really a wealth transfer mechanism.
Bitcoin millionaires and Bitcoin investors.
By 'value' you mean capital gains, right?
Hello David, thank you for using DTube. May I ask which browser / OS you used for uploading your video? I can't stop but noticing how your interrogation mark at the end of your title got messed up, and we want to try to reproduce and fix that issue.
Clever use your profile image @dtube!
And yes, great to see David using Steemit/DTube to the max! When you look at his SBD earnings and combined with the recent SBD/USD craziness I imagine he's doing very well on this platform which is great. Hopefully he will attract many, many more followers and other content producers!
It would be great to have a list of major YouTube names who have started publishing on Steemit/DTube - it can't be long before people start to take notice. And then the fun starts!
We wish to see the upcoming future to be a decentralized one.
We have our uncontrolled platforms where we get rewarded with decentralized cryptocurrencies.
The cryptosphere is gradually becoming thicker than before.
But...
Do you still have a gut that Govt. has a control over all this? (Yes, maybe - I have seen the latest tragedy of Coinbase which attracted legal matters)
Meanwhile, I crafted a Beginners Guide to "Dtube" . I hope, this will help others who're starting with @dtube
PS: If sharing my links in posts triggers spam, then please let me know in reply, I will remove it ASAP. (All I want is - to help our community grow)
I suspect that small, third world governments have invested in cryptocurrency due to their own currency failing. Bulgaria seized several billion dollars worth of Bitcoin recently. Venezuela and some Arabic countries may have invested in crypto to have unregulated oil deals. Venezuela has the added incentive of the Bolivar being worth less in USD than one gold in World of Warcraft.
Fiat currency is not backed by some commodity but basically by the trust people have of whoever emits any given currency. And it's very easy to trust a currency backed by the most powerful country in the history of the planet, for example. Backed by its infrastructure, workers, productivity, economy size, etc. As for what this lady is talking about, it makes a lot of sense to me.
Fiat currency is backed by the threat of punishment as it relates to your tax liability. If the government only accepts that currency for the payment of taxes and nothing else, then you're going to want that currency so that you don't go to jail or have your assets sold off.
But I agree, Pavlina Tcherneva knows what she's talking about.
Cryptocurrency can never take over as a main currency because if it has a guarantee from a government it becomes a fiat currency. A cryptocurrency is only worth something if people trade it, which is a big hurdle to overcome. There isn't much cryptocurrency trade outside the circles.
Except I don't pay any taxes to the USA (certainly not directly), for example. Nor do any number of foreigners who rely on the US dollar for their savings and even do U$S transactions within their own country. Same (or similar) applies to bond holders. They trust it. No threat.
Can you be more specific about the countries to which you're referring?
I know that Timor Leste uses the US dollar as it's currency. If you don't pay your taxes to them in US dollars, you go to jail.
If you're talking about black market transactions, they hurt the local economy.
People living in any number of third-world countries whose national currency is shitty and prone to exorbitant inflation rely on the US dollar instead.
Are you talking about black market transactions?
Not really, you can buy US dollars in official exchange houses virtually all over the world.
i need to look this stuff up, i never thought of the dollar like this.
It's an extremely interesting topic. Once you get to grips with how the money system works, you'll be able to better understand why things like unemployment exist and how to resolve many of the major challenges facing society. You'll also be infuriated every time you see a newspaper because they constantly reinforce a false picture of how the system works (national debt, taxation, spending on education/healthcare/pensions, etc.).
the new world
Interesting read, good content and quite informative. Thanks.
Thank you for the right information, now I have a clearer picture of the future.
Thank you for this info. it can help me a lot. :)
Hello
That was great, only the banker has afraid.
The new time has begun.
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Upvote for you😀
It's still new for me....
MMT: the ultimate economic redpill.
How did you first come to learn about MMT?
Several years ago, doing some lay research on the different macro schools of thought.
There's a video on You Tube with an Austrian Vs. MMT debate which is really good. It became clear that the Austrian's describe a fixed exchange rate currency regime (with a hard currency peg, such as Hong Kong), while MMT describes floating exchange rate regimes (i.e. fiat currency).
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As long as you want something it will be there.
Great intervirw! Very interesting. I had just recently learned how our fiat currency system really works and now I'm back at it trying to learn everything about crtpto currency. Lots of research left for me to do, yeesh! Lol
Wow that's nice, keep it up. great work