The Treasury, the Reserve Bank, and us all.

[McDuck]

-

Prelude:
Virus hits.
People stop, drop and cover.
The economy slows.
Money pours in to keep the wheels turning.

Question:
Where did the money come from?

Answer:
Reserve bank, "It was made out of thin air".

Observation:
You mean how when you're standing in line, and someone cuts in front of you, no one really loses anything?

-

[roughy]

There are no financial constraints at all:

https://independentaustralia.net/politics/politics-display/modern-monetary-theory-covid-19-and-the-economy,13726

[McDuck]

There are no financial constraints at all:
https://independentaustralia.net/pol...-economy,13726

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Great Article.
Thanks for that.
-
In a strange way there are constraints.
Take the parallel between creating money out of thin air and creating a position in a queue out of thin air.
-
If it was a queue to a fruit shop, for example, and the apples ran out, that would cause disruption.
If some apples were big and ripe, but some were small and rotten, that would cause disruption.
-
If a constant stream of people just kept cutting in, that would cause disruption.
If someone (at the head of the line) kept Letting their friends in ahead of them, that would cause disruption.
-
At some point the civility is going to break down.
That's one of the many constraints
-
People abandon a system that isn't working for them.
And at that point, everyone looses.
-
Don't get me wrong, capital has it's uses.
But is often abused.

[roughy]

-
Great Article.
Thanks for that.
-
In a strange way there are constraints.
Take the parallel between creating money out of thin air and creating a position in a queue out of thin air.
-
If it was a queue to a fruit shop, for example, and the apples ran out, that would cause disruption.
If some apples were big and ripe, but some were small and rotten, that would cause disruption.
-
If a constant stream of people just kept cutting in, that would cause disruption.
If someone (at the head of the line) kept Letting their friends in ahead of them, that would cause disruption.
-
At some point the civility is going to break down.
That's one of the many constraints
-
People abandon a system that isn't working for them.
And at that point, everyone looses.
-
Don't get me wrong, capital has it's uses.
But is often abused.

Thanks McDuck, it is definitely fascinating. I did a bit of reading over the lockdown!

With regards to money it's unlimited as the government is not constrained to something they can create out of nothing hence they could run deficits and borrow for ever if they wanted to.

The better question to ask the government is not how you pay for it but, how do you resource that?

Is it fair to label the queues you refer to as the demand?
If demand is high prices inflate leading the currency to devalue. The break down is that if everyone is getting payouts for long periods of doing nothing then nothing is produced which outweighs the price to products/services ratio and in turn, inflation.

When you buy a beer at the pub on a tab it creates credit out of thin air, when you can't repay it it creates a domino effect. The short term advantage of the government spending with new money is that it can fill these credit voids which allow business to recover faster.

My thoughts on it anyway!

[klauster]

-

The economy slows.
Money pours in to keep the wheels turning.

Question:
Where did the money come from?

Answer:
Reserve bank, "It was made out of thin air".

-

Central banks create money, governments borrow it based on parliamentary approval by sending $$ numbers into bank accounts. For businesses and consumers the constraint is the ability to spend it – demand and the supply (=inflation). In other words - not economists rather than politicians manipulate economies.

That works on floating rates not on fixed rates like gold standards abolished by US (think in 1971). If you look at the post WII situation e.g. the USD and the US economy reached world domination. But also note the West Germany’s economic miracle based on the concept of social market economy driven by the currency reform (Deutsche Mark).

In comparison of the impact of Covid-19 on the world economy I would not trust any economist because - have they ever been right with their predictions? And debts need to be served, right?

[McDuck]

Central banks create money, governments borrow......And debts need to be served, right?

It is a tangled web they weave.
Money manipulation has become a sophisticated game they play.

[McDuck]

…. it is definitely fascinating. I did a bit of reading over the lockdown!
... how do you resource that?
...
Is it fair to label the queues you refer to as the demand...

In theory they could produce unlimited money.
In practice, the goods would run out.

The queue example I used.
That was an attempt to demonstrate how access to money puts you at the front of a queue.
It lets you push in front of people who have been waiting.

Consider an auction for a house.
In that queue there is only one apple.
And the person with the access to the most capital gets to go to the front.

As for overall economic theory.
I think about it in simplified terms.
Stripping out all the distractions.

I consider two boxes.
the Public in one box, and the Government in the other.

The money rules are different in each box.
But the money goes between the boxes.

Inside the government box, there is the treasury box.
They may pass money back and forth between themselves.
Just as a king of old might melt down his gold ornaments to fund a small army.

In our box, the public box, is the bankers box.
They have slightly different rules and privileges than we do.

Those four basic boxes can make it easy to track things.