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Monday, March 04, 2019

Scott Fullwiler

I have to write this. It isn't worth tweeting or posting at Angrybear. It's about me and no one should care.

I am having a problem with Scott Fullwiler @stf18

Actually many problems.

1) I tweeted a lot of silly stuff yesterday. I want to explain it. I know no one is interested so I will explain it here.

2) I have been trying to find a tweet of his with a useful quote from 2002 from the person who actually handled open market operations in New York. For one thing, I forget her name. But I can't find it because looking through his tweets enrages me.

I will start with

2)The tweet includes a very intersting quote by the woman who actually did it. The point is that even back in 2002 an announcement of a new target was, on average, roughly enough to achieve the new target FF rate. There was not a clear correlation between changes in the target rate and the sign of open market operations. That's interesting. Now one problem is that Fullwiler summarized the quote leaving out "roughl" and "correlation" and wrote something which, if taken literally, implies that there were no open market operations at all. I mean that is exactly what he typed. My extensive efforts to explain that the quoted passage was a statement about the expected sign and the magnitude but not the existence of open market operations were not successful. Also he said he would bet me $$ that I couldnĂ t tell him what he claimed. I agreed to a $100 bet, because all I have to do to win it is cut and paste what he wrote. I mean he is willing to bet me that I don't know and can't find out what he tweeted. He placed no limit on the $$, so I believe he owes me $100 because "Fed hasn't actively changed the monetary base when it changes the interest rate target since maybe pre-1994,". I don't expect to collect, because I'm sure he is a welcher.

But the problem is that I can't find the valuable quote, because I can not stand his twitter thread.

OK the embarrassing (to me) twitter flame war explained

1) It began with someone who tweets as @fiat_money . I don't know this person's name in real life. I would tend to guess that he or she might be a Ron Paul type gold bug. I have no reason to think this person has any interest in MMT. Also he or she was blocked by Brad DeLong.

After I tweeted many silly things, I wrote a thread explaining what I should have said

https://twitter.com/robertwaldmann/status/1102112291745685504

I cut and paste

Robert Waldmann

‏ @robertwaldmann 24h24 hours ago

I am discussing this claim "Fed makes sure T-bonds are instantly convertible to USD, so printing treasuries is equivalent to printing dollars." do you agree that printing treasuries is equivalent to printing dollars ?"

The Fed does no such thing. There is a very thick secondary market for t-bills, so they can be converted to USD instantly (at a market price which varies).

The Fed does buy and sell t-bills for reserves with open market operations but it doesn't make the market. It doesn't make sure t-bills are liquid. The private secture sure does, but that's not the Fed's job.

Since the Fed absolutely does not act as a t-bill/USD market maker, issuing them is not at all like printing money. It is very possible that the Fed's reaction to increased deficits is to sell t-bills contracting the supply of reserves. The FOMC does what it chooses to do.

It is absolutely not true at all that increased deficits automatically cause increased reserves. If the FOMC just sits there (no open market operations) then there is no change in reserves. The MMT position is nonsense.

The fact that MMTers contested my criticism of "printing treasuries is equivalent to printing dollars" lowers my opinion of them (which before today was vague as I had not thought about them much).

Embarrassingly, before tweeting the thread copied and pasted above, I replied to replies to my ciriticsm of the quoted claim. In the resulting twitter flame war, I asked Scott Fullwiler who is very expert on how monetary policy is actually implemented whether he knew what an open market operation is. He does. He knows quite a lot about open market operations and how they are currently almost irrelevant (a claim I started making in 2010 https://angrybearblog.com/2011/05/qe-ii-mmmclxxvi.html)

I feel the need to explain what happened. I criticized the claim "Fed makes sure T-bonds are instantly convertible to USD, so printing treasuries is equivalent to printing dollars." saying that T-bonds and USD are not perfect substitutes (note unlike T-bills and notes T-bonds mature after 30 years, they are quite different from dollars). Someone replied to me arguing that t-bills are used by financial firms as a means of payment (true as I have noted from time to time). I proved that t-bills and USD are not perfect substitutes by graphing the t-bill interest rate. I think this proves @fiat_money was wrong. Scott Fullwiler jumped in laughing at me.

Now I knew that MMTers assert that deficit spending automatically causes an increase in reserves. I didn't know why they say that (it absolutely isn't true if the standard definitions of "deficit spending" and "reserves" are used). Foolishly I guessed they were using an eccentric definition of reserves and claiming that t-bills and dollars are perfect substitutes (always and not just now (approximatel) in the liquidity trap). If this were true, then open market operations would have no effect, hence my question.

But now I know that they use an eccentric definition of deficit spending. They define it as spending financed by money creation. Then the actual process of spending financed by the auctioning of Treasury securities, they describe as 2 events -- deficit spending and bond sales. This *should* be a harmless eccentricity. The disagrement is purely 100% semantic. There is no disagreemnt if NMTers vs other economists about the policy options open to the US Federal Government. It is very bad to insist on using terms with definitions other than the standard definition. Typically the only result is confusion. But in this case it is much worse because MMTers insist that the purely semantic distinction is substantive and very important. I think this demonstrates that they have nothing useful to contribute to any discussion. But it sure doesn't mean they don't know what open market operations are.

The claim that deficitm spending implies an increase in reserves is based on the definition of "deficit spending" as meaning what 99% of economists mean by "deficit spending and open market operations so that the balance of bonds outstanding does not change and the supply of high powered money increases by an amount equal to the deficit". On the other hand, they use the word "reserves" with its standard definition.

There was a twitter flame war during which I did not manage to communicate that my objection was with the claim that bonds and USD are perfect substitutes (I did type that this was my point (if any) many times).

I have sincere advice for MMTers. If they want others to consider them anything other than a cult of flakes, they should use standard definitions of words. If,for some deep psychological reason, they must use there own eccentric definitions, they should say so in every document they write using the eccentric definitions (which means ever tweet). Jargon is useful for excluding people, but a tiny bunch of people do not gain by excluding everyone else.

I fear that the problem with this is that, aside from the eccentric terminology and ignorance about residential investment and open economies, they have nothing original to contribute. They certainly haven't presented any argument that they have something useful to add to the discussion that has convinced more than a tiny number of outsiders.

OK

2 comments:

JimV said...

I think another provision in my Moon Colony Constitution will be to prohibit snark in any sort of interpersonal communication that is not face-to-face (or something like that). It does not add anything and gets in the way of understanding. Humor is okay and there will be fine line to distinguish humor from snark, but I know it when I see it and therefore should be able to train an AI to detect it.

This may be an over-reaction, but I have seen it wreck communication several times just in the past few days. Maybe it should only be a mandatory training course in school, like gym or sex education, rather than a law, though.

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