Wednesday, 19 March 2014

Adair Turner says “QE the entire government debt”

Turner made the above point in this article. Or at least he got near to saying the above. Nice to see someone in power getting to grips with Modern Monetary Theory.
Warren Mosler, a leading MMTer argued some time ago that government debt is a nonsense, and that the only liability issued by the government / central bank machine should be money, or more accurately, monetary base. See second last paragraph here.
I argued the same in 2010 here.
Of course, if the entire debt WERE MONETISED, that would probably be inflationary, thus it would be necessary to take countervailing anti-inflationary measures. I favour raised taxes. Turner has other ideas there. But the important point is that IN PRINCIPLE there is no difficulty in monetising the debt.
As distinct from “principle”, there might well be POLITICAL difficulties, but then there are always political difficulties in raising taxes – even when there is absolutely no resulting effect on GDP, employment or unemployment levels, as would be the case in the debt was monetised in a competent manner.
Also, in saying that there are no difficulties in principle in monetising the debt, I’m not saying that doing so is necessarily a good idea. That is, there are some arguments for debt as long as the interest paid on it is around zero in real or inflation adjusted terms. Personally I’d aim for a small negative rate: that way the country rips off its creditors, and I’m all for ripping people off..:-)
As to the world’s leading debt-phobes, Kenneth Rogoff and Carmen Reinhart, they’ll be completely baffled, and probably won’t know what to think about all this till the day they die.
(h/t to Mike Norman.)


  1. "Of course, if the entire debt WERE MONETISED, that would probably be inflationary..................."

    I think this quote contains the core reason for government debt. Inflation is a loss-of-value for money.

    Government can slow the loss-of-value if government pays people to not-spend the money people already hold. Said another way, government debt is just a contract to delay consumption by the owners of money..

    If we see government debt as a contract to reduce consumption, we need to ask a number of questions revolving around the true nature of "money". Money may be seen not as a "medium of exchange", but as a "gift certificate" or "share of national stock". Money may be seen as having a much more important role as "store of value".

    A change in mindset is required to explore "government debt as an agreement to reduce consumption". I think it would be a fruitful exploration.

    1. You're right. The interest on govt debt is a sort of bribe designed to induce people not to spend. I'd guess most MMTers have got that point, but I'm not sure how many others have.


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