Two headlines this morning on the Australian National Broadcasting Corporation (ABC’s news site) tell us that little progress has been made in helping people better understand how the monetary system works and the capabilities of currency-issuing governments within it. Both articles are just rehearsals of standard mainstream fiction, which makes them dangerous because they perpetuate systems that hinder the world from meeting its grand challenges.By creating false “challenges” and false “probabilities of crisis,” these stories delay action necessary to address real problems such as climate change, inequality, degradation of public infrastructure and services, health crises, and more
Another problem is that these “analysis” columns pretend to be balanced, a ruse to give themselves legitimacy or authority. The “experts” who get kicked out to approve novels are just part of Groupthink. It’s a crap circulatory system. Very disappointed.
media focus
I did an interview with The New York Times last week, and this is part of a story — Why Japan is almost alone in keeping interest rates ultra-low – Published on October 22, 2022.
Unlike most articles so far, this story at least tries to strike some balance.
Currently, the world media is very interested in why Japan is not in step with the Fed.
I’ve done a lot of interviews on this topic since I worked in Kyoto.
I sense that the media is getting a lot of comments from mainstream economists that don’t fit with reality – predictions of the collapse of the Japanese monetary system and all its other aspects – which have been recycled repeatedly since the 1990s. That kind of nonsense.
Some journalists are reaching out to Modern Monetary Theory (MMT) for a better, reality-based assessment that complements evidence rather than just repeating ideology.
Let’s talk another day.
Sadly, however, the Australian media is far behind.
Title one:
Title two
One of the issues I mentioned earlier is that the ABC has a huge influence on the information landscape in Australia.
Their platform is the only truly national platform, and their “analysts” are seen as balanced experts – delivering state-of-the-art technology to the population.
They claim to have no inherent ideological or political bias and are therefore seen as a “trusted” voice in economic and political debate.
Who gets the platform significantly affects how people perceive the political choices being made.
Unfortunately, in Australia right now, the perpetuated fiction of those with “platform privilege” is disastrous for those who wish to be able to assess the policy landscape.
The narratives being pushed are all in one direction – austerity is necessary because if the government is to invest in priorities, it may go bankrupt and need more “fiscal space”.
In this article (October 24, 2022) – The government is saddled with (nearly) $1 trillion in debt. How big is the problem? – All common novels have been eliminated.
Little knowledge is introduced to the reader.
The reporter noted that the new Treasurer has been claiming that the government has inherited “trillions of dollars in debt,” which provides cover for the government:
It helped build a case for capping spending and fixing the budget, a key reason why the government can’t accept ideas.
After all, that’s what fictional stories are created for in the first place – to limit governments’ pursuit of agendas that may not serve those in power.
The reporter got down to business – claiming it was “no doubt a huge sum of money” – thus confirming the idea that public debt is a problem.
Logic suggests that if the debt is a small amount of “money,” then it’s less of a problem.
Of course, this means that the non-government sector will hold less net financial assets in the form of risk-free government bonds (part of private wealth holdings).
No such connection was established.
We all pursue “wealth creation” but comply with government policies that destroy our wealth.
And, we don’t even know it’s happening because journalists like this are just promoting fiction introduced by mainstream economists.
If the government were to show up on our streets and start demolishing our homes with compensation, there would be an uproar – confiscation of wealth and so on.
But when they run government surpluses, reduce public debt and squeeze our liquidity options, they confiscate our wealth.
No one knows what’s going on – because they’ve read articles like this.
The reporter thought he added balance to the story by qualifying “very large amounts of money” using the total net debt distinction.
Readers understand that this is technically endorsed by “many economists” because the government has “cash held, deposits and loans owed”, thereby reducing the total debt “burden”.
But it’s still a “burden”, just a smaller one – that’s what the reader infers.
He then further qualified it by measuring “very large amounts of money” by the size of the economy to derive the debt-to-GDP ratio.
This leads to his conclusion:
That’s a lot of debt, but it’s not the biggest yet.
Okay, the next part of these types of stories, showing some tables or graphs comparing different debt-to-GDP ratios around the world.
Things really went downhill.
The reader will be presented with a graph titled “Global Total Debt as a % of GDP”.
The graphs are displayed in order:
Greece
Italy
U.S.
Spain
U.K.
France
Belgium
Austria
Ireland
Finland
Canada
Germany
Australia
Indonesia
Denmark
Sweden
Norway
Switzerland
So, my regular readers will invoke the “this guy doesn’t know what he’s talking about” rule and stop reading this.
Why?
Well, the reporter wants readers to think that Australia is not as “bad” as many other countries because its debt-to-GDP ratio is much lower.
But everyone has heard the fallacy of comparing oranges to apples.
Nine of the 18 countries on the list use foreign currencies, so their debt is subject to credit risk.
These countries will have to rely on bond markets if they want to run deficits, unless the ECB has been buying debt.
A country is pegged to 9 (Denmark) and thus inherits the rigidity of government spending.
The rest of the countries issue their own currency and can always repay any debt denominated in that currency.
Comparing the two categories of countries in the same table shows incompetence.
This is a separate issue, critics say a table like this that only includes currency issuers is meaningless anyway.
The article then rolls out the usual selection of the platform as an “expert” — usually the investment banker or management consultant type.
This “expert” approves this image:
When I look internationally, if you dig in and compare developed economies similar to Australia, this is the case.
Apply my rules!
Then, in light of Covid, we got the rising debt problem:
Debt grows very fast as costs of battling COVID rise…
But the article did not mention that the central bank, as a branch of the government, bought almost all the debt issued to “fight” the coronavirus.
So the government actually just “lent” itself the money, repaid it itself, and then the interest paid during that time would be paid to itself.
The old right pocket left pocket trick.
If readers knew all this, what would they think?
Of course, not what they thought without this knowledge.
Finally, the article couldn’t help citing the analogy of the household budget:
As households face rising mortgage interest costs, governments also face rising borrowing interest bills.
To quote the “experts” again, that means we need to “think about whether it will remain sustainable”.
When is it not sustainable?
This means when will the government be forced to default?
A: Never.
So the whole principle is not credible.
The article followed by a so-called progressive economist who reiterated that debt is “low by international standards” only perpetuates that fiction.
In the context of assessing whether debt is sustainable, it doesn’t matter if the debt is huge.
For the Australian government, none of the debt levels are problematic.
For example, if interest payments start to increase nominal spending in the economy compared to other things the government should be doing, the RBA could simply set bond yields to zero and eliminate the problem.
More effectively, the government could (and should) stop issuing debt altogether and eliminate the debt-based corporate welfare system.
Another ABC article (titled above) – On tax cuts and structural deficits, Liz Truss can teach Jim Chalmers some lessons (24 October 2022) – Builds a relevant narrative that has re-troubled progressive politics – ‘markets accountable’ – as the recent chaos in the UK clearly attests.
This will haunt us for years, akin to the “Britain had to borrow from the IMF in 1976” and “Mitterrand had no choice but to turn to austerity in 1983”.
The reporter here thinks readers would benefit from knowing this is a problem:
…the nation’s finances are permanently locked in persistent deficits.
He claims:
1. “We are not generating enough revenue to cover our projected expenses”.
2. “We will continue to spend more than we earn for at least a decade”.
so:
1. Taxes must increase.
2. Expenses must be cut.
3. Or continue to run deficits – which journalists think is bad.
The UK’s “lessons” are clearly:
Denying this revenue to the treasury would eliminate the deficit, and it would have to be financed by issuing additional debt.
What does “blow out” mean?
there is nothing.
Fact: The deficit is not covered by issuing additional debt.
Issuance is a political choice, not a financial necessity.
The government can run a deficit forever without issuing a penny of debt.
So framing is important – because of this reporter’s coverage, readers think the government is like a family.
The reality is that the output is fictitious, distorts political judgment, and in turn damages the quality of our democracy.
I give my UK “course” version in this blog post – UK currency volatility linked to weak government, not fiscal deficit (October 17, 2022).
The “lessons” are:
1. The Bank of England dominates and can always keep yields at whatever level it chooses.
2. The bond market has room only if the government allows it.
3. Divided governments and inept leaders also create uncertainty and confusion in monetary affairs.
in conclusion
Regrettably, we have not made significant progress over the years, despite several crises that have demonstrated why mainstream economic thinking is deeply flawed and inapplicable.
The paradigm shift is slow.
We just have to keep at it.
Enough for today!
(c) Copyright 2022 William Mitchell. all rights reserved.
