/These worn out debt narratives – Stop It! It’s ridiculous!

These worn out debt narratives – Stop It! It’s ridiculous!

Today is Wednesday and I have been tied up a lot with various meetings – all on-line these days. I don’t enjoy them as much as face-to-face, given that I spent a considerable part of each day in front of my computer or with my head in books and so the human contact is a welcome variation. But needs must, as they say. Anyway, just a few snippets today, being Wednesday. I can say that in between all this Zooming and writing, I have now nearly put together a complete on-line learning system which I am now trialling. This will be the support platform for – MMTed – which I hope to make operational sometime in the coming months. One of the issues that I touched on yesterday, which is now starting to crawl out of the slime, is the “what will happen to all the debt when the crisis is over” story. And, it is not just a narrative being promoted by the Right or the conservatives. The Federal Labour Party spokespersons and those hanging around the edges have started to push the narrative. As the Prime Minister told us the other day in relation to the people who are panic buying “Stop it! It’s Ridiculous!” I think he was actually talking about those (morons) who are starting the deficit hysteria before the deficits have even actually risen much. For their own health, I urge them to “stop it”. Imagine how apoplectic they are all going to be once the deficit goes to 10 per cent or more and the RBA is buying up all the debt. My god.

The Canberra Bubble – People need to get out more!

The Prime Minister said last week during a press conference:

On bulk purchasing of supplies: Stop hoarding. I can’t be more blunt about it. Stop it … It is not sensible, it is not helpful and it has been one of the most disappointing things I have seen in Australian behaviour in response to this crisis … Stop doing it. It’s ridiculous. It’s un-Australian, and it must stop …

He was obviously talking about the Treasurer, who on Monday, when announcing his $A130 billion JobKeeper wage subsidy plan, was asked “how are you going to pay for it” (yes, that one, again).

He said:

This will be paid back for years to come. There’s no secret in that. Of course, we will enter into discussions with the credit rating agencies over due course. Australia has entered into this crisis from a position of economic strength. Our debt to GDP ratio is around 20%. That’s a quarter of what it is in the United Kingdom, and in the United States and one 7th as Japan. That’s given us the fiscal responsibility to respond. We have delivered the first balanced budget in 11 years. That’s been important in allowing us to provide this level of support at at time of critical need.

The Prime Minister was clearly trying to stop his Treasurer lying to the people – stop it!

1. The deficits will not be paid back. Deficits are flows that exhaust. Any matching debt will be paid back upon maturity. Like is it regularly without consequence. The Australian government never has an issue meeting all its financial liabilities.

2. The credit rating agencies should be declared illegal. They provide no helpful input to any discussion about fiscal policy, and, rather, just distort the truth.

The Australian government debt has no credit risk. It is 100 per cent safe. No matter how large the outstanding debt is. 100 per cent safe.

So what value can a credit rating agency add to that?

I should charge the government heaps for that last credit rating. 100 per cent safe, zero credit risk. That is all anyone ever needs to know.

As we learned during the GFC, the credit rating agencies were found to have behaved corruptly and criminally. Many of the bosses of those agencies should have been imprisoned for their criminal behaviour.

The fact Mr Frydenberg mentioned them should disqualify him from office.

3. The story that a low deficit or low debt ratio makes it easier to support an economy during a crisis is well-rehearsed but is plain wrong.

It would not have mattered if Australia had Japanese-style deficits and debt ratios.

The Government would still have been able to announce its $A130 billion stimulus. No issues would have arisen.

And it is a lie to say that they delivered a “balanced budget” – they did not. They tried, but in doing so, the fiscal drag that they created coming up against negative growth in business investment and declining growth in household consumption expenditure, meant that the economy was slowing rapidly (labour underutilisation is at 13.7 per cent), and tax revenue was not going to grow fast enough to get them over the line.

As is usually the case.

Austerity backfires and just leaves a trail of damage to things that matter – employment, incomes, poverty reduction, etc – and doesn’t even achieve the things that do not matter (the financial ratios).

So he also lied about entering the medical crisis from a position of economic strength.

So, Josh, “Stop it! It’s Ridiculous!” Listen to your Prime Minister.

And I also think the Prime Minister was referring to the inane comments from the Labor Party Treasury spokesperson, Jim Chalmers, who has been doing the rounds telling the media that Australia:

… will be saddled as a nation with a generation of debt. It might be something like a trillion dollars by the time the government’s finished


Sounds bad. A ‘generation of debt’. Which generation actually hasn’t grown up with government debt being positive.

And what does it matter if it is a trillion dollars or less?

A trillion dollars in risk-free, interest-earning non-government wealth, which would provide a portfolio choice to savers.

Although, of course, it is likely to be vacuumed up by the RBA, which has now decided to embark on large-scale purchases of government bonds.

Here is – Today’s data – the RBA purchased $3,000 million worth of Commonwealth Government Bonds across the yield curve.

Since March 20, 2020, they have purchased bonds worth $A29,890 million.

Getting up there!

Conniptions turning into apoplexy.

But be warned – the ICU beds are filling up in our hospitals and there won’t be emergency beds to accommodate your breakdown!.

So follow the Prime Minister’s advice, “Stop it! It’s Ridiculous!”

To be clear, I am not advocating any debt being issued, but the RBA hoovering operation will ultimately result in the deficits being matched by central bank bond purchases.

The difference between what I would do and what QE does in this context, is that the latter delivers capital gains to those who sell the bonds back to the RBA.

Why hand out corporate welfare like that?

Finally, we are drilling down to commentators who are not elected MPs. The Prime Minister also has a message for them – “Stop it! It’s Ridiculous!”

He was clearly referring to the Op Ed writers who are pushing the debt narrative.

For example, the Canberra Times published an Op Ed yesterday (March 31, 2020) – Before anyone asks: no, Australia does not have a debt problem – written by an academic at ANU who was a former advisor to current Labor Party MP, the latter has been particularly vocal in his hostility towards MMT.

Clearly, wanting to be on the wrong side of history.

As to the academic character, I have written about him before, unfortunately – see How social democratic parties erect the plank and then walk it – Part 1 (June 6, 2019).

A stuck needle on an appalling record.

We encounter the usual, weak-kneed faux progressive line.

‘Oh deficits are okay now because the economy is collapsing’ but ‘we shouldn’t worry yet’, why? ‘because:

… the costs of increased government spending are very low.

Adam Triggs then gives us a lecture on these costs:

1. We get a lesson in the classical loanable funds doctrine and crowding out.

So Triggs thinks that governments have to borrow to run deficits and that means “money is no longer going to other worthy investments” – clearly he has never understood the banking system – loans create deposits Adam. Its quite basic really.

He then tells us that in “normal times” there is “a limited pool of savings”, the extra borrowing will mean “higher interest rates”, which increase the cost of borrowing and “crowd out” all these other worthy investments.

There is no “limited pool of savings”. His former employer, Andrew Leigh likes to tout his “Keynesian” credentials. Well Keynes didn’t believe that there was a finite pool of savings.

Savings are a function of income. If income grows as a result of fiscal expansion or business investment or increased export revenue or household consumption, then saving will rise.

Luigi Pasinetti once noted that “investment brings forth its own saving” – an astute observation that applies to all spending sources.

And bank loans are not reserve-constrained. They don’t just sit around waiting to dollop out their current deposits to lenders in some sort of weird rationing plan.

They make loans when there are credit-worthy borrowers requesting them. They worry about whether they have the reserves to cover the transactions that will follow from the deposits the loans create later. They always know they can get reserves, if not from any other source, from the central bank.

There can never be ‘financial crowding out’ in a modern monetary economy.

And then the “increased government spending stimulates inflation” so “increased government spending can hurt businesses, households and individuals”.

Anyone who submitted that sort of logic in any of my macroeconomics classes without noting how flawed it was would be instantly failed.

All spending carries an inflation risk. Any growth in spending (private or public) can push nominal demand faster than the capacity of the productive side of the economy to respond to it in the form of production of real goods and services.

There is nothing special about government spending in this regard.

2. “The second potential cost of increased government spending is the future cost of paying interest on that debt.”

This is the ‘it is okay to borrow big when rates are low’ story that people, even progressives propagate, presumably to make them feel more comfortable.

And Triggs claims that because the Australian government can borrow cheaply then it should be the stimulus agent.

You cannot make this sort of stuff up.

Think about what is going on.

The government gets the central bank to type in some numbers (at present with lots of zeros after them) into various bank accounts – buying things (medical supplies), paying wage subsidies, unemployment benefits, etc etc.

That’s it. Spending accomplished.

Where is the borrowing in this story?

Nowhere significant.

The deficits add net financial assets to the non-government sector, which is making decisions all the time about how they will manage their overall portfolio of financial assets, with government bonds being part of the mix.

But the funds used by the non-government sector to purchase the bonds, ultimately came from the prior government deficits. In crude terms, bonds are just the accounting record of the spending that was not fully taxed away in the period it arose.

The current interest rates or bond yields are completely irrelevant to the capacity of the government to run deficits.

And whether it is desirable to run deficits is not determined by the current bond yields across the maturity range of the yield curve.

The purpose of fiscal policy is to advance well-being and this requires the government to ensure that spending growth in the economy is matched to the growth in productive capacity so as to achieve full employment and price stability.

That is how we should appraise the size of the deficit. All the neoliberal measures that Triggs seems obsessed with are irrelevant and just disclose a deep ignorance.

Poor Canberrans, waking up to this nonsense.

But the Prime Minister had the right call on this. Stop It! It’s Ridiculous!

Call for MMTed Support

I imagine the current crisis will put a halt on people donating to causes.

But we are making progress in developing the program that will become – MMTed.

I ran my first Masterclass in London recently and it was well attended. I received good (useful) feedback from several people which will help tune the way we run these face to face classes.

The planned further Masterclasses (May in Australia, June in Europe, September in the US) are on hold while we assess the state of the world. But I hope we will be able to offer them sometime this year.

And on-line curricula is being developed.

But we still need significant sponsors for this venture to ensure that we can run the educational program with negligible fees.

If you are able to help on an ongoing basis that would be great. But we will also be appreciate of once-off and small donations as your

You can contribute in one of three two ways:

1. Via PayPal – which is our preferred vehicle for receiving donations.

The PayPal donation button is available via the MMTed Home Page or via the – Donation button – on the right-hand menu of this page (below the calendar).

2. Direct to MMTed’s Bank Account.

Please write to me to request account details.

Please help if you can.

We cannot make the MMTed project viable on a sustainable basis without funding support.

We will always maintain strict anonymity with respect to donations received, except if the donor desires to be publicly associated with the venture and gives their permission in writing to appear on the Donors Page.

Up until now, all donors have wished to remain private.

And we thanks them for their generosity.

Some announcements are coming soon.

Music –

In between the various meetings, this is what I have been listening to while working this morning.

Here is an anthem for progressives. On August 8, 2012, Time Magazine (yes, really) voted this song (poem) one of the – Top 10 British Riot Songs of the Early ’80s.

We definitely need to riot at the moment to push the currency-issuer towards a socio-ecological transition with a jobs emphasis.

Written in 1979 by the Jamaican-born dub-reggae poet – Linton Kwesi Johnson – it was a bold statement to racial minorities in the poorest neighbourhoods of Britain that the National Front racist attacks were not only mindless but would be met with resistance.

As the Time Magazine said:

… if the fascists wanted war on the streets, LKJ and his peers were ready to dish out some righteous licks and “fite dem back”.

LKJ also wrote that:

Writing is a political act and poetry is a cultural weapon.

While – Fite Dem Back – was written about racial prejudice against the migrants in Britain, it is also applicable to all those who oppose government deficits to help reduce poverty while pocketing public largesse for themselves.

This is my anti-neoliberal, street march song – “We gonna smash their brains in, ‘Cause they ain’t got nufink in ’em”

I have always loved LKJ’s messaging.

The Track comes of the –Forces of Victory – album, which was released in 1979. LKJ is based on London and the album was produced in cooperation with Dennis Bovell.

A fabulous array of musicians play with him. On this album, we hear Winston Curnliffe on drums, the great John Kpiaye on guitar (one of my favourite players), Floyd Lawson on bass and the magnificent trombone solo is from Rico Rodriguez, the undoubted best jazz, reggae trombone player of all time.

Turn up the volume, turn up the bass, and move a little in your seats and cancel the Zoom and Facetime meetings for a while … and sing along

Lyrics to help the sing-along:

We gonna smash their brains in
‘Cause they ain’t got nufink in ’em
We gonna smash their brains in
‘Cause they ain´t got nufink in ’em

Some a dem say dem a niggah haytah
An’ some a dem say dem a black beatah
Some a dem say dem a black stabbah
An’ some a dem say dem a paki bashah

Fascist an di attack
No boddah worry ’bout dat
Fascist an di attack
We wi´ fite dem back
Fascist an di attack
Den wi countah-attack
Fascist an di attack
Den wi drive dem back

We gonna smash their brains in
‘Cause they ain’t got nufink in ’em
We gonna smash their brains in
‘Cause they ain’t got nufink in ’em

We could all do a Zoom session singing this song together!

That is enough for today!

(c) Copyright 2020 William Mitchell. All Rights Reserved.