If only he could piece things together

So what is actually happening is that, exactly as modern monetary theory says, government cash injections create private saving. And when the government injects money into the economy private wealth increases. The government has done that through QE and not debt, but there’s still more money, and the reality is that as this chart shows a great many people will have a great deal more savings as a result.

So is there a cost to all this? Undoubtedly there is. But it’s not to the government, where interest costs are falling. It’s to society at large as inequality grows. That’s the side effect of this crisis.

Oh. Cool.

On the very same day he also tells us that:

In other words, negative real interest rates are here to stay for now.

Which is interesting, don;t you think? For investing in something with a negative real return doesn’t look like a great way to get rich….

5 thoughts on “If only he could piece things together”

  1. The whole purpose of the government cash injections are to create private spending, to alleviate the cut in spending due to lockdown.
    MMT says *nothing* about this as it doesn’t envisage lockdown.

  2. That’s nonsense. (of course). That extra money must come at the expense of devaluing the value of holders of existing money. aka ‘inflation’. If you double the quantity of a commodity or product and all things being equal you halve its price. Or have I missed something?

  3. At least we now know for sure that Stephanie Kelton’s book is not worth serious effort to read.

    “I have some interest in Stephanie Kelton’s book ‘The Deficit Myth’. My name is on the back cover of the UK edition, after all.” Richard Murphy

  4. “For investing in something with a negative real return doesn’t look like a great way to get rich…”

    One of the reasons for negative interest rates is to deter foreign capital inflows. This is because foreign investors can still make money on negative interest rates if the currency is appreciating. Here is a quote from an older article:

    “The implied forward exchange rates for any pair of currencies is determined by the spot exchange rate, the differential of the money market rates for that tenor and the cross-currency basis swap, which essentially measures the demand and supply mismatch for the two currencies. For the purpose of this discussion we don’t need to understand the details of the basis swap. The only thing that the reader needs to know is that if he buys a German Bund at a negative yield of -0.25%, and then if he hedges the currency risk by selling the Euro currency forward to convert the proceeds over the hedge horizon into dollars, he is selling the forward exchange rate at a higher price than the spot exchange rate, so the difference between the forward exchange rate and the spot exchange rate can be considered additional “yield” coming from the hedge.

    This forward currency hedging generates about 3%, so when we add 3% to -0.25%, we now have a negatively yielding ten year German Bund yielding +2.75% for a US investor! Similarly, a 3 month German Bund yielding -0.50% is about 2.5% hedged yield, and a two year German Bund yielding -0.67% is equivalent to a 2.30% hedged yield. On the other hand, for a Euro based investor, the act of hedging the currency risk reduces the yield of a ten year maturity Treasury note to -0.83%! In other words it converts positive US dollar yields (for a US Dollar investor) to negative yields (for a Euro investor).”
    [end quote]

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