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.
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/11270742053946826224/ 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.
4/ She literally says: “and they need to refrain from borrowing, that is taking on debt, in a currency that isn’t their own”
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.
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.
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)
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.
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.
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)
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.
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.
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.
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.
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.
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.
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.
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.
19/ I’m starting to conclude that this is yet another Friedman-model fuckup.
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.
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.
22/ And people are so keen on simple explanations they are willing to close their eyes to reality.
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?
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.
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.
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)
28/ I love how much she uses the words “believe” and “faith” - gets across how religion-like it is.
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.
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.
31/ Seems to correlate? This is the central banks “governing interest rate”
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.
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
Billy O'Neal
Ben
Alper Çuğun-Gscheidel
Pär Björklund
Peter Toft Jølving
Cassandrich
maarten brouwers
Tim M