I'm not an economist but a lawyer but here goes.
If you extend that logic a little further, you might ask, “Well, don’t we pay taxes and buy bonds so that the government can spend?” Well, you first have to ask yourself the question, “Where do you get the money to pay taxes and buy bonds?” And the answer is that we can’t get our hands on the currency until the national government spends it. Spending is the prior act in a fiat monetary system; taxing and borrowing are following acts. In effect, the government is only taxing what it has already spent, and it’s only borrowing back money that it has already spent. Once you start pursuing this logic, you realize that most of the propositions that are occupying the current debate around the world are based upon false premises.
This is false. Money is often brought into circulation by banks through fractional reserve banking (but he deals with this later, so baffled he states it like this). This is why fiddling with the interest rate is considered to have an effect on the rate of inflation. The lower the rate, the more banks lend out, the more money they inject in the economy.
Additionally, a government can tax historic wealth, which doesn't require it to first spend either. Finally, a government can (and does!) spend and can create a by and large profit for society. Large-data review suggests the optimum balance between debt-to-GDP ratio is somewhere between 50% and 60%, where government borrowing and expenditure lead to economic positives - e.g. it's leveraging its investment paid for with borrowed money. It turns south quickly above 90%.
If you extend that logic a little further, you might ask, “Well, don’t we pay taxes and buy bonds so that the government can spend?” Well, you first have to ask yourself the question, “Where do you get the money to pay taxes and buy bonds?” And the answer is that we can’t get our hands on the currency until the national government spends it. Spending is the prior act in a fiat monetary system; taxing and borrowing are following acts. In effect, the government is only taxing what it has already spent, and it’s only borrowing back money that it has already spent. Once you start pursuing this logic, you realize that most of the propositions that are occupying the current debate around the world are based upon false premises.
This is worded a bit strangely. Yes, if I introduce an imbalance due to government action currency exchange rates will find a new equilibrium. So I can pursue a low interest rate domestically, curbing possible inflation, which probably strengthens my currency versus other countries, making imports cheaper and your exports for your foreign buyers more expensive, causing capital to flow out of the country (it's spend abroad), lowering circulation of your currency in your own country ultimately causing inflation. So yes, you can pursue "pure" domestic policy but that would be stupid as these "foreign" effects have domestic effects - they're not separate systems.
If you extend that logic a little further, you might ask, “Well, don’t we pay taxes and buy bonds so that the government can spend?” Well, you first have to ask yourself the question, “Where do you get the money to pay taxes and buy bonds?” And the answer is that we can’t get our hands on the currency until the national government spends it. Spending is the prior act in a fiat monetary system; taxing and borrowing are following acts. In effect, the government is only taxing what it has already spent, and it’s only borrowing back money that it has already spent. Once you start pursuing this logic, you realize that most of the propositions that are occupying the current debate around the world are based upon false premises.
Rating agencies are concerned with credit risk. Is a given sovereign capable of paying off its debt? If a country doesn't have revenue through taxes it won't be able to pay its debt so any bonds it issues will be rated as junk. In other words, nobody is going to buy your shitty bonds
especially if you've shown a willingness in the past to create (severe) inflation to diminish your debt thereby screwing over investors and the general population at the same time.
The mainstream believes that taxation distorts individual incentives, that government borrowing pushes interest rates up and thereby undermines private sector investment, and that ultimately the danger of government spending is hyperinflation.
Hmmm... Taxation might make certain business with small margins unprofitable to continue, this might be true in a small number of cases but it isn't true across the board. So, mostly false. Government borrowing
can push interest rates up but only if it crowds out other market participants. I refer to my earlier percentages as to "healthy" ratios. Hyperinflation is again, only an issue when dealing with excessive debt.
Well, there is certainly a mischaracterization among mainstream economists about how the modern monetary system operates. In mainstream textbooks you’ll find a chapter about the role of the central bank, and that chapter will describe how the central bank’s main function is to control the supply of money through open market operations—that is, buying and selling government bonds to regulate the demand of money relative to the supply. Through this process, the story goes, the central bank is able to target interest rates.
That textbook explanation is quite wrong. Central banks cannot control the money supply. And not many central banks past the mid-1980s gave any credibility to monetary targeting. They realized that central banks can control only interest rates, not the money supply. After this realization, monetary policy became expressed through setting a short-term interest rate by managing the liquidity in the overnight cash markets.
Central banks' influence on the money supply by just increasing base money is very limited. Due to the fractional reserve banking system, short-term interest rate changes are much more effective. The textbook explanation is still correct, it's just that broadening the money base isn't the preferred method any more. Even so, a large increase in the money supply without
circulation, regardless of whether its caused by an increase in base money or through changes in the interest rate, will be ineffective. In other words, "money supply" is the wrong thing to look at from the start.
In the US and Japan, for example, there has historically been zero return on those reserves. So banks will try to lend out excess reserves to other banks that may be deficient in reserves. The competition in this market, called the interbank market, starts to drive interest rates down, because the banks will take any return instead of zero. If the central bank allows that process to continue, it loses control of monetary policy.
The way the central bank can maintain control of its target interest rate is to manage that liquidity that’s embodied in these reserves. So if the central bank perceives that the banks consider their reserves to be excessive on any particular day, it drains those reserves out of the system by offering an interest-bearing asset in the form of a government bond. The role of government bonds, then, is to provide the central bank with the capacity to ensure that there is no competitive pressure on the target interest rate. So you can see that the function of government bonds is something quite other than to lend the government money.
Yeah... but no. This will only result in a substitution on the balance sheet of the banks. Cash is exchanged for bonds. Bonds can still be used as a basis for their fractional reserve banking. So the reserves aren't drained because the cash they used for it is the cash that is part of their capital requirements and not what they actually lend out to their customers or on the interbank market. This will have no effect on the interest rates (but crowding out, which he rejected earlier, can!).
The only issues a progressive person might have with public debt would be the equity considerations of who owns the debt and whether there an equitable provision of private wealth coming from the deficits. There is a debate to be had about that, but there is no reason to obsess over the level of outstanding public debt. The government can always honor its debt; it can never go bankrupt. There’s no question that the debt obligations will be met. There’s no risk. What’s more, this debt provides firms, households, and others in the private sector a vehicle to park their saved wealth in a risk-free form.
There is plenty of reason to obsess over the level of outstanding public debt. At certain levels it is unsustainable and becomes a drag on economic activity. Plenty of data in that respect. And no, governments do not always honour their debt, we've had plenty of restructurings triggered because countries could not or were about to be unable to meet their payment obligations. So there's plenty of risk because you could be confronted with a serious haircut on your bond leading to an effective loss for bond holders.
I don't have time for more unfortunately. It might be the format of the article that causes a lot of inaccuracies/mistakes but it doesn't seem very convincing to me.