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Learning the hard way

Many of us have felt the anger, frustration and fear caused by our government’s inaction on climate change. Many more of us have felt the devastating consequences of the drought, bushfires, storms, floods, heatwaves and water shortages. Our country is so large that we can be experiencing all these things at the same time.

Scientists’ increasingly strident warnings have been ignored in favour of greed. ScottyFromMarketing went with “I will not take any action because I cannot look Australians in the eye and tell them how much it will cost and what it will mean for their jobs.”

Seemingly miffed at being ignored, Mother Nature decided to up the ante and send us the corona virus to remind us that there are more important things than a surplus.

All of a sudden, when the rich and powerful find themselves equally vulnerable, advice from scientists is paramount. We will listen to them and spend whatever it takes to deal with this crisis.

All of a sudden, the value of early preventative action and mitigation is being stressed. No-one is suggesting there have always been viruses and we should just adapt.

All of a sudden, the stock market is revealed for the hollow construct that it is. One speech by that fool in the White House wipes trillions of dollars away in an instant.

We are being forcibly made to rethink our values and, so far, we are not covering ourselves in glory with our generosity and concern for others.

We are being made to realise the down side of globalisation and the loss of domestic industries and manufacturing. The obsession with maximising profit has diminished our capacity and resilience and has made us dependent on a world that is a long way away.

Privatisation has delivered profits to shareholders but has exposed industries to risk that the taxpayer is now having to bail them out from.

I wonder if the wealthy rue their tax avoidance when it leaves us with over-worked under-equipped hospitals?

We will get past COVID19 but, unless we learn some lessons about curbing our greed, listening to experts, and mitigating risk, this current crisis is just a taste of things to come. The disasters and deprivation caused by a hotter planet could cause global anarchy. As we line up hoping we can buy a few potatoes, people in the US are lining up to buy guns.

Can the world heed the cleansing of the temple? Can we learn there are more important things than wealth? Can we change our priorities from profit to sustainability? Can we learn to share?

Or will future wealth be measured in toilet rolls and bullets?

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49 comments

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  1. David Evans

    “I wonder if the wealthy rue their tax avoidance when it leaves us with over-worked under-equipped hospitals”?….. Wondering how long before full scale anarchy and civil disobedience breaks out?

  2. Kerri

    ##“I wonder if the wealthy rue their tax avoidance when it leaves us with over-worked under-equipped hospitals?”

    Of course not Kaye Lee. The wealthy all have wealthy doctor friends and can pay their way to superior health care.

  3. Ken

    Aint it great to see Americans queueing up to buy guns to shoot the Covid19 virus !!!

  4. 3poodles

    Won’t happen david, we’ll moan and groan and go to the fridge for another beer. For how long have we had front row seats to the destruction of australia, we witness repeated lies/rorts etc, and many of those involved in those matters get re elected time and time again, some with increased margins. We deserve what we now have, we have/are being shafted, and this will continue. We have allowed toxic agendas to infiltrate govts, and they govts are attracting like minded candidates to further the evil. Average punter is taxed to the maximum, whilst mega companies/corporations pay a pittance all legal. Average punter is pure fodder.

  5. DrakeN

    @3poodles:

    “Average punter is pure fodder.”

    Sheeple, I reckon.
    Happy to be fleeced at every opportunity until eventually lead to the slaughter.

  6. johno

    One small mercy is we don’t have the American gun culture here. As much as many of our daft politicians pander to Americana.

  7. eefteeuu

    3poodles

    Spot on.

  8. George Swalwell

    Well done Kaye. She moves easily and
    movingly from scorn and disgust to
    essential issues for us, in all countries,
    about greed, viability of the planet and
    seemingly incurable selfishness of those
    (who, being human too) are suddenly
    aware of climate and disease emergencies.

  9. Vikingduk

    And nature’s disaster reveal us humans in our true form, that of fck you jack, I’m alright, greedy, ignorant peasants, unable, unwilling to wake the fck up, blinded by a grossly corrupt media and pandered to by morally bankrupt, incompetent, lying, thieving, ideological riven buffoons. Welcome to the new normal as nature says enough, no more, absolutely had enough of us ungrateful fools. The space between disasters shortens crumbling our bullshit constructs, showing us our mean spirits. I think nature’s way now is that of ridding this most beautiful planet of the scourge of humanity. Incrementally increasing as we succumb to panic and fear.

    Life could have been/should have been so different for us humans, perhaps all that was ever required was to realise we are the caretakers and not the controlling plunderers, using this great gift of free will to choose life.

  10. Baby Jewels

    3poodles. I couldn’t agree more.

  11. TuffGuy

    And here in Australia we have our national carrier, Qantas, who earn profits in the billions yet pay ZERO tax and still hold their hands out for taxpayers to bail them out. And at the same time go and sack 20,000 workers. I bet Mr Joyce will suffer no loss or reduction in his paypacket.

  12. 3poodles

    tuff guy………the salary paid to joyce is beyond obscene, plus who knows what covert bonuses, it’s breathtaking. He and his elk have groomed aspiring underlings to allow this obscenity to grow.

  13. RomeoCharlie29

    A government that wasn’t so ideologically opposed to public service might see the request/demand by QANTAS for a bail-out as an opportunity to buy back into the national carrier and use that share to reduce the obscenity of a $28 million salary for its boss. If I was Scummo, I might be a little bit peeved that Jones gets paid more than 50 times his salary, and correct me if I am wrong running ( putatively at least) this nation involves a bit more economically than running Q.

    Come to think of it, perhaps any bail-out of a private company should involve equity. We, the taxpayers are paying after all, why shouldn’t we get something for that money?

  14. Matters Not

    RomeoCharlie29 you speak sense. The government, elected by citizens (NOT taxpayers like the Big 4 Banks, BHP, Oil and Gas companies et al.), should consider doing to QANTAS what the citizen elected Italian government is doing to Alitalia.

    The Italian government has today announced a variety of ways in which they’ll provide aid to businesses, and among those is €600 million of additional funding for Alitalia. With this plan, we’ll see Italy’s Ministry of Economy and Finance form a new state-owned business to run Alitalia.

    Italian Government Takes Full Control Of Alitalia

    In similar vein, Spain has nationalised all its private hospitals.

    https://www.businessinsider.com.au/coronavirus-spain-nationalises-private-hospitals-emergency-covid-19-lockdown-2020-3?r=US&IR=T

    Shouldn’t let the chance sail past. We, the citizens, should take control from taxpayers (regardless of size) who simply pay tax because they are legally obliged to so do and use our public funds to serve our ends.

  15. Ray Tinkler

    I wonder which American’s fear the most? The Covid-19 virus floating in the air, or lead flying about in the air.

  16. calculus witherspoon.

    Do the wealthy regret not having paid their dues when social infrastructure breaks down?

    Roflmao…hahaha.

  17. Kaye Lee

    “Chief executive Alan Joyce has foregone his salary for six months.

    Joyce’s total remuneration last year was A$23.8m although his base salary was A$2.17m.”

    That’s one hell of a bonus he gets. Poor petal will have to survive on just $12 million this year.

  18. Matters Not

    At times like this, MMT advocates should be in full voice. It’s apparent when all this settles down (whatever that future looks like) there will be an abundance of available labour power – including vast numbers displaced by technology as surviving (and emergent) businesses look for new ways of doing things.

    There will be demand, labour and technology (defined in terms of new techniques) and what will be desperately needed is access to capital. Enter MMT.

    Totaram is needed.

  19. Kaye Lee

    I think the current situation shows that MMT is really a matter of semantics. They can find the money to do whatever they want, they just have to account for it. For me, it is the MMTers absolute pooh poohing of accounting that brings them down. They say money is spent into existence, which is kind of true, but they refuse to acknowledge that this somehow must appear on an accounting balance, or they just don’t care about such things. It drives me mad.

  20. Matters Not

    KL when discussion of money matters gets really serious, it’s worth (re)reading the works of Georg Simmel. Philosophy and Money.

    money provides the lubrication to reconcile and ultimately synthesize systems of value that are initially entirely distinct and incommensurable.

    Don’t think I will ever fully appreciate his insights but at least he clears a few cobwebs from time to time.

  21. Kaye Lee

    MN,

    I enjoy philosophy but my passion is maths. You have to make stuff add up and that is why I end up in endless arguments with people with whom I largely agree about MMT. The potential and capacity are there but you cannot ignore the mechanics. The philosophy is attractive but the explanation always lacks necessary details. Questions are answered with analogies or reference to the same few sources who don’t answer the question raised. It gets like a mantra that everyone believes but no-one understands.

  22. Matters Not

    Re:

    You have to make stuff add up … you cannot ignore the mechanics.

    While I may be part of your hypothetical ‘you‘ (and I think I am), I also recognise that not all people operate that way. For example, the vast majority of people across the world believe that there is a higher being who controls all that we do. And they believe that without a shred of evidence. They create their own reality. (And they invariably suffer the consequences of that frequent misconstruction.)

    Nevertheless, one must entertain the idea that what constitutes rationality itself might be a construct. Having an ‘open mind’, a ‘critical consciousness’ and all that

  23. Kaye Lee

    Stuff still has to add up. I can think of many ways to make it do that. I could answer my own questions about MMT. They just don’t deal with what is.

    For example, I have been endlessly told that the main reason for taxation is to make demand for our currency. That being the case, we REALLY need to raise it big time because everyone is selling AUD off. That whole argument is ridiculous to me. It’s not having to pay taxes in AUD that dictates demand. It’s trading in the financial markets.

  24. RosemaryJ36

    Kaye – I think the answer on MMT is that the more money you print, the lower the exchange value of the currency.

  25. Pingback: Learning the hard way #newsoz.org #auspol – News Oz

  26. Kaye Lee

    Rosemary, no-one ever answers me when I ask what would be the effect on the exchange rate and I do understand that is influenced by various different factors.

    For me, I would summarise the MMT message as government spending is not constrained by taxation …..but none of the actual MMTers ever like that translation

  27. Kaye Lee

    Rosemary,

    If you are still up, I need advice. I have a trip to the NT with friends booked and paid for leaving end of April. Would Territorians rather we didn’t come?

  28. paul walter

    Just browsing my FB and it pops up that Morrison, who has been keen to see schools remain open, is homeschooling his kids at the Lodge.

  29. Marcus Champ

    Rosemary J36 IN regards to “the more money you print the lower the exchange rate” is both definitely NOT an answer from MMT and far too simplistic an answer…and as for the suggestion from Kaye Lee we need LOTS of taxes to hold up the currency as it is currently falling is also NOT an MMT answer or true. I also don’t understand the statement “government spending is not constrained by taxation…but none of the actual MMT’ers ever like that translation”…makes no sense and suspect there is something I must be missing? because a key insight of MMT is exactly that…Government spending is not constrained by taxation.

    The detail behind this observation is more complex however, as Government spending (indeed it should be noted ALL spending, this is often missed) is constrained by the impact on inflation. Furthermore, it needs to be recognised inflationary pressure comes in different forms or types, with two key types being:excessive demand overcoming supply; and supply shocks drastically reducing supply to be well below demand.

    In both cases the basic issue is that there is a demand-supply imbalance…however the tools to address the two types are somewhat different. One of the tools however, particularly in the case of excessive demand is taxation which removes cash from the money supply and dampens demand, but it is not the only one and not even the most powerful one. This is not the only purpose of taxation, but it is nonetheless an important one.

    When it comes to financial markets…as the current episode is demonstrating they are largely controlled by herd mentality, irrational emotion, misunderstanding of the financial system and stupidity…there is nothing to explain, because they are deeply flawed. There is a reason predicting currency movements is generally recognised as the “window-maker trade” and pointless fretting about it.

    Plus whats the problem with falling currency anyway? for the average person it makes little difference, indeed in “normal” times it is a self-correcting mechanism that helps stimulate the economy and frankly our exchange rate has generally been far too high in the last decade. The main point being however to say “printing money” devalues the currency is far too simple, and NOT true.

    A key comment overall however is it is important for people to acknowledge their knowledge gaps and making blanket statements about MMT, while clearly not knowing much about MMT is not helpful. I would also like to add accounting for the money flows is a key feature of MMT, particularly in terms of sectoral balances so I also find the idea of MMT’ers poo-pooing accounting as odd and likely another example of those who don’t understand MMT probably should be doing a lot more reading first, before commenting about MMT. As an MMT’er I am VERY aware of the need to account for the flows of money to ensure policy objectives are being met and signs of economic imbalance are monitored.

    Lastly, in reply to “Matters Not” the current situation is demonstrating how the monetary system actually works and as an avid MMT’er I am definitely yelling this out to everyone I can.

  30. Matters Not

    Marcus Champ, good to see that you are ‘yelling’. But while ‘yelling’ might be necessary it’s somehow not sufficient as demonstrated by the lack of acceptance by both the citizens and (more importantly) the political ‘class’.

    Not sure how to solve that problem – but that’s where the blockage is. By their arguments you shall know them

    Good to see you return! Unfairly and unjustly targeted in the first place.

  31. Jack Cade

    I have just watched George Galloway’s latest ‘Mother of all talk shows’ (MOATS) in which he interviewed a ‘leading economist’ who advises many governments. Galloway asked him about the prospects for the global economy in the light of the Virus pandemic. I didn’t register the man’s name, but his comments were interesting and shocked Galloway rigid, to the point where he sat stunned for several seconds.
    The man claimed, inter alia, that governments being forced to nationalise some essentials like airlines was communism, that one good thing about the pandemic was that nobody talks about the environment anymore (I would have thought that eating wild animals that probably should not be eaten is an environmental issue) and that the best thing that could happen would be that the ‘fascist Venezuelan Maduro government would be crushed and the worlds greatest reserves of oil would be freed for exploitation by the free world.‘
    Galloway is a supporter of Maduro,
    Plus, contrary to the general view, Trump
    Is apparently widely admired throughout the world and his polling in the US is higher than Obama’s was at its highest.
    These assertions might be right; I hope not, but that’s just me. The LW Galloway clearly hoped not, too. But the man was a boots-under-the -table one-percenter, and presumably spoke for them.

  32. Terence Mills

    Interesting that the government are adopting the precautionary principle when it concerns the coronavirus but whenever this principle was suggested in relation to climate change the coalition ridiculed it.

    That’s the difference when you have scientists at the table.

  33. Kaye Lee

    Marcus,

    I could not possibly read any more about MMT. For years I have been reading and asking questions and the things I said in my comment are a result of the confusing answers from MMters who themselves seem to disagree.

    For example, the taxation thing. I have been told time and time again that the purpose of taxation is to create demand for our currency as it has to be paid in our currency. Whilst I understand this is the case, I fail to see how it would create demand. My comment about increasing taxation was flippant and in response to this aspect that is so often stressed by MMters and the crashing of the value of the dollar. It was not a serious suggestion. I do however get uncomfortable with the idea that taxation destroys money. I have argued that I understand it removes it from the economy but it is actually deposited into an account so I don’t get the “destroyed” part other than it being removed from circulation.

    Our exchange rate does have large consequences for importers and those who buy imported goods. It also has an enormous impact on those travelling overseas.

    I have absolutely no problems with the concept of MMT. I understand about its potential. I prefer to say government spending is not constrained by taxation because the money cannot just be “spent into existence” as I am continually told without some form of accounting for it which is exactly what we do now with bond issuance to cover the deficit.

    If they allowed the RBA to buy the bonds directly, no problemo – but they don’t. They only allow them to buy on the secondary market which means the debt is to others rather than to ourselves. I understand that debt can always be serviced and have no problems with that.
    \
    I am also uncomfortable with the conflating of the RBA with the government and the idea that it is the RBA who issues currency, it isn’t (other than cash).

    And I get rather tired of being told I don’t understand. In my opinion, MMTers give out very conflicting messages.

    I get the sectoral balance thing. It does not really answer my questions about how the money the government “spends into existence” is recorded. Surely it is just by the issuance of bonds to cover the deficit? In which case, we already do that which is why I say it is a matter of semantics.

    I understand about inflation and spare productive capacity in the economy (or supply shocks etc). That part doesn’t worry me.

    And please, no more Bill Mitchell. He is not a good communicator in my opinion. I have watched the videos. I have listened to Stephen Hall and Stephanie Kelton. People refer to the same links over and over and over.

    Don’t assume my questions come from not having read and listened. They come from inadequate and conflicting answers from MMT proponents.

  34. Terence Mills

    Without wishing to sound like a Monty Python sketch, my relatives have reminded me that toilet paper was a luxury we couldn’t afford in the old days and Dad would put an old phone book in Thunderbox Dunny down the yard and you had a choice of yellow or white pages.

    There were, however, complaints if Womens’ Weekly was left out there as it had glossy pages and failed to do the intended job with any efficiency.

    A communal bowl of water for washing hands had to be used with economy unless it had rained and the tank was full.

  35. Kaye Lee

    Terence,

    I had just convinced myself to finally throw out my Encyclopaedia Brittanica – I might hold off. They have nice thin pages.

  36. Michael Taylor

    Terence, I can’t use the pages from the phone book as toilet paper.

    I’ve kept our old phone book and am using it as my address book. “How?” you may well ask…

    Simple. I’ve crossed out all the names of the people I don’t know, and kaboom … there’s my address book. 😂😂

  37. ChristopherJ

    Late to the conversation as usual, Kaye. Thank you for keeping the sunlight on the worst govt in my life. On MMT, the usual accounting for deficit spending (spending more in one period than you have tax receipts is: Dr Cash, Cr Loan (bonds); Then, as the money is spent, it is: Cr Cash, Dr Asset/Expense item. But you should note that legislation compels our Federal Govt to either use ‘dollars’ from the Consolidated Revenue Fund (our taxes) or from borrowing. These Acts can all be changed, but there will never be the political will let alone the public and media acceptance of such changes.

    Yet, if MMT were permitted by the Federal Govt, the accounting would be, something like, Dr Expense (say welfare payment) Cr MMT (a liability account, which simply keeps a tab of things. What is missing here is the need to have cash in the Consolidated Revenue Fund before public spending is committed by a Minister or his delegates. Which leads to why we need taxes at all – to take the excess dollars people have out of the economy.

    Our founders were very wary of giving a government unlimited funding as they could then go on to satisfy all the whims of the electorate, hence the legal construct of the Taxation Act, the FMA Act, Budget Bills, Consolidated Revenues and so on, all crafted by conservative public servants wary of giving governments too much power.

    And, people are quite right to fear rampant inflation and a declining currency from implementing MMT. Yet, these would be within our power to control and influence within an MMT framework. Inflation will happen if money is spent which is beyond the capacity of the economy to absorb. (Yet, no one seems to mention that a sovereign govt’s power to control price increases should it choose to obtain such a power from the Parliament is always there.)

    Exchange rates would decline if a Govt were profligate with it’s MMT spending, as the excess tends to head overseas (creamed from the top and, as they’re super profits, a high proportion of it is spent on overseas goods/property and into the investment banks). But supply and demand for the AUD determines everything as well as the value of our goods and services compared to overseas. We are not some third world country, yet. The AUD will find its floor and has a lot of support around the world in normal times. These are not normal times and we need a UBI for every citizen, taxpayers or not, including children, but not visa holders. If they’re out of work, they can go home.

    At end of the day, I don’t think our current crop of leaders and advisers can see themselves operating outside of the current paradigm. Our legislation seems not to allow MMT spending (except where the RBA uses own balance sheet to prop up price of bonds) and I don’t see anyone with the political will and intellectual muscle to get such an outcome. enacted.

  38. ChristopherJ

    Oh yes, our private banks spend money into existence everytime they write a new loan and credit your account.

    And, when people and companies have to send taxes to the ATO, they cannot pay in US$ and need to obtain AUDs first. This creates demand for AUD. And, the ability of the state to use force to compel your payment does the rest.

    The balance of demand comes from the usual practice of Australian employees and businesses, excl exporters, seeking payment for their goods and services in AUD.

  39. Kaye Lee

    Christopher J,

    Thanks for your response. Please understand I am not opposed to MMT. I am trying to pass on the things that I have problems with.

    I agree legislation can be changed. I am talking about what is rather than what might or should be. And really, it is accounting trivialities that worry me. I am ok about the big questions about inflation etc and I agree that requires trust in politicians which is hard to have. Spending shitloads on non-productive things could be a problem considering the idiots we have in charge..

    The government has a very limited overdraft facility with the RBA which must always be extinguished expeditiously by the issuance of bonds equal to our deficit spending. That is our current reality. That is what I am working from.

    The demand for currency thing still troubles me. I understand what you are saying but, if the available AUD is everything the government has ever spent minus what they have collected in taxation, I would suggest demand can be covered. It’s not the individual that has demand to pay their tax bill – it’s banks settling at the end of the day.

  40. ChristopherJ

    Thank you, Kaye. Hard to see past what we’ve been told all our life, that a government empowered to spend its own money, has to first receive taxes. When coin was precious, taxes did indeed get respent by the king. Now, they only destroy past government spending through what seems to be some sort of means tested confiscation.

    And no, AUD is available in virtually unlimited amounts, just ask your bank and have a city property in your back pocket. What the govt has spent and taxed, the difference has been borrowed (unnecessarily) and we are paying interest on it.

    Yes, banks, if you have sent the ATO a remittance, the bank must get AUD to cover the transfer. Yet taxes are just a small part of the demand. Think exporters, who need to pay suppliers and employees, shareholders with AUD. They may contract on US$ terms, but unhedged or otherwise, most of those US$s get converted into AUD, as that’s what their contractors, suppliers and employees want to be paid in, our accepted currency.

    Yes, some of the MMT spruikers don’t communicate well, which is why it continues to gain no legitimacy outside of the loony left.

  41. Kaye Lee

    I do not in any way accept the crap about a government being like a household. For starters, aside from their sovereign capacity, they are not saving for a retirement. They are perhaps a little more like a business in that debt invested wisely has productive return.

    So it’s not a matter of convincing me to give up long held beliefs about debt. That is not my issue.

    I want MMTers to be more accurate in their description of particularly the relationship between the RBA and the Dept of Finance – they are NOT the same thing – and the current function of bonds (which I see really as just accounting – they measure how much extra money we have spent into the economy). Bonds are, in my opinion, an unnecessary construct. We may as well just credit an account at the RBA and call it e-seignorage. But that’s not how it works now. The market loves something to trade in and investors like a safe haven. But must we continually pander to investors?

  42. Marcus Champ

    Christopher J good responses, and nice to see some informed commentary on the subject. I would suggest however MMT has gained considerable legitimacy, and growing…largely because it factually and accurately describes the monetary system, and with recent crises people are increasingly questioning the standard lines we have been fed for decades. From my own experience most of the “Loony Left” don’t accept MMT either….but then I would argue the extent the loony left was actually “left” at all. But that’s for another time.

    Kaye Lee Agreed bonds are unnecessary, and can easily argue they are basically a hand-out to the rentseeking financial industry….literally a free lunch to investors…and no we DO NOT need to pander to investors.

  43. calculus witherspoon.

    I always love it when Kaye Lee falls into the quicksand of MMT conversations. You’ve told them what you think, it should be enough,

  44. Kaye Lee

    cw,

    I tell them what I think so that I can learn. I ask questions so I can learn. I was a really annoying kid who said “prove it” all the time. I was a really annoying university student who would point out what I considered mistakes in the notes we were given.

    That does not mean I am right. But they can’t help me understand unless they know what I have a problem with. They might have a better way of explaining it if I can tell them were I am not convinced.

    Maybe it will help some to explain it better.

    I just don’t think they understand what my issues are which are just trivialities really about how stuff gets recorded. They go into the same old explanation every time which has nothing to do with what I am asking. They start me back with analogies, or ancient times when coins were first printed, or all sorts of stuff that doesn’t help.

    I really shouldn’t worry about it because I know that a government can spend what they want (with the constraints we all know about spare productive capacity and it being an investment that brings a productive return etc) I know they can always service their debt. It’s the maths person (and teacher/student) in me that is trying to make the messaging more precise.

  45. ChristopherJ

    Kaye, the accounting outcome would be pretty much as I describe. The problem is Ministers and officials are not permitted to spend unless it contras the Consolidated Revenue Fund or is borrowed.

    The BOE came out in 2014 and effectively said they could fund the govt without borrowing and now there is this, from yesterday:

    At Long Last the Government Can Borrow Straight From the Bank of England – As Modern Monetary Theory Has Always Suggested It Should

    The BOE link is in the comments.

    Agree, us heterodox economists don’t always communicate well and because we are in a minority and don’t fit the traditional or taught narrative about money and central and private banks, it becomes hard to gain traction when so many people call it rubbish and point to Zimbabwe or Venezuala to make their point about the folly of printing money. You don’t really need to search far to find counter arguments which refute such a narrative.

    Living in a world where we are heavily taxed so as to fill up that ConFund so that we can receive our welfare and other govt services sets us up to fail, particularly when there are so many worthwhile infrastructure projects, even developing a new car industry, for example, which could be funded directly in turn putting money in otherwise unproductive pockets which is then spent back into the economy. And, while the current deficit funding from the market continues and debt accumulates, the annual interest bill keeps getting bigger, taking a bigger slice of that ConFund pie every year, in turn requiring more taxes. You are right to say we can service the debt, but at what cost. It is an unnecessary step, as the Fed Govt could just credit the accounts of government departments and contra it to liability account which keeps track of the amounts spent. Taxation then becomes what it really is, confiscating excess dollars from people and corporations. Taxes really cannot be respent when you are a sovereign issuer of your own unique currency

    We shall keep trying. Thank you for asking the questions.

  46. Kaye Lee

    I get all that Christopher though I think the wording of saying taxation “destroys” money is problematic, specifically because of the restrictions you mention in your first paragraph re contra with CRF. (I understand that is not necessary but it is our current reality)

    Another problem I have is that I get told that bonds are necessary to influence the overnight interest rate. That could be better achieved by the RBA offering overnight interest rates on deposits IMO.

    I hope you understand it is not the concept I have problems with, it is the explanation of the mechanics of it that I feel currently falls down. It’s one thing to say this could be done, it’s another to say this is what currently happens.

  47. ChristopherJ

    Perhaps taxation could be described as a process, operating according to rules, which syphons excess dollars from individuals and corporations, dollars that the Federal Government has already spent. Yes, never liked the word destroy in this context.

    One of the reasons central banks borrow from the bond market is that is cheap if you’re an investment grade issuer and there are heaps of investors who are mandated to have a portfolio range which is invested in investment grade govt bonds as a way to diversify risk. These are liquid markets and are bought and sold and hedged in large volumes. Corporate bonds are not a substitute, but (say) the Fed Reserves bonds are, excl the exchange rate risk for non US investors. If government bonds as an asset class didn’t exist in Australia (MMT), investors would simply allocate more to the other classes of investment.

    I agree we should all be given the opportunity to have a risk free account at the RBA, but they would prefer the market provided such products.

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