There\’s good bits in his analysis: he makes the same point I\’ve been making for years (thus it is obviously a good bit agreeing with my prejudices as it does) that the debt dynamics are entirely different in a country that prints its own money and in one that does not. Sadly he seems to think this is a revelation rather than a generally accepted truth.
However, he rather goes off the rails here:
Warren Mosler and Philip Pilkington are two economists who dare to think beyond the shackles of Rogoff-style austerity economics. They belong to the modern money theory school, which starts by looking at how money actually works, rather than at how it should work. On this basis, they have made a powerful case that if we just get back to that basic problem of money-creation, we may well discover that none of this is ever necessary to begin with. In conjunction with the Levy Institute at Bard College, they propose an ingenious, yet elegant solution to the eurobond crisis. Why not simply add a bit of legal language to, say, Irish bonds, declaring that, in the event of default, those bonds could themselves be used to pay Irish taxes? Investors would be reassured the bonds would remain \”money good\” even in the worst of crises – since even if they weren\’t doing business in Ireland, and didn\’t have to pay Irish taxes, it would be easy enough to sell them at a slight discount to someone who does. Once potential investors understood the new arrangement, interest rates would fall back from 4-5% to a manageable 1-2%, and the cycle of austerity would be broken.
Well, yes. This is based on the idea that fiat currency really only has a value because the state demands that taxes be paid in it. Very MMT that is.
But the value of the bonds will depend on the volume of bonds as opposed to the taxes that have to be paid with them. Which brings us right back to the same old problem: the volume of debt available to pay those taxes.
If debt were, say, 30% of GDP, then one can imagine, again just as an example, 10% of outstanding bonds being used to pay taxes each year. Say, 3% of GDP. Somewhere around the yield from corporation tax say: that would be a likely source of such redemptions. If corporate treasurers could see a discount on hte bonds then they might well buy them to feed back to the taxman.
Now think that the debt is 120% of GDP and the interest rate on the bonds is high (or, same point, that the discount on the bonds is high, yields moving inversely to price). Everybody sees that they can save 15% on their tax bill by buying the bonds and tendering them. The State can only take in 50% of GDP in tax in any one year (ish, ish). Now it gets all of that in olds bonds being tendered and none at all in cash. In extremis of course.
At whioch point the government is still fucked, isn\’t it? It\’s received no cash at all in taxes that year, only managed to retire some of its debt. To actually pay for anything it must therefore…..print more money or issue more bonds. It can\’t print more money because it\’s in the euro. If it issues more bonds to cover the bonds that are being submitted then the stock of bonds hasn\’t changed and nor has the ability to finance that debt stock over time.
So nothing, in the end, has really changed, has it? They\’re still fucked because they\’re in the euro with a very large debt to GDP ratio.