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Latest MMT Madness is QE = Savings. Really, What are Savings?

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26 comments on Latest MMT Madness is QE = Savings. Really, What are Savings?

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Fantasyland Position

“Government bonds are not debt. They are savings just as the reserves from whence the came are savings. When they mature they will either roll over or be converted back to reserves. They will never be a burden on our children.”

What Are Savings?

Savings = Production Minus Consumption

That’s what savings always meant and still does. By your labor, you produce something and part of it you consume. The rest is savings.

In the classic example a farmer grows wheat, consumes some of it and saves some of it. But stored wheat can go bad so he sells some of it for money.

That money is savings. 

If you work at a factory, you help produce widgets even if you are a secretary. You get paid. You buy food and clothes and save the rest. 

That money is savings.

MMT Savings Madness

  1. Savings can be conjured out of thin air.
  2. Money the Fed prints to support government dropping bombs in the Mideast is allegedly savings.
  3. If government builds a bridge and pays $1 million for it by floating bonds, the savings are $1 million. If government paid $1 trillion for the same bridge, the savings would be $1 trillion. 
  4. QE is savings. 
  5. Paying people money to do nothing is saving.
  6. One does not have to produce anything to save. 

Modern Monetary Theory (MMT) is sheer lunacy.

Hussman Chimes In

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26 Comments
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PreviouslyAndaetc.
PreviouslyAndaetc.
4 years ago
“Government bonds are not debt. They are savings just as the reserves from whence the came are savings.”
If the original reserves were really savings they would be saved  not lent out. To lend those reserves out disqualifies them as savings, they become investment.  From then on,  that is while they are subject to contract,  they become invested savings/borrowed savings. The true savings themselves are then spent by government in return for goods/services/votes. The government then takes/steals other people’s true savings in the form of tax to repay its debt.  It does so by common tax or it does so by increasing the quantity of money (which ironically is based on its debt) so devaluing the savings of others.
However the whole argument is misplaced, because fiat money  (the dollar) is based on future taxation. The fed balance sheet is mostly made up of government debt vs currency. So there really aren’t any savings as regards to dollars.  Dollars aren’t savings they are the tail-end,  the notional but coerced meaning, of what a saving represents.  While they work like savings,  like gold or other harder currency, that is all they are,  a  “like”,  similar to but not the same as, and ultimately unaccountable much to the delight of those who would like to  fraudulently profit from whatever wealth they can be exchanged for.
Probably what the OP really meant is that (he thinks) they won’t be a burden to [ his ] children. I suppose that would be  because he envisages eventually wiping out the  existing system and any possibility of ever having his children made responsible for any undue profit chanelled their way ? 
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niceconstable
niceconstable
4 years ago
MMT is not based on “printing”.  It is just plain ‘ole borrowing.  Government red ink = private sector savings, is the foundation of MMT.  It is an accounting identity.  I am an accountant and am not fooled by accounting identities.  What the MMT morons don’t grasps is that the money borrowed from the private sectors is a withdrawal of cash savings from the private sector before it can be redistributed to the private sector.  After the full cycle is completed, that is, when the bond is paid off and another one takes it place, private sector cash savings are exactly the same.  The difference is there is now a bond/receivable held by the private sector and a bond/payable by the government.  Increases in bonds/receivable are considered savings of the private sector.  This is not the same as cash savings of the private sector.  Cash savings can be useful money.  Bonds are only useful to the economy if used for collateral for bank loans which create money for the loan.
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Carl_R
Carl_R
4 years ago
In fairness to the idiot that said that, running deficits and printing bonds isn’t mortgaging the future so long as all the bonds are sold domestically. The government could theoretically levy a one time tax to pay off all the bonds, and to pay that tax, citizens would have to sell bonds or other assets. Therefore, it creates illusory savings; there is the illusion that there is debt on the one hand, and savings on the other, but in reality there is neither.
Note that after WWII, the US was in that situation. Lots of debt, and lots of bonds issued, and they were widely held. During the war, Americans bought bonds as an act of patriotism. Over the years, the US paid the debt down as a percentage of GDP, until Reagan, Bush 1&2, Obama, Trump, and Biden came along. Now we have a very, very different situation. Our bonds are owned, not so much by Americans, but by foreign entities. In this case we have indeed mortgaged the future for our children, and created savings overseas.
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Casual_Observer
Casual_Observer
4 years ago
MMT has already been occurring. Just because money has been going to big banks doesnt mean it’s not MMT.
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Bam_Man
Bam_Man
4 years ago
“Killer” Putin is 100% correct when he says “The West is living in a complete Fantasy Land.”
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Casual_Observer
Casual_Observer
4 years ago
Reply to  Bam_Man
Putin doesnt get it. He is an evil genius but he thinks in zero sum terms like most autocrats. 
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RonJ
RonJ
4 years ago
“Modern Monetary Theory (MMT) is sheer lunacy.”
The happy little fact is that it doesn’t matter until it does. Until then it seems like it is working. The FED has blown three financial bubbles and they all worked until they didn’t. The FED just blew another bigger bubble to replace the previous one and all was well with the world, until that one burst.
The L.A. Times just ran an opinion piece that apparently claimed that the lockdowns didn’t harm the economy.
Well, the FED and the government has been throwing trillions of dollars around to paper everything over, so i guess the Times can ignore all the people thrown out of work, unable to pay their rent or mortgage, etc.
The everything bubble was supposed to be the last possible bubble. Maybe they found a way to engineer another one with MMT.
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RonJ
RonJ
4 years ago
Oranges are apples if that is what they want the narrative to be. Bernanke said the FED keeps gold because of tradition.
“Government bonds are not debt.They are savings just as the reserves from whence the came are savings.”
Backed by the full faith and credit of the U.S. government.   If one buys a U.S. savings bond, one is loaning the government money from personal savings. The government has an obligation to repay the lender. Modern Money Australia might want to look up the sovereign debt crisis of 1931.
Banks call them savings accounts, but the fact is that the passbook holder is loaning their money to the bank. Once one hands it to the teller, it is the banks money and a liability to the bank, as they owe it to the passbook holder.
As seen in the 1930’s, banks can go bankrupt and as South Park joked, “it’s just gone.”
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jiminy
jiminy
4 years ago
Crazinomics is here.
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Casual_Observer
Casual_Observer
4 years ago
Reply to  jiminy
Really ? You mean it just arrived ? Really ?
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Eddie_T
Eddie_T
4 years ago
The SBA is making $10K grants ( the so-called targeted EIDL advance) and some businesses in qualifying low income neighborhoods and get an additional $5K (so-called supplemental targeted EIDL advance).
 I got an email from SBA saying we were approved for the $5K free money, but so far no word on the $10K part. I have to check and make sure we actually got all the proper applications in….my recollection is that it was all one application. I expect to see the first part in my bank account today.
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shamrock
shamrock
4 years ago
An interesting thing about Treasury bonds held by the Federal Reserve: it doesn’t matter what the interest rate is because the net cost to the government is essentially 0.  If bond rates are 2%, that is profit to the federal reserve, which gets returned to the Treasury.  If bond rates are 10%, same thing.  Net cost is 0% for the Treasury department.
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Scooot
Scooot
4 years ago
Reply to  shamrock
The Fed buys the bonds in the secondary market at a different yield. EG Government might issue the bonds with a 10% coupon and the Fed buys them at a 5% yield. In addition the Fed funds the purchase with commercial bank reserves on which it pays interest. So the Fed’s return is the difference between their purchase yield and their funding cost. The Government has no return from the issued bonds because they spend the money.
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shamrock
shamrock
4 years ago
Reply to  Scooot
That’s probably right, idk.  But the opposite is also true, in a rising rate environment the Government could issue bonds with a 5% coupon and the Fed buys them in the open market at 10%, resulting in huge profit for the Treasury.
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Scooot
Scooot
4 years ago
Reply to  shamrock
Yes that’s correct. The Fed are currently benefiting from the positive yield curve with a positive running yield (unless they swap the fixed return into a floating rate one). 
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Webej
Webej
4 years ago
Reply to  shamrock
Yes, but only to bonds held by the Fed, which is not done to raise funds but to put a bottom in the market and manipulate rates.
The scale at which this has happened since the GFC must be viewed as emergency measures or deferred reckoning.
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Dominic69
Dominic69
4 years ago
Financial savings are exactly what MMT describe.
What can you do with these savings it’s a different thing.
A currency sovereign dos not need taxes or bond sales to get funding. I did read all the MMT documents about the operational realities of our current financial system and they are right.
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Webej
Webej
4 years ago
Of course they are savings, although the bonds are a liability for the government.
  • People are taking their savings and buying the bonds.
  • They could put their savings into a savings account, but apparently they prefer bonds.
  • The children inherit both the liabilities and the savings, which by definition net out.
  • This does not mean there are no problems, but the problem is that the liabilities and savings/income streams are not distributed evenly. If unevenly enough, it will distort economic interests, decision making, productive capital, and society and autonomy in general.
  • By the same token, you cannot consume future production. There is no way to bring eggs & tomatoes from the future into the present. All consumption must come from present or past production. Of course, it is possible to damage productive capital and investments, so that there will be less (efficient) future production. But that is something else entirely.
–Nobody has ever claimed that Mozambique could be rich if they just printed up more money.
–If you do print up money, it matters what you do with it (burying it will mean nothing happens at all).
–When it comes to winning a war, no state has ever stopped short because they ran out of money … only if they run out of bullets.
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Scooot
Scooot
4 years ago
Reply to  Webej
I think Mish is referring to real net savings. If the Government issues bonds then gives the money to people to buy the bonds, there is no net saving. If the people already have unspent money as a result of their work/production and they buy the bonds, they will have then transferred their savings from one form of savings to another, being Government bonds. 
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Webej
Webej
4 years ago
Reply to  Scooot
Except that in government accounting paying back debts is also considered to be savings/investment.
If the government is giving people the money to buy bonds, there really is no point in buying the bonds to fund the spending, is there? That is and outright gift of wealth and future income streams to the recipients. That would mean the only thing keeping us from getting rich is that there is not enough counterfeiting.
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Scooot
Scooot
4 years ago
Reply to  Webej
I wasn’t suggesting there was any point to it. I was just differentiating from genuine savings from productivity and situations where people just save what’s given to them from government debt. 
Repaying debt is the same, it’s saving if it’s repaid from savings resulting from productive work. If the government borrows and gives you money which you use to pay off your credit card or other debt it isn’t a net saving, it’s just moving debt about.
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TexasTim65
TexasTim65
4 years ago
Reply to  Webej
“The children inherit both the liabilities and the savings, which by definition net out.”
Correct. So there is no savings if it’s a net-zero.
“By the same token, you cannot consume future production. There is no way
to bring eggs & tomatoes from the future into the present. All
consumption must come from present or past production. Of course, it is
possible to damage productive capital and investments, so that there
will be less (efficient) future production. But that is something else
entirely.”
Technically if you eat/sell your chicken or wheat you are consuming your future production since that consumed chicken can’t lay eggs nor can that consumed wheat be planted to make more wheat. So in essence you are consuming future production. This is why farmers don’t sell/eat all their chickens or all their wheat. Whether you want to call it consuming future production or damaging capital/investments makes zero difference (you say Tomato, I say Tomato) since the end result is lower future production.
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shamrock
shamrock
4 years ago
One person’s debt is another ones savings?  That much seems true.
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MacPacAttack
MacPacAttack
4 years ago
Reply to  shamrock
Well yes that’s one way to look at it.  Let’s not forget that’s one way money is created out of thin air – acquiring personal debt through credit purchases.  Consumers are encouraged to take on new debt as a way to spur growth of the money supply (and also create inflation, or rather, currency debasement) – and increase the velocity of money.  Additional incentive to spend is provided by abysmal interest rates available through traditional passbook savings or CDs that do not keep pace with inflation, which incentivizes both reckless spending and chasing of higher returns through stocks and/or crypto.
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shamrock
shamrock
4 years ago
Reply to  shamrock
I’ll amend that to say one person’s debt is another’s asset.  The money for the loan did not necessarily come from savings.
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MacPacAttack
MacPacAttack
4 years ago
Reply to  shamrock
That would be more accurate, and therein lies the problem.
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