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.

Patricia Aas Jul 2, 2024

14/ What is a problem is that the NOK to USD/Euro exchange rate weak. So imports are more expensive. But to “fix” that the central bank has raised the interest rate. Which means people who were already struggling with higher prices now also get hit with higher interest rates.

Patricia Aas Jul 2, 2024

15/ And young people and families are being hit the hardest because they are either renters (and rents are increasing because of the interest rates and the cooling of construction because of the higher import costs and higher intrest rates) or early homeowners with big mortgages.

Patricia Aas Jul 2, 2024

16/ Meanwhile the politicians are on TV saying “Well Actually The Economy Is Going Great”. But the only sectors that seem to be doing great are those who are exporting (being paid in foreign currency) and that’s because they are raking in on the NOK being weak, and that’s not “the economy” that’s just gambling.

Patricia Aas Jul 2, 2024

17/ So basically, I don’t see that the interest rate is the appropriate tool for strengthening the NOK. Except to put on a show for people who think Milton Friedman is a person who had anything reasonable to say.

Patricia Aas Jul 2, 2024

18/ In my opinion the most logical thing is that the NOK is down for the same reason gold is way up: people are scared. Russia invaded Ukraine, Israel is pushing for a regional war in the Middle East and… let’s be honest here: the US might elect a fascist dictator in a few months.

Basically NOBODY will make the decision to buy NOK no matter what the interest rate is. They are putting their money where they think it’s safe and that isn’t a tiny economy by the polar circle.

Patricia Aas Jul 2, 2024

19/ I’m starting to conclude that this is yet another Friedman-model fuckup.

Patricia Aas Jul 2, 2024

20/ To be honest, I’m not even sure that MMT would work for a tiny economy based mostly on imports of household goods and selling bottled up carbon emissions to the world.

Patricia Aas Jul 2, 2024

21/ I am getting increasingly disillusioned with economics as an explanation model for anything other than a bunch of powerful people who like to hear themselves talk.

Patricia Aas Jul 2, 2024

22/ And people are so keen on simple explanations they are willing to close their eyes to reality.

Patricia Aas Jul 2, 2024

23/ One thing that is very Norwegian, and relevant here, we are a high-trust society. On every level. But for this particular matter: we trust our government much more than most other populations. And if they say the interest rate has to go up, we say: OK.

But what if they’re just wrong?

Patricia Aas Jul 2, 2024

24/ but I think the currency lens is probably the right one, but not MMT (or maybe I’ll change my mind when I’m further in). From the little I have read we (the Norwegian government) are both the biggest buyers AND the biggest sellers of our own currency: we sell massive amounts of NOK to the oil companies, because they need it to pay tax, but now we have a lot of NOK that are mostly going into our sovereign wealth fund, which invests (mostly/exclusively?) outside of the country (I think this decision was specifically to not “heat up” the economy with too much money). But to invest abroad the sovereign wealth fund needs to sell a lot of NOK.

Patricia Aas Jul 2, 2024

25/ so maybe we CAN influence the NOK, but not through interest rates, but rather by… reducing foreign investments by the sovereign wealth fund instead. Funnily enough this idea is based on the most basic economic theory: supply and demand.

26/ And all indicators are showing that it’s not working. The price of the NOK isn’t really being affected by the interest rate. It is being affected by What Everyone Else Is Doing. This weakness of the NOK doesn’t seem to have much to do with Norway at all. We’re just a too esoteric (and small) currency for a global market whose risk appetite is low.

BenAveling Jul 2, 2024

@Patricia
> weakness of the NOK doesn’t seem to have much to do with Norway at all

Agree. Small countries get blown about by what's happening elsewhere. Metaphorically speaking.

> The price of the NOK isn’t really being affected by the interest rate

Hard to say. It's certainly not the only factor, probably not the biggest factor, but it will be a factor.

Patricia Aas Jul 2, 2024

@BenAveling I mean, looking at the actual data, the value fluctuations are in line with all of the other small currencies. In the state we are currently globally… it doesn’t seem to matter. And since gold is sky high, that says something about the kind of risk appetite that currently exists in the market.

BenAveling Jul 2, 2024

@Patricia There's a lot of fear out there. Interest rates possibly don't matter _much_, compared to that. That is, there will be an effect(*), but it's not necessarily going to be visible because it's probably being swamped by everything else that's going on.
(*) Not just the complicated medium/long term effect on 'the economy', but the short term effect that (all else being equal) people will move money to where they expect they will get the best return on it.

Patricia Aas Jul 2, 2024

@BenAveling the thing is that people aren’t thinking “getting good returns” they are thinking “holding on to what I have”. And that is a whole other ballgame.

Patricia Aas Jul 2, 2024

27/ Looking at the NOK vs USD and Euro and the gold price in dollars. When people are all in on gold they’re not buying the currency of “the capital of Sweden” (old joke about nobody knowing we exist)

Patricia Aas Jul 2, 2024

28/ I love how much she uses the words “believe” and “faith” - gets across how religion-like it is.

Patricia Aas Jul 2, 2024

29/ It’s clear to me now why they are using the interest rate. It is the only tool they have. They have one single knob, one single variable, so they have to use it even if they know that it won’t work against the problem they’re facing. Because it was never meant to solve the problem they’re facing.

More generally, I don’t know that importing a Friedman model from the US, which has a massive economy and The Most Popular currency, makes any sense for us.

Patricia Aas Jul 2, 2024

30/ Maybe they have been trying to do exactly what I’m saying here? Reducing the amount of NOK they are unloading onto the market.
https://www.dn.no/makrookonomi/norges-bank/makrookonomi/norges-bank-oker-kronesalget-til-550-mill-kroner-per-dag-i-mai/2-1-1635409

Norges Bank øker kronesalget til 550 mill. kroner per dag i mai

Etter fire måneder på rad med uendret kronesalg, økes beløpet i mai.

DN.no

Patricia Aas Jul 2, 2024

31/ Seems to correlate? This is the central banks “governing interest rate”

Patricia Aas Jul 2, 2024

32/ Lol, looking at all these graphs together… it doesn’t seem to matter either. So maybe the problem is rather that there is no market for NOK right now. Only what we force into existence by making oil companies pay us in NOK for taxes.

Patricia Aas Jul 2, 2024

33/ Which, to be fair, is fully in line with MMT: taxes’ primary purpose is to create demand for your own currency, not to fund anything.

Patricia Aas Jul 2, 2024

34/ But then I don’t think there is any good reason for increasing interest rates. It is clearly not having any effect outside of making folks that were already struggling with increased food prices even more financially insecure.

Patricia Aas Jul 2, 2024

35/ it’s funny how Norwegian newspapers and even the central bank are not even pretending this has anything to do with us. You want to know what numbers the Norwegian central bank is looking at to figure out if they can lower the Norwegian interest rate?

The unemployment rate in the United States of America.
https://e24.no/internasjonal-oekonomi/i/Xj6olo/viktige-jobbtall-kan-skyve-paa-rentehaapet-fed-har-tatt-feil-foer

https://www.nrk.no/ytring/det-haster-overhodet-ikke-med-rentekutt-1.16778904

https://www.norges-bank.no/contentassets/d0bfbe13692a4dc28d569698605e2c8d/ppr-2-24.pdf?v=20062024135632

Viktige jobbtall kan skyve på rentehåpet: – Fed har tatt feil før

Amerikanske jobbtall kan skyve på forventningene om rentekutt i USA, men det er prisveksten som bekymrer Storebrand-forvalter Olav Chen.

Patricia Aas Jul 2, 2024

36/ Turns out that the pre-Friedman King of Economy, John Maynard Keynes, agreed with me (according to the book), or the quote is about the opposite (about lowering the interest rate to make people take out loans)… but it turns out to be kind of the same for the NOK 🤪

“You can’t push on a string”
Turns out that perhaps the quote is misattributed 😅
https://en.wikipedia.org/wiki/Pushing_on_a_string

My point being: you can try to make your currency attractive, but you can’t make people buy it.

And I posit that the NOK is weak because the planet is fucked and everybody knows it.

Pushing on a string - Wikipedia

Patricia Aas Jul 3, 2024

37/ … huh this sounds familiar actually (thanks @malwareminigun)
https://youtu.be/q4k8SGmJqIA?si=MbtjKvkm6uxnl_54

How George Soros Broke the Bank of England

YouTube

Patricia Aas Jul 3, 2024

38/ Apparently one of the things you can do in our situation is to increase salaries. Because the currency thing is making goods a lot more expensive an increase in salaries could make that gap smaller. And we did that. Sort of. The government blessed a really good deal between the employers and the unions.

Patricia Aas Jul 3, 2024

39/ However, here we meet another weird dynamic: in Norwegian union “culture” they negotiate first with the export industry. Because the thinking goes that they are more sensitive because they are exposed to currency fluctuations. But remember they are raking it in on the currency exchange. So now that deal is pretty great for workers. But… the rest of the Norwegian economy is not great and they get hit with yet another blow: first imports got way more expensive, then the interest rates shot up (absolutely doing its job of cooling our not-hot economy) and now salaries shoot up.

Patricia Aas Jul 3, 2024

40/ And one sector is particularly vulnerable: construction. Because:

1. Materials (imported) are much more expensive
2. Interest rates are way up, so a lot of projects are halted due to financing
3. They are dominated by highly unionized workers and their salaries just went up (because the unions didn’t negotiate with them, they negotiated with the swimming in money export sector)

So all sorts of companies associated with construction are going bankrupt.

Patricia Aas Jul 3, 2024

41/ Which means, as @intarga
points out, housing prices are not going down as we expected.
https://hachyderm.io/@intarga/112719682482183505

Ingrid (@[email protected])

@[email protected] I find the interest rate situation in Norway extra annoying, because even with it not working to bring down inflation, the one silver lining it should have had was to cool the housing market. Instead, house prices are still going up because we completely stopped building 🙄🙄🙄

Hachyderm.io

Patricia Aas Jul 3, 2024

42/ The interest rate hikes are making a hard situation worse by “cooling” the wrong economy. We are getting a higher interest rate because America has lower unemployment (I am really happy for y’all though).

Patricia Aas Jul 3, 2024

43/ And that gets us the whole “what is inflation?”. Because if it is that it is harder to make ends meet because everything is more expensive. Then they are actually creating MORE inflation.

Yeah, we are exposed to the exchange rate, but now we are killing the economy that’s supposed to compensate, while driving actual living costs even further through the roof.

Patricia Aas Jul 3, 2024

44/ Housing is also a weird market in general, because once you’re in, you buy and sell in the same market. So that market becomes sort of disconnected from everything else. Because demand is constant and supply is pretty constrained: the people selling their homes and newly built stuff.

But with no construction the supply is even more constrained, and the people buying are mostly the people selling, so it becomes a strange closed loop system.

Patricia Aas Jul 3, 2024

45/ However, if you are a renter you are also getting hit, again by different effects. The current left coalition (and previous iterations) have wanted to make it less lucrative to be a landlord. So margins have shrunk due to higher taxes etc. But a lot of this has been funded through loans, and so those margins are getting squeezed further. So landlords are either selling off their properties, which are often in the cities, or raising rents. But the housing market is undersupplied so it just absorbs these properties.

So now we have fewer rental properties, which would drive up prices on its own (according to economic theory 😅), but the remaining market is also increasing rent to compensate for higher interest rates.

So even if you rent you are getting hit by the interest rate. And actually it’s worse there, because rents will for sure not go down in the same way mortgages will if/when they reduce the interest rate.

Patricia Aas Jul 3, 2024

46/ Or in kubernetes analogy (because of Cybercyn and the book The Unaccountability Machine): some stuff in our system (the Norwegian housing market) are auto-scaling in some cloud, some are manually scaled (by buying and adding new servers in our on prem data center) and once the peak in consumption is over, some things might scale down quickly, but some are stuck now with a lot of expensive hardware taking up space in our server racks.

Mortgages are in AWS and rents are on-prem in my very confusing analogy.

maarten brouwers Jul 3, 2024

@Patricia in the netherlands we recently extended an objective way to determine the max rent to what is called ‘middle-rent’ (above social rent, but not highest category). I guess waiting lists is another way of dealing with it… what I don’t understand though is that land lords already making huge profits on their assets. My house’s value has gone up way more than cumulative interest payments alone. So why increase rent for other reasons than greed?

Alper Çuğun-Gscheidel Jul 3, 2024

@Patricia Well, this is why Georgists usually say that it’s not capital or labor but a third thing land that cannot be produced and that underpins everything.

Tim M Jul 3, 2024

@Patricia As I read it, the other (primary?) purpose of tax is to remove from the economy the money government is actively spending and injecting into the economy which would otherwise be subsidising the economy and driving internal induced inflation (c.f. externally driven inflation such as imported energy price hikes).

See also @RichardJMurphy Murphy (professor of accounting, not economics) who writes extensively on MMT

https://www.taxresearch.org.uk/Blog/glossary/M/#modern-monetary-theory

https://www.taxresearch.org.uk/Blog/publications/

The stock market is failing according to the CBI. So why don’t we just let it go?

I posted this on Twitter this morning: https://twitter.com/RichardJMurphy/status/1942861045426516103 My point is serious. The CBI is saying that the situation with regard to the UK stock exchange is getting desperate, because it is losing out to overseas markets and not attracting sufficient business. The question that needs to be asked is, why is that?...

Funding the Future

Patricia Aas Jul 3, 2024

@schmerg @RichardJMurphy yes, it’s “tapping water from the radiator system in one section so that you can inject water in another place without springing a leak anywhere” in my radiator-system mental model. But it might not be necessary 🤷🏻‍♀️ Apparently the MMT people think the radiator system doesn’t have enough water as it is.

Billy O'Neal Jul 3, 2024

@Patricia It's somewhat notable that this is a thing the US does *not* have the power to do and this is one of the reason many countries bend over backwards to avoid becoming a reserve currency. For example, China has an entirely different currency for international transactions vs. domestic transactions. https://www.youtube.com/watch?v=JHZnVdBZJfA

Would a BRICS Common Currency Work?

YouTube