Draghi Open to MMT and a People's QE

-edited

Despite being against the Maastricht Treaty on which the Eurozone was founded, Dragihi want to investigate MMT.

It was bound to come to this, and right on time too.

Outgoing ECB President Mario Draghi says the ECB Should Examine New Ideas Like MMT

European Central Bank President Mario Draghi said the Governing Council should be open to ideas such as Modern Monetary Theory, while noting they’re closer to fiscal policy and should be directed by governments.

​Draghi was responding to a question from European lawmakers about helicopter money and the best ways to channel funds to the economy in a way that helps inequality. He mentioned MMT and a recent paper by former Federal Reserve Vice Chairman Stanley Fischer -- the adviser on Draghi’s doctorate -- which said central banks should put money “directly in the hands of public and private sector spenders.”

​People's QE

Putting money directly into consumer's hands is a people QE, and ignoring government deficits on the theory they don't matter is one of the tenants of MMT.

These are objectively pretty new ideas,” Draghi said. “They have not been discussed by the Governing Council. We should look at them, but they have not been tested.”

Not Been Tested?!

That's not exactly true. Japan wasted trillions of dollars building bridges to nowhere and it solved nothing. The best one can say is Japan has not imploded yet.

Of course the MMTers will respond Japan did not do enough MMT, as if building more bridges to nowhere would actually solve problems.

Dam the Rules, Tests Ahead

When you look at them closely, you realize the task of distributing money to one subject or the other subject, that’s typically a fiscal task,” he said. “It’s a government decision, not the central bank...It’s the political governance of these ideas that needs to be addressed.”

Draghi knows full well that both ideas he espouses testing are against the Maastricht Treaty on which the Eurozone was founded if they were done in a large enough size to matter.

But Draghi simply does not give a damn.

Why?

  • It's not his problem. His term ends October 31, 2019.
  • The Italian banking system is insolvent so we need new "creative" ways to fix things.
  • What better time than now to propose such actions when you can dump the new ideas on hand-picked replacement clown Christine Lagarde?

Fundamental Falsehood

One fundamental assumption of MMT (and an obvious false one) is that governments will do wise things with the money they create out of thin air.

History shows the asininity of that theory.

Mike "Mish" Shedlock

Comments (86)
No. 1-33
2banana
2banana

What could go wrong?

Hold my beer and watch this!

"Putting money directly into consumer's hands is a people QE, and ignoring government deficits on the theory they don't matter is one of the tenants of MMT."

Casual_Observer
Casual_Observer

Helicopter Ben Bernanke said it a long time before Draghi.

Je'Ri
Je'Ri

Pardon my dumb question, but where does all this money actually come from? I always thought wealth was created by applying human capital to stuff and ideas to creates goods and services other humans were willing to spend the wealth they created with their own applied human capital, but if you skip the part where wealth is created and start creating more store-of-wealth instruments that can be used to obtain it, you're merely debasing not only the money, but also the wealth of the society as a whole.

Mish
Mish

Editor

money comes from nowhere It is borrowed or printed into existence Thus It does not represent savings

Deep Purple
Deep Purple

"People QE" walks like the old idea of printing money without any restraint. That leads only to inflation, possibly hyperinflation if done persistently.

Do I miss something?

Tester2
Tester2

Money could be earmarked as must be spent to pay down debt first. Steve Keene has espoused this for a long while and there is some logic. Bottom up rather than top down.

Most NPLs are probably corporate though.

Tester2
Tester2

Say 1Trn to 200M recipients over 18. Do the math. Shock and awe needed too to make a difference.

20Trn?

Cheesie
Cheesie

If you start it, you will never be able to stop it.

Harry-Ireland
Harry-Ireland

If this jester didn't have the power he has, I wouldn't even take these words serious. He's on his way out, pay no attention to this wreckingball. But, by his hand, he destroyed social cohesion, distort monetary principles and force risktaking on aspects of finance that should never take risks or overleverage to the hilt. Now, his successor is even worse and unless the voters demand it, they'll continue to run this thing into the ground. Remember Bernanke's desperate three-quarters of a percentage point rate-cut? That was the first sign of panic, just as we're seeing panic right now with the Repo-farce and the QE-disaster the European CB. Either the whole thing is about to pop or these are the first visible cracks. Either way, this is not sustainable.

Bam_Man
Bam_Man

Once you start printing (electronic) "money" and giving it away, does anyone think that this so-called "money" can also be used to settle international trade transactions? Wouldn't this quickly lead to a situation where "He who prints the most "money", gets the most stuff"?

RonJ
RonJ

"Outgoing ECB President Mario Draghi says the ECB Should Examine New Ideas Like MMT"

MMT is not a new idea. It is just a new lipstick on an old pig.

RonJ
RonJ

"Dam the Rules, Tests Ahead"

Rules go out the window in a crisis. Draghi is admitting there is a crisis.

THX1138
THX1138

It seems we are on the road to a place where money will no longer have any meaning..

abend237-04
abend237-04

Demagogue: a political leader who seeks support by appealing to the desires and prejudices of ordinary people rather than by using rational argument.

Whatever it takes.

CautiousObserver
CautiousObserver

Drahgi's outgoing statements are like a drug dealer promising free drugs to all his customers as he sails away to live a life of luxury in some other country. These statements cost him nothing and possibly buy him political popularity. The long term economic results of people's QE would of course be disastrous if ever fully implemented, but that will not ever be his problem. If it becomes policy and he is ever interviewed years down the road, he can always say that it was not done "correctly."

It is a sad situation that we do not have more responsible people in these critical positions.

Yancey_Ward
Yancey_Ward

Madness is spreading like wildfire now. It may be unstoppable. I have watched warily for some time now, and taken no real actions with my assets, but I may now be forced to move all of it into physical gold. Once MMT gets started, you won't be able to stop it- if a trillion isn't enough, then they will just keep going until it all blows apart in a massive hyperinflation that destroys any purely financial asset.

ZZR600
ZZR600

Time to dust off The Dollar Crisis: Causes, Consequences, Cures by Richard Duncan. He basically said it will go one of both ways- hyperinflation or deflation. For a few years we seemed to be on track for deflation, but looking like inflation will be forced upon us

Tony Bennett
Tony Bennett

MMT is MORONIC

  1. Draghi / ECB can wax about MMT all he wants, but nothing will happen unless the EU member state legislative bodies on board (and won't it have to be unanimous?). Central banks anywhere are just an institution populated by a few hundred / thousand bankers and economists. They have ZERO logistical capability. They will need names / ID #'s / addresses, etc of hundreds of millions of households. Member states will have to provide.

  2. It will CRATER business. Many (all?) receiving a check in the mail will pull the "take this low pay dead end job and shove it" maneuver. Good luck spending your check when businesses everywhere close down ... along with their tax revenue.

Tony Bennett
Tony Bennett

Power of the Purse

Legislative bodies would lose control / power of directing where money flows ... not sure that is something they would want to give up. Ever.

Latkes
Latkes

the tenants of MMT

tenets

Maximus_Minimus
Maximus_Minimus

People's QE is the last ditch desperate attempt of central banking fakery before the collapse, which will be hastened by it. The poor will spend it and some more of course, the reason why they are poor in the first place.

Stuki
Stuki

"When you look at them closely, you realize the task of distributing money to one subject or the other subject,"

Well, at least he's honest enough to be beyond pretending it's about anything other than crassly distributing money to the rulers' favored SUBJECTS......

SherWat
SherWat

The ECB can 'investigate' all it wants. I am sure that Largarde would love to try MMT to keep the United States of Europe dream on the road for a little longer.

The problem is the Bundesbank, and the rise of AfD in Germany.

The ECB needs the Bundesbank to give itself credibility, and the Bundesbank won't agree to MMT:

  1. On principle;
  2. They won't agree to risky things when their (Germany's) economy is teetering on recession;
  3. It would give an open goal to AfD.

So it's not going to happen.

FWIW, can't be done in US (because it would destroy UST market, which US needs to fund the deficit).

But could, possibly, be done in Japan...I'm not sure how much it would achieve though, suspect JPY's would be directed far more to paying down debt than buying goods and services (and thus stimulating economic activity).

Jackula
Jackula

We complain a lot about socialism on Mish's board but I gotta tell you we've been experiencing a lot of socialism for the rich in this country for quite a few years now. I myself have been both a saver and a risk taker, about to start my 19th business at 59, and it has been both heart breaking and infuriating to watch our economy being managed in such a way to where highly leveraged borrowers buying passive assets have been richly rewarded while those of us trying to build entities that hire employees and make or provide stuff are screwed every way possible. Between massive asset inflation, hyper regulation of small business here in Cali, and the difficulty to access capital I'm thinking seriously of shining off the business idea, selling the prototypes, buying a van and hanging out with the millenials who've dropped outta the rat race living in their vans in the nicest parts of this country.

Casual_Observer
Casual_Observer

To me whatever money system has to fall under quelling the global population of 7.2B and counting. There is a lot of pretending going on ..and that is okay !

johndoyle
johndoyle

MMT has the same cautionary take as does the mainstream. Nobody, whatever the theory in politics, can be trusted. IF MMT is asinine what would you describe the neoliberal mainstream theories?Liberal, Evil? MMT has shaken up the mainstream, and bankrupted its core precepts. More and more will come around, because it is an accurate explanation of today's economics.Therefore it cannot be disproven. You'll need to understand it or you will be left behind and become irrelevant. Your choice! I'll be watching.

Resjudicata
Resjudicata

The real issue is whether the effects of the next recession are felt before or after the next recession. Impeachment is a sideshow.

Country Bob
Country Bob

@Mish Editor wrote "Despite being against the Maastricht Treaty on which the Eurozone was founded..."

All the treaties creating the EU have been violated, the whole thing has become a global joke. The EU bureaucrats don't take themselves seriously and don't even pretend to care about the laws that they themselves wrote.

Most of Europe never voted to create the EU in the first place; which makes it all the more funny when the UK politicians hyperventilate about how best to nullify the Brexit vote. Its the only vote they have pro or con.

Brexit will probably happen before the EU dissolves anyway... but maybe the whole thing implodes before Parliament accepts the inevitable. I've stopped following Mish's posts about Parliament's latest act of desperation. It doesn't matter which side of the Titanic sinks first, its all going down

StowGrowGlow
StowGrowGlow

Maybe it is to recognize that FRB has its limits too. Exponential money stock (debt growth) and population growth could somehow balance each other but things are changing. We can think creatively and find a new path. Maybe we should set limit to the size of GVT to GDP in the constitution (20%?), maybe we could have instead of interest rate, tax rate and the lender would get a % of that? Maybe we could have an independent treasury department which could just print money on a yearly basis as a limited % of GDP and have it put as reserve to all money lender intermediaries. Maybe all loans should be centrally registered in a common ledger at the treasury so we would have a clear view of the overall principal , interest and average maturity owed. Maybe we could greatly simplify and almost abolish income tax too and or replace it by a small transaction tax. Maybe equity investment should be favored and dividend not taxed. Most are saying that the system is doomed and somehow are right because the GFC brought to light the limit of the system. However.... I just see critics to whatever potential solutions starting to emerge. The doomsayers are right in their assumptions and wrong in their attitude since they have a very hard time about rethinking the system. Ironically, whatever path we might decide for our future, the destruction of the value of money is certain if trust goes to hell.

BurghMark21
BurghMark21

It is always disappointing when critics of MMT make false statements they claim to be MMT, and then criticize that lie in order to justify their own opinions. Never do they bother to ask any MMT economists like Stephanie Kelton, Randall Wray, or Fadhel Kaboub. Even a YouTube search of those names and subject would provide correct MMT information. But, MMT critics, even those "left of center, " are operating in a Neoliberal space, knowingly or not, by not understanding what is described by MMT analysis. Without an understanding of MMT, you are just supporting false RightWing economics that are intended to prevent progressives plans.

Webej
Webej

MMT does not state that deficits don't matter. It purports to describe actual current practice of finance/banking in a Central Bank fiat system. On the way, it demolishes a number of common but erroneous nostrums which contravene established accounting identities.

Any policy prescriptions are seen as political choices, not driven by esoteric technical "economic" rules, but as decisions about what you want to accomplish. No MMT-ers thinks Mozambique can be rich tomorrow by "applying MMT" and running deficits. That is a s t r a w m a n.

Supporting people's QE is not a corollary of MMT. It does seem like it would better engender the inflation CBs claim to want, but of course they will never do it, because the inflation has to benefit the money "insiders". Giving money to the "speculating" community is a choice that mainly benefits the "house" and concentrates the pool of income producing assets in fewer hands, but would never pass a referendum, probably losing by 99% of the vote. But QE very much proves that MMT is correct, even if many MMT adherants do not favor it as a good choice.

El Capitano
El Capitano

Does everyone really fathom just how really fucked we all are? What used to be a serious thing (sovereign money) has now turned into a complete joke, a circus, a thing of derision. I don't know how much longer they can keep this up but I do know when it collapses it is going to leave a mark on all of us.

jiminy
jiminy

Fiat always becomes worthless, thanks to economists for continuing the tradition.