Mastodawn

Patricia Aas Jul 1, 2024

2/ Only barely through the introduction and the start of chapter 1, but it got interesting so I wanted to start the thread. (I’ll get back to Harvey when the polls are done)

So, the premise here seems to be that you (a country) have your own national currency. The thing she is going to get to, as far as I can understand these things right now, is that “deficits are a myth”.

And I think this is related to the Piketty (I can’t believe this is useful now) stories about how states erased their debts through inflation: Germany and France were the examples. And Germany are today apparently very skeptical of this approach.

Patricia Aas Jul 1, 2024

3/ The reason that I had to post is that she started talking about this question I had earlier. Basically: it seems risky to me to take out loans in a currency you don’t control since you can no longer use inflation to erase it.
https://social.vivaldi.net/@Patricia/112707420539468262

Patricia Aas (@[email protected])

24/ ok, I give up on this part and tbh I’m not sure it’s important. He has drifted into one of the features of FIAT/normal money being an instrument by which a state can eliminate its debt in that currency by tanking the value of its currency. Given this, why would anyone lend a state money in its own currency? Sweden wants to borrow money, why wouldn’t you lend them euros? It seems a bit risky to use their currency. Though I believe these “loans” are actually in the form of government bonds, so in that case the borrower has taken control of the currency in which it is expressed. I bet the developing nations debt is not expressed in their own currency, just to make sure we can erase our debt, but they sure as hell can’t erase theirs.

Vivaldi Social

Patricia Aas Jul 1, 2024

4/ She literally says: “and they need to refrain from borrowing, that is taking on debt, in a currency that isn’t their own”

Patricia Aas Jul 1, 2024

5/ So maybe we’ll get a glimpse into this mechanism.

Unfortunately, we have seen examples of countries that didn’t have this option, like Haiti and I guess also Greece (because they were using the Euro). Feel free to chime in here.

I’m also interested in how she deals with what made Germany so intent on not going through that again. I wish Piketty had spent more time on that.

Patricia Aas Jul 1, 2024

6/ Ok, this is fun. Basically it’s a different way to look at a national currency: for a government that can literally “print money” money only has “value” if you can do something with it. And taxes are such a thing. So taxes aren’t a way to make people pay for stuff, it is a way to create a need for your currency.

Right now the value of the Norwegian kroner (NOK) is a hot topic here in Norway. And I’ve tried to understand it but I just haven’t been able to. Maybe this will help. One of the things that I’ve learned is that the Norwegian government requires that the oil industry pays its taxes in NOK and this is actually one of the major “buyers” of NOK.

Patricia Aas Jul 1, 2024

7/ I really enjoy that a central part of her narrative is basically that “everyone knew this, except economists because they didn’t talk to anyone else” which tbh I think is one of the foundational problems with the “field” (read pseudoscience)

Patricia Aas Jul 1, 2024

8/ This first chapter was super interesting. I have to think about it for a bit, but I really recommend reading this chapter. Especially a story about chores in the beginning made sense to me.

Moving on to the next chapter which is on inflation, which I am really curious about because Norway has increased interest rates lately, but it seems to me that instead of being tied to our own economy the variables seem to be the exchange rate of NOK (which seems to be affected by a general sense of fear and not our economy) and for some reason our central bank is obsessed by numbers about the US economy. And that doesn’t make sense to me.

Patricia Aas Jul 1, 2024

9/ I think my sleep deprived brain won’t be able to grok inflation today. I’ve restarted the chapter probably 5 times by now. I’ll try again tomorrow.

Patricia Aas Jul 2, 2024

10/ I am trying to understand chapter 2 again, it is called “Think of inflation”. She is speaking very much from a US perspective, and so my attempt to map to Norway in my head is not always working. But I think Norway fits the criteria:
1. Has its own currency: NOK Norwegian kroner
2. The currency is not tied to a foreign currency (as opposed to Denmark who has now tied its currency DKK to the Euro)
3. Does not have debt in a foreign currency. (I don’t think we do, we have a massive sovereign wealth fund instead, which is only (mostly?) invested abroad)

Patricia Aas Jul 2, 2024

11/ I am wondering how much these “models” are suited for a global economy. The US might be able to control its inflation inside its own country, by dramatically reducing importation. But if a country is a massive importer, I don’t see how you can control inflation… or it depends on What Inflation Is. Which is… what I’m struggling with. I think their simplistic models are crashing with the Real World here.

Patricia Aas Jul 2, 2024

12/ People have told me before that inflation is what happens when the “economy is overheated” (too much spending/consumption) so increasing interest rates are a way to “cool down the economy”. But that makes zero sense for Norway right now.

Patricia Aas Jul 2, 2024

13/ I don’t see any sign of the Norwegian economy being “overheated”. What I see is the opposite tbh. People seem to be struggling financially much more than I’ve seen in decades.

Peter Toft Jølving

@Patricia The simplest explanation of inflation that I can come up with (MMT-inspired) is what happens when available productive capacity cannot keep up with rising demand.
Like, people want more of something, but all the factories are already running at max output and we can't easily scale up -> prices will increase.
Or the reverse, and much more dangerous: productive capacity collapses while demand remains. This is a key driver of hyperinflation.

Patricia Aas Jul 2, 2024

@joelving but that isn’t right, and that is the problem. People are making up simplistic models for complex systems, no offense, and acting as if they are true. The current global “inflation” seems to be more connected with war. Look at the price of gold. People are scared.

Peter Toft Jølving Jul 2, 2024

@Patricia You're right. That was an over-simplification on my part, only intended to address the "overheating" part. There's tons of drivers of inflation, but they are usually ignored (like widespread price gouging has historically been ignored).

Charlie Stross Jul 2, 2024

@Patricia @joelving My headcanon metaphor for money is not that it's a physical substance (gold coins) but that it's a current—the best analogy is electricity—that drives the economy and is coupled to it. Inflation is overvoltage: too much money but no extra resistance to soak it up.

Patricia Aas Jul 2, 2024

@cstross @joelving but that is not our problem. Our problem is that our currency, which is a fly in the global economy, is trading at lower prices. So imports are much more expensive. That is not something we can control and not caused by an increase in consumption.

Patricia Aas Jul 2, 2024

@cstross @joelving I think this model of thinking only works for large economies, or maybe for economies that don’t rely on imports as much as we do.

Charlie Stross Jul 2, 2024

@Patricia @joelving Very likely true: I'm not used to thinking in terms of non-reserve currencies and how they interact with the rest of the global economy.

Peter Toft Jølving Jul 2, 2024

@cstross @Patricia I don't think that runs counter to anything MMT says. It's true that you can't use the same mechanism to provision yourself (as a government) by spending your currency, when you can't impose a demand for the currency. That's for "local" resources.

It's really not simple. You have to start tracking what you're importing and exporting and in which currencies.

Btw, this is why Russia would only accept Rubles for its gas. To avoid the Ruble collapsing.

Luis Villa Jul 2, 2024

@Patricia @cstross @joelving the theory (and sometimes even the practice) is that, as the currency drops, your exports become cheaper and you sell more of them, stabilizing things; and of course that means part of the solution is to have desirable exports. And also means you need to (checks notes) not cut off relations with your largest export partner.

Patricia Aas Jul 2, 2024

@luis_in_brief @cstross @joelving that only helps the part of the population that is associated with export. And for most Norwegians that isn’t the case. They are in the inland economy: Norwegian companies selling to Norwegians (and they are struggling because imports are expensive and people are poor) or working for the government (and even local governments are struggling because of the same)

Luis Villa Jul 2, 2024

@Patricia @cstross @joelving there are definitely dislocations, and I don't want to minimize those—minimizing the pain related to changes in import/export balances is part of how we got GWB and Trump in the US.

That said, all parts of the population are involved with export—money doesn't simply stop in the pockets of exporters. When Norwegians sell fish and timber abroad, those fish and timber companies (and fishers and loggers) have more money to spend on "non-export" things like housing.