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Why are so many economists completely dumb?

Why are so many economists completely dumb?

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I just read this from the link below: "However, rather than this money appearing from thin air, he says, "all the funds to pay taxes come only from government or its agents" because they will have printed or minted it."

https://www.bbc.co.uk/news/business-50579897

I am not an economist and it is very obvious to me that money is effectively created from thin air from loans and other credit via our banking system (correspondingly, loan repayments destroy money). How on earth can a so-called economist not understand that? Only about 5-10% of money is physical cash/coins and the rest is bank deposits (unsupported by physical cash).

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RLI
By lionofludesch
11th Dec 2019 10:18

Sounds good to me. Bring it on.

No need for accountants or taxes once this new idea takes hold but I'm starting a new career next month so that won't bother me.

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Replying to lionofludesch:
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By Justin Bryant
11th Dec 2019 10:34

As has been commented here before, taxes are needed to give fiat currency its value in the 1st place. It's mystifying how these so-called experts do not understand this basic stuff about how money works.

Of course governments can print limitless money, but without correspondingly high taxes (to effectively destroy it) it will quickly become worthless.

The US$ retains its value due to the fact that its economy is correspondingly massively valuable (how much is the whole US worth? - a hell of a lot) and so the US Government can easily afford to service its huge debt.

So the UK could borrow loads without a currency hit if that caused a corresponding increase in the UK economy and the chance of that happening with Labour is low to put it mildly, which is why sterling goes higher on a Tory win.

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Replying to Justin Bryant:
RLI
By lionofludesch
11th Dec 2019 10:39

Justin Bryant wrote:

As has been commented here before, taxes are needed to give fiat currency its value in the 1st place.

Fiat ? I thought they were t'things on t'ends o' thi legs.

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By SXGuy
11th Dec 2019 10:35

Maybe point him to the phrase "fiat currency" and ask him to read up on the meaning. If banks can loan 100x its deposits then clearly it is made from thin air.

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Replying to SXGuy:
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By Justin Bryant
11th Dec 2019 10:43

Agreed. It's totally mystifying why these economists (who are supposed to be experts on all this) don't understand this very basic stuff about how modern money works.

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Hallerud at Easter
By DJKL
11th Dec 2019 11:08

Not sure what you object to in his phrase, "all the funds to pay taxes come only from government or its agents" would it help if it had also appended "and pay, or are the mechanism of exchange, for everything else bought and sold for that matter." Money patently is a function of a government to create, the only consequences of how much is what amount of something it can be be exchanged for and the trust that parties have in that measure being maintained.

It is not totally from thin air, no single entry here, the creation of what you are describing as money by the banking system (and it is so long ago I cannot now remember which definition that falls within from little M0, MI et al )has both a debit and a credit, if every debit did not have a credit the very fabric of the cosmos would be rent asunder.

What the above of course does not mean is one can create as much money as one wishes and have a functioning, stable, economy, so the question, like the question of what is the rate to tax an economy, becomes one of degree, how much is too much, a very subjective amount with foresight a readily identifiable amount with hindsight.

Must now away and do some work but maybe we all ought to dust off our dated economics textbooks and spend some time dealing with say some IS LM analysis, there are I think a fair few on here who studied economics beyond the minimum level required by ICAS/ICAEW etc, catch is if they are anything like me they will have forgotten most of it.

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By Justin Bryant
11th Dec 2019 11:33

If you Google "fountain pen money" you can read all about how money is indeed created out of thin air via bank lending/credit (mostly to private individuals/companies but the Government does the same thing by borrowing from the Central Bank).

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Replying to Justin Bryant:
Hallerud at Easter
By DJKL
11th Dec 2019 11:34

A bank lending has, within its accounts, both a debit and a credit re a lending transaction. When it makes a loan it in effect takes a loan, there are no one sided entries otherwise its balance sheet would not balance. The bank by making said loan creates an obligation it has to a third party.

Money is mere obligation, it has no intrinsic worth, accordingly creating and destroying said obligations merely adjusts how we measure (count) how much of it there is, but of course that is predicated on our different measures of money supply that we use.

Justin- from my first degree I do have a reasonable understanding (however dated) of economics as somehow Edinburgh, in their infinite wisdom, gave me passes in same as non Arts subjects within my MA (I also studied economic history as part of that degree- the joys of a Scottish, pick and mix, humanities degree)

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Replying to DJKL:
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By Justin Bryant
11th Dec 2019 11:52

Of course money has intrinsic worth. It's Governments that give it that worth by laws dictating that taxes must be paid in its currency and debts can be satisfied by it.

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Replying to Justin Bryant:
RLI
By lionofludesch
11th Dec 2019 12:05

qewrQEWR

Justin Bryant wrote:

Of course money has intrinsic worth. It's Governments that give it that worth by laws dictating that taxes must be paid in its currency and debts can be satisfied by it.

That's not intrinsic.

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Replying to Justin Bryant:
Hallerud at Easter
By DJKL
11th Dec 2019 12:50

Canute tried to hold back the tide, fat lot of good that did him, a Government cannot give diktats re money, they need consensus expectation of exchange for their diktat to ever hold true.

Have a read of the HHGTTG by Douglas Adams, remember the leaves being used as currency. Money is just a symbol used to convey an impression of value, held up by belief and expectation that someone else will exchange it at some future point in time for something we may want, break that expectation and its intrinsic worth, if in note form, is to burn it for warmth or if in metal form melt it down.

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By SXGuy
12th Dec 2019 10:02

Quantitative Easing, would be another form of creating money from thin air. Government backed bonds give the extra printed money value.

Money is after all just a promissory note. A promise to pay the barer of such note, a sum which is the equivalent value of said note. That in itself says its made of nothing. Since you cant actually repay the equivalent sum without first giving back another promissory note.

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By memyself-eye
11th Dec 2019 11:09

Bring back the gold standard - that's wot I say.

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Replying to memyself-eye:
Hallerud at Easter
By DJKL
11th Dec 2019 11:23

Please don't, it was bad enough just reading about Bretton Woods post event

( 1981-1982 International Economics course- my professor at Edinburgh(whose name I now forget) was so dry in his lectures I used to doze and I can recall the main textbook I used for it was "Wells and it was also dry; but at least it was not American and full of formulae.)

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Hallerud at Easter
By DJKL
11th Dec 2019 11:16

Justin- just to advise ,the reported speaker is actually not an economist so the premise of your statement falls.

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Replying to DJKL:
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By Justin Bryant
11th Dec 2019 11:26

Well, OK, but he shouldn't pretend to be an economic expert on MMT should he and the article says lots of economists agree with him.

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Replying to Justin Bryant:
Hallerud at Easter
By DJKL
11th Dec 2019 12:28

Well they would, we also have a minority "Economists for Brexit"group.

What you have with economists is, like other facets of modern life, a tendency these days for some to push ideas to extreme edges, "well if this is true here then I can push that idea out to here and it still holds true" approach, the trouble is this tends to drown out the centre ground consensus.

The art of living in the grey ,between black and white, is being lost.

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By johnhemming
11th Dec 2019 11:42

As with many things there are different types of money supply (often called things like M0, M2). The difference does actually matter.

At times when the government prints money just for it to be spent then we get hyperinflation. At other times when the government prints money (now just electronic book entries) to buy assets the it reduces the yield of the assets.

There clearly are some limits on increases in narrow money supply, but it is also possible for it to increase without hyperinflation happening (as that actually does happen other than Quantitative Easing).

MMT, however, tends to be much like the theories of increasing the money supply that caused many examples of hyperinflation in the past.

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Replying to johnhemming:
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By Justin Bryant
11th Dec 2019 11:48

It is a complete myth that QE (directly) creates money via money printing or otherwise. When you understand what modern money actually is QE is essentially no different to a bank converting its long term deposit savings account to a current account (so as to encourage it to lend those funds out, but if there are no good lending opportunities it will keep it as reserves and so no new money is created).

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By johnhemming
11th Dec 2019 13:52

https://www.bankofengland.co.uk/monetary-policy/quantitative-easing

bank of england wrote:
Money is either physical, like banknotes, or digital, like the money in your bank account. Quantitative easing involves us creating digital money. We then use it to buy things like government debt in the form of bonds.
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Replying to johnhemming:
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By carnmores
11th Dec 2019 14:20

When i put my card in the ATMs my quantatively eased comes out in physical form. Magic isnt it i can remember why you were a Lib Dem MP. Liked Clegg but not Faron and dear old Swinson is muddled and may well lose her seat

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By carnmores
11th Dec 2019 12:46

same reason as why solicitors and accountants are dumb and the most of the rest of society for that reason me included. the professional classes tend to assume that they have a monopoly on wisdom.

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