True Economics Applied in the Real World
Nima and Dylan discuss more FEE MMT criticisms.
Sources:
Modern Monetary Theory: Debunking the Latest Incarnation of Government’s Magic Money Tree (https://fee.org/articles/modern-monetary-theory-debunking-the-latest-incarnation-of-government-s-magic-money-tree/)
Modern Monetary Theory and the Unspoken Effects of Inflation (https://fee.org/articles/modern-monetary-theory-and-the-unspoken-effects-of-inflation/)
Western sanctions, in particular the COMPREHENSIVE IRAN SANCTIONS, ACCOUNTABILITY, AND DIVESTMENT ACT OF 2010 have sent Iran’s rial into a tailspin and the dire consequences of this warfare are coming full circle now:
Hundreds of demonstrators in the Iranian capital clashed with riot police on Wednesday, during protests against the crisis over the country’s currency. Police used batons and teargas to try to disperse the crowds.
The day after President Mahmoud Ahmadinejad appealed to the market to restore calm, the Grand Bazaar – the heartbeat of Tehran’s economy – went on strike, with various businesses shutting down and owners gathering in scattered groups chanting anti-government slogans in reaction to the plummeting value of the rial, which has hit an all-time low this week.
(…)
The devaluation of the rial and soaring prices of staple goods are the latest signs that western sanctions – targeting the regime’s nuclear programme – and government mismanagement are compounding the country’s economic woes.
On Wednesday, many foreign exchange dealers and bureaux across the country refused to trade dollars and some currency-monitoring websites refused to announce exchange rates
(…)
The government has failed to bring the rial under control despite several attempts. It has lost 57% of its value in the past three months and 75% in comparison with the end of last year. The dollar is now three times stronger than early last year. The economy minister, Shamseddin Hosseini, said the government planned to “gather up” the unofficial currency market in the latest desperate ditch to curb the crisis.
(…)
Iran is one of the world’s largest oil producers and relies on crude sales as the main source of its the foreign currency reserves. The latest US and EU embargo on the imports of Iranian oil has affected that reserve, sending the rial tailspinning and making the dollar hard to come by.
Here is a chart depicting the black market exchange rate of the Rial:
I actually remember how the Rial experienced its first significant drop in December 2011 which was around the time the stricter oil sanctions were put in place.
The causality chain works as follows: Iranian sellers of oil can’t sell to as many US buyers as before any longer > this means they hold fewer US dollars > this means there are fewer dollars used to buy rials on the exchange market > this means the dollar “price” for the rial drops. (Bear in mind that oil exports are a hugely important part of the Iranian economy.)
I’d say you can even blame your higher prices at the pump these days on this policy.
Of course Hillary Clinton was promptly ready to take no responsibility for the plight that her and other western governments’ actions are causing:
They have made their own government decisions – having nothing to do with the sanctions – that have had an impact on the economic conditions inside of the country.
Sanctions are an act of war. They involve governments threatening its citizens, in particular its businessmen, with prison or other aggression or theft if they dare to sell to or buy from individuals in some proclaimed enemy territory.
But, as we all should know by now, there is no need to look across the pond for the enemy.
It was deja vu time when Federal Reserve Chairman Ben Bernanke spoke today. To all those who remember his helicopter speech, but thought he was kidding: He was obviously not. He is ready to destroy the currency whose stability he is supposed to overlook, prolong the agony of this depression, and then plunge the nation into a hyperinflation of unprecedented proportions. Reuters writes:
Federal Reserve Chairman Ben Bernanke on Monday urged decisive action to protect the economy and said the central bank had alternative tools it could employ to help as interest rates approach zero.
“Our nation’s economic policy must vigorously address the substantial risks to financial stability and economic growth,” Bernanke told the Greater Austin Chamber of Commerce.
Yes, we must address the substantial risks that a reckless monetary and fiscal policy of credit expansion has created.
On a day when the arbiter of U.S. business cycles said the United States fell into recession last December, Bernanke said the economy was still under “considerable stress” and had slipped further since markets crumbled anew in September.
“Households have continued to retrench, putting consumer spending on a pace to post another sharp decline in the fourth quarter,” the Fed chief warned.
Yes, they have cut down on consumption in order to begin generating savings again. Something that the US has forgotten about over the past 30 years. Something that the US direly needs lest it keep moving toward national bankruptcy.
Bernanke said further cuts in overnight interest rates beneath the Fed’s current target of 1 percent were “certainly feasible,” but he suggested the U.S. central bank would also use other unconventional measures to spur growth.
“Although conventional interest rate policy is constrained by the fact that nominal interest rates cannot fall below zero, the second arrow in the Federal Reserve’s quiver — the provision of liquidity — remains effective,” he said.
He said the Fed could directly purchase “substantial quantities” of longer-term securities issued by the U.S. Treasury or government-sponsored agencies to lower yields and stimulate demand.
As a response, 10 yr Treasuries surged again as today and they will certainly keep going down the path I suggested. That this will do nothing but encourage more government borrowing and spending and will plunge us deeper into financial Armageddon goes without saying.
Bernanke also said the Fed could side-step institutions that are reluctant to lend and pump money directly into specific markets. The Fed has already done this in the market for commercial paper, short-term debt companies use to finance day-to-day operations, and last week it announced a program to push funds into markets for consumer-related debt as well.
Yes, the Fed is, in fact, not leaving out a single opportunity to aggravate its credit expansion.
The Fed is widely expected to lower benchmark U.S. interest rates by a half-percentage point to 0.5 percent at its next scheduled meeting on December 15-16. It is also expected to discuss what other policy tools could be used, and Bernanke’s speech was seen as a game plan for likely next steps.
Of course the Fed is well aware that reducing the Fed funds rate to .5% will have no result whatsoever since short term interest rates on the open market are already near 0.
In calling for vigorous action to support the economy, Bernanke said the economy was likely to be sluggish for some time. “The likely duration of the financial turmoil is difficult to judge, and thus the uncertainty surrounding the economic outlook is unusually large. But even if the functioning of financial markets continues to improve, economic conditions will probably remain weak for a time,” he said.
Bernanke’s prophetic predictions in the midst of this crisis are not very impressive, really. Just last year he called the economy sound. He has absolutely no understanding of what is going on.
But he said there was no comparison between the current downturn — already the third-longest since the 1930s — and the Great Depression, when the U.S. economy contracted for over a decade, one in four U.S. workers was unemployed and bank failures were rampant.
“Let’s put that out of our minds. There is no comparison in terms of severity.”
…and I guess this is true because he says so? If anything, this crisis will be much worse than what happened in 1930. Bernanke’s poor judgment is simply deplorable. He truly believes he can fix this thing. Even if he doesn’t solely share the blame for the causes of the recent credit expansions, he has surely done everything he needed to do in order to prolong and aggravate it.
Bernanke drew a distinction between the aggressive actions he and his colleagues have taken and blunders by the 1930s-era Fed, including excessively tight monetary policy and inaction as the financial system collapsed. He said he was being guided in part by his reading of history.
“I made my own mistakes, but I don’t want to make someone else’s mistakes,” he said.
Excessively tight monetary policy? If anything the monetary policy of the 20s was excessively lavish. And the Federal Reserve of 1930 didn’t shy away from continuing it until the banks started accumulating excess reserves. Sound familiar? Sorry Ben, sadly you are precisely repeating the mistakes of The Great Depression.