Re: fiscal deficit - Mosler addendum

[Warren Mosler <mosler@xxxxxxxx>]

>
>
> I am still at loss as to how you define money (or 'currency' or 'net nominal
> wealth' if you prefer that).

I never used the term 'money' so there is no need to define it.

>
>
> I see two definitions, both of which are based on how that stuff (which I
> will keep calling 'money') enters the system: by spending alone or by
> lending and spending. Clearly for the sake of symmetry, if money is injected
> only by spending then it must be withdrawn only by taxation (including fees,
> etc.). Similarly, if money is injected by spending or lending, then it
> should be withdrawn by taxation or borrowing.

Since you are defining 'money' as above it's your prerogative to define it as
you like.
It's really much more useful to simply not use the word, especially defined as
above.
And I'm not sure why you insist on defining/using it, but you are entitled to
for sure.

>

>
>
> Let's for the sake of the argument call the 'spending only' concept MA, and
> the 'spending and lending' concept MB. The change by transaction in the
> amount of money will be given by
>
> \delta MA = Govt Spending - Taxation

I call this the change in net nominal wealth.

>
>
> \delta MB = (Govt Spending + Govt Lending) - (Taxation + Govt Borrowing)

Your delta MB is the change in 'cash plus reserves.'  That 'aggregate'
doesn't really tell me a lot given a floating exchange rate.
Adding 'govt. securities' to it gets us back to net
nominal wealth, which I find useful.  On a practical level, the mix of the 3 is
'fluid'
as the CB readily accommodates the private sector's desired mix as the CB
supports the interest rate it has targeted.

But hey, if you want to carve out 'cash plus reserves' in a floating exchange
rate
discussion, fine.

> Cumulating (integrating) these over time, and adjusting for any valuation
> changes in the outstanding stock of instruments, we get the stock of MA and
> MB respectively.
>
> MA corresponds to what is normally called 'government debt', so if this is
> the concept you have in mind, I'd urge you to call it 'government debt'
> instead of 'net nominal $$' or something like that.

As above.  I think I have made my aggregates clear from the beginning;
Net nominal wealth is the sum of the three components, as taught in Macro
30+ years ago.  I suspect modern day 'monetarists' don't focus on that one
anymore.


> It would simplify
> communication. (You may want to confine your accounts to the
> dollar-denominated part of government operations, but that is a relatively
> minor point.)

A floating exchange rate currency IS a closed currency in that it can be
expressed
on one T account.

>
>
> Now, MB corresponds pretty closely to what is normally called 'high-powered
> money' HPM (the difference consists of reserve deposits at the CB),

Your MB does include reserves at the Fed, the way I read it.

> or even
> more precisely 'circulating currency'. So if that is what you mean, perhaps
> you should call it HPM or circulating currency.
>

It I wish to discuss 'cash' or 'reserves' I simply use those words.  I see no
point in
adding an additional word that at best could lead to confusion.  That being
said,
if I was using the aggregate 'cash plus reserves' I might then use the term HPM
to
describe it.  But I have rarely (though not never) used that aggregate in any
analysis.

>
> Warren wrote in part:
> > 'Taxing' ('involuntarily' at
> > the micro level)
> > directly reduces $ held (cash or 'demand deposit/reserve balance') by the
> non
> > govt sector.  'Borrowing' (voluntarily) exchanges a 'time deposit' (govt.
> > security) for cash or a $ balance (demand deposit) at a bank.
> >
> > After a tax has been paid, net nominal wealth is lost.  After $ are 'lent'
> to
> > govt. net nominal wealth is
> > maintained but in a different form.
>
> Per says:
> Well this is the point. If 'net nominal wealth' is the concept, then you are
> working with MA.

Yes, as above, recognizing that MA as above is incomplete.  It doesn't allow for

the fact that the CB allows the private sector to select the mix of the stuff it
(ultimately)
receives from the government- cash, reserves, and/or tsy secs.

> 'Net nominal wealth' cannot be lent into existence or
> borrowed out of existence - it results from spending and taxation.

ok.  I think I have made that point, too.

Another question, which was debated extensively in the economic literature

> some decades ago, is whether it is right from an accounting point of view to
> regard government debt as 'net wealth' for society as a whole. The usual
> accounting convention is to add government debt to private wealth, and
> subtract it from government wealth, so that in the aggregate, it adds
> nothing. It sounds like you're making the point that the subtraction part
> should not be made. Fine with me - in fact I am in the same business myself.

With a floating exchange rate, I count net nominal wealth (cash, reserves, govt
secs)
it only as nominal wealth.  Not 'real' wealth.

>
>
> Convincing others may be harder, though, since it violates the principle
> that only 'real stuff' (structures, equipment, etc.) is net wealth to
> society as a whole and that financial assets (including government-issued
> ones) are wealth to the creditor but negative wealth to the debtor, so
> cancel out in the aggregate.

Right.

> What you are arguing, I sense, is that that
> 'currency' is somehow 'real stuff'

No.  I'm surprised you think I have argued that.  I am careful to use the
word nominal when I mean nominal, and real when I mean real.

> even though it is intangible so we can't
> touch or see it. I think you are right but what you do by accepting that
> principle is you open up a Pandora's box (which I, incidentally, have spent
> a good deal of time unpacking) since the same principle must apply to all
> sectors. I don't think you can say that what the government issues is 'real
> stuff' but what GM issues is not.
>
> Some miscellanea:
>
> Per wrote before:
> > > Government debt is after an order of magnitude
> > > greater than high-powered money.
>
> Warren asked:
> > ?  Missed that one.
>
> Per says:
> What I said is simply that the dollar amount of MA is a lot greater than the
> dollar amount of MB.
>

Ok, as it includes govt. secs.

>
> Per wrote before:
> > > High-powered money, after all, is convenient in that its nominal value
> is
> > > fixed in terms of currency units, which is not the case for bonds, bills
> or
> > > any discounted instrument.
>
> Warren wrote:
> > They all have a maturity value (and a present value if you wish to use it
> for
> > some purpose).
> > Do you think an aggregate consisting of 'deposits' of varying maturities
> is
> > anything peculiar???
>
> Per says:
> In a sense it is peculiar, although I am just pointing to a general problem
> in dealing with non-negligible maturities.

Many of the Fed's aggregates include both overnight and time deposits.
That's why it doesn't strike me as 'peculiar.'

> If you were to define money in
> terms of cash and demand deposits, this aggregation ambiguity would vanish
> since their maturity is zero.

right.

> Otherwise, I'd advise you to look into the
> literature on 'Divisia indices' of monetary aggregates (Barnett and Serletis
> have a recent book on that).
>
> Per wrote before:
> > > Further, even with that in place, the ordinary
> > > Keynesian issues of spending vs. saving would be left undealt with.
>
> Warren wrote:
> > ???
>
> Per says:
> Saving and hoarding are not the same thing. If you work with MA you will be
> dealing with saving; if you work with MB you will be dealing with hoarding.
> A theory explaining hoarding does not explain saving, and vice versa. So it
> all depends on your conceptual framework.
>

Isn't that fixed exchange rate stuff???  This theme is recurring in this
discussion-
I think you are using analysis useful to fixed exchange rates when the topic
is floating exchange rates?

> Warren wrote:
> > Logically, tax liabilities in some form come first, then spending, then
> tax
> > collection
> > with a floating exchange rate currency.
>
> Per says:
> We agree that tax liabilities (not 'taxation', which is too imprecise since
> it does not distinguish between accruals and disbursements) come first. But
> in the second step, there should be 'spending and lending', not just
> 'spending'?

Sure!  I recall I was just adjusting your statement.

> And 'tax collection' should read 'tax collection and government
> borrowing'?

Right!  From inception Govt. can collect taxes or borrow only after it spends or
lends.

w

>
>
> Best,
> Per
>
> _____________________________________________
> Per Gunnar Berglund
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