Mosler: Between credit conditions, Fed's 0 rate policy and QE the deficit probably remains too small for anything more than muddling through.

Comment: If we had some meaningful fiscal stimulus ok to taper.

Mosler: Why QE in any case? Why issue tsy secs ever? None makes sense.

Mosler: Fed knows QE doesn't work.

Mosler: QE is BAD for banks.

Mosler: QE is just a placebo, and please don't make me read Barry R anymore ;)

Mosler: QE wall of shame.

Mosler: John Carney- QE neither inflationary nor deflationary.

Mosler: FYI, same mainstream model that says QE=deflation says 0 rates=deflation ;)

Comment: Dow w/in 76 points of giving back the entire post-taper rally.

Mosler: Followed by giving up the rest of the QE rally?.

Mosler: If a 0 rate policy and/or QE were at all inflationary, we would have seen it in Japan, the US, and the EU long before now.

Comment: Yellen may be poised to rewrite Fed's rule book on wages, inflation. Wage Rigidity Meter.

Mosler: Seems her heart is in the right place, but she still has the rate and QE thing backwards, so isn't calling for a fiscal relaxation.

Comment: Adjusted monetary base rises over the past two weeks to $4.13 trillion, another record.

Mosler: The falling growth rate (ex QE) is alarming, no?.

Comment: Consumer price index rose 0.1 percent in July, the smallest increase since February.

Mosler: And without the massive QE it would have been way minus? Not! QE/0 rates are disinflationary- the economy is a net saver!

Comment: $10 trillion global QE, widespread ZIRP, record govt debt/GDP. Yet inflation is extraordinary low, showing how chronically weak demand is.

Mosler: And that QE is just a tax removing $100 billion/yr of interest income from the economy.

Comment: I'd call QE with budget surplus a "tax". Otherwise, there's still net fin asset issuance.

Mosler: QE with today's yield curve cuts interest income to the economy about = to fed profits thereby reducing NFA growth.

Comment: Import prices declined 1.3 percent in October, the largest decrease since June 2012.

Mosler: Not enough QE... :(

Comment: ECJ will probably dissent, but German const court is supreme in Germany. Afaics Germany can't support OMT.

Mosler: OMT/QE etc. inconsequential in any case.

Mosler: Even your real QE functions as a tax removing interest income from the economy.

Comment: Japan third-quarter GDP revised down to annualized 1.9 percent contraction | Reuters

Mosler: They need to do more QE... :(

Comment: Willem Buiter told @LarsErikSkovgaa ECB needs double or triple 1 trillion euro QE contemplated.

Mosler: Buiter should know QE functions like a tax’.

Comment: "The Fed has sent Treasury $421 billion over the last 5 years".

Mosler: Thereby reducing aggregate demand and slowing the economy. That is, as previously discussed, QE functions largely as a tax.

Comment: Will the Yellen/Fischer Fed come any closer to taming the business cycle?

Mosler: Not while they believe lowering rates and QE are accommodative measures... ;)

Comment: Adjusted monetary base drops below $4 trillion for the first time since early March.

Mosler: Excluding QE, it hasn't gone anywhere. Try a 'base/M' that = cash, reserves, and tsy secs for correlations/q theory ;)

Comment: Dudley on reinvestments today.

Mosler: He should also know QE is removing some $100b of interest income from the economy as he is the one who writes the check to tsy.

Comment: Trimmed mean PCE, a gauge of core inflation, rises 1.56 percent from a year ago.

Mosler: No sign of QE here, unless it's deflationary... ;)

Comment: They do not cancel all Gilts (of BTP) through QE because they are needed, but as safe assets for Blackrock.

Mosler: As all balances at the Bank of England are equally 'safe assets', QE, cancellation, etc. doesn't alter that total.

Comment: Monetary developments in the euro area.

Mosler: Look at it net of QE purchases for an apples to apples comparison.

Comment: Corbonomics: four weeks on via @richardjmurphy.

Mosler: Thought about how PQE reduces BOE++ capital? Not that it should matter of course, but it does to the mainstream?

Comment: Your thoughts?

Mosler: With QE, the securities purchased are booked as assets. PQE is only expense without a purchased asset, so capital is debited, no?

Comment: Quantitative easing has never been repaid. And there’s not a hope it will be.

Mosler: Properly understood, reversing QE would be done to support higher longer term rates. And today's growth is in spite of QE.

Comment: The Fed has sent roughly $500 billion to the Treasury since 2008."

Mosler: That's interest income that would have been earned by the economy if not for QE. QE has functioned like a tax.

Comment: The Fed has sent roughly $500 billion to the Treasury since 2008."

Mosler: That's interest income that would have been earned by the economy if not for QE. QE has functioned like a tax.

Comment: ECB could have done more and better. LTRO extension not needed. True open ended QE would have been much more effective.

Mosler: Neither helps with output, sales, employment, pricing, etc. ;) and QE removes interest income from the economy...

Comment: Both fiscal and monetary help - prevent hysteresis in potential output, for example.

Mosler: Agreed on fiscal, but monetary a placebo at best. ;)

Mosler: QE and rates have no discernable channel to desired outcomes apart from psychological 'one time' portfolio shifting.

Comment: They lower the cost of adjustment, thus buying time. By reducing forced demand declines, they contain decline in potential growth.

Mosler: What is 'cost of adjustment'? Thanks.

Mosler: How are 'forced demand declines' reduced, especially by policy that directly reduces the economy's interest income?

Comment: Also, if open ended and state contingent, the central bank sells an option on the economic outlook, thus boosting asset prices.

Mosler: Only if it does something more than remove interest income.

Mosler: A permanent 0% policy rate= 'correct' and stable asset pricing. Higher rates are the 'distortion' and an inflationary bias.

Comment: Münchau: The reason the €zone will end up monetising debt is because rules & political limits leave them w/ no choice.

Mosler: And moot as QE has demonstrated monetizing vs bonds makes no difference to the macro economy.

Mosler: In case you thought Richard Koo understood QE.

Mosler: Data shows rate cuts and QE work to reduce unemployment by reducing the size of the labor force? ;)

Mosler: As we discussed 7 years ago? Rate and QE policy doesn't increase demand. The EU needs to relax the deficit limit to 8% asap.

Comment: We can do a 'quantitative easing' on student debt.

Mosler: The debt purchase is QE. The forgiveness is functionally deficit spending, accounted for as reduced Fed capital.

Comment: 9 yrs into recovery, M2 money velocity remains anemic. 3Q17 inches up a tad from record low in 2Q17. Trend changes or false hope?

Mosler: Try looking at it net of QE.

Comment: QE helped the economy tremendously. We were headed for a second Great Depression without it. Krugman was right about that. Now, the transmission mechanism they chose/were forced into for the stimulus worsened inequality, but it also stabilized the economy.

Mosler: QE is just a placebo, not to say placebos can't possibly make a difference.

Comment: Will orthodox economists now admit they spoke too soon of Eurozone recovery?

Mosler: No discussion about how negative rates and QE from the ECB have slowed things down via the interest income channels (fiscal tightening)? ;)

Mosler: Proving yet again and beyond a shadow of a doubt that QE and low rates don't "stimulate" and are not inflationary... ;)

Comment: Serious question: Does anybody know what this means?: President Trump: “I'm not playing by the same rules as Obama. Obama had zero interest to worry about; we're paying interest, a lot of interest. He wasn't paying down - we're talking about $50 billion lots of different times, paying down and knocking out liquidity. Well, Obama didn't do that. And just so you understand, I'm playing a normalization economy whereas he's playing a free economy. It's easy to make money when you're paying no interest. It's easy to make money when you're not doing any pay-downs”.

Comment: I think it's a VERY muddled point about the long-run near zero interest rate environment and the demand-side slack of the 8 years of the Great Recession recovery.

Mosler: It's about the rate hikes and unwinding of QE. Neither points have any validity. Rate hikes and Fed portfolio reductions actually support growth as Gov interest payments to the economy increase.

Comment: To make room for the massive spending required to fight WWII, Keynes proposed taxing those at the top and "borrowing" from the working class. That way, workers got jobs and interest-bearing assets (bonds) in exchange for deferred consumption during war effort.

Mosler: Today QE has made it clear that consumption is not a function of the 'bonds vs no bonds' thing, and WWII inflation control was about fixed prices and rationing, led by John Kenneth Galbraith.

Mosler: QE is a placebo, and TARP was only regulatory forbearance, imho....

Mosler: Negative rates; QE; maybe central banks can't create inflation? Even with an Italian in charge? ;) Try someone from Zimbabwe or Venezuela? ;).

Comment: Was this the "Government must spend first" operation that allowed the private sector to buy Treasury securities before 2008 (when excess reserves were scarce)?

Mosler: It's in there somewhere! And QE is a form of 'spending or lending first' as well. ;)

Comment: What happens to the money that banks pay to buy bonds from the treasury? Does that money go somewhere or does it disappear from the system the same way you claim that collected taxes disappear? Any article or blog that explains this?.

Mosler: Operationally the Fed does the 'spending first' part. With QE, the Fed bought and paid for tsy secs, and those funds are then 'used' to buy new tsy secs.

Mosler: QE is only a placebo, nor do/can rates function as presumed.

Comment: BoE's attempts to deny QE's negative implications for inequality is despicable IMO. Charlie Bean was open about the intended transmission mechanism. Carney appears to have consistently tried to deny it. It was *always* about making the rich richer & hoping for a trickle-down.

Mosler: The consequent term structure of rates may have had some effect, but not QE per se. Not that they knew that, of course.

Comment: My concern is more about the semantic framing of QE. I genuinely don't understand why MMT is so keen to talk of asset swaps rather than digging into the detail & saying that the government "creates money" & purchases dated debt contracts at market prices?.

Mosler: QE in Japan, the US and the euro zone has demonstrated to me that it's just a placebo that doesn't per se increase aggregate demand or inflation.

Comment: Exactly true. There are two ways you get into this situation. Either banks don’t lend due to balance sheet issues, or they perceive borrowers aren’t credit worthy. I agree govt deficits, and QE, can help in this regard, depending on the nature of the problem.

Mosler: QE per se doesn't help.

Comment: It does when banking regulations require you hold reserves.

Mosler: For all practical purposes, no. The CB buying securities or doing repo just for offsetting operating factors and adding required reserves isn't called QE.

Mosler: To Scott's point, for any given policy rate, how exactly is QE, OMO, or the like anything more than a placebo?

Comment: Do you agree this statement, if IOER were 100 basis point below FFR would lead to decrease in reserves?

Mosler: Fundamentally, the Fed has 2 choices- 1) Keep the system (functionally) net borrowed and set rates via the resulting reserve add, as was the case before QE or 2) Keep the system (functionally) net long and set rates via paying interest on reserves which it's been doing post QE.

Comment: Exactly how it exists today, but QE destroyed the savings mkt while Treasury sought to shrink the spreads. where is the incentive on “saving” w/a 30yr instrument right now at locked in at 0.1%. The rate spread policy has to change meaningfully.

Mosler: Japan has had 0 rates and endless QE going on 30 years, and ultra high savings with no end in sight as well. So maybe lower rates = more savings? For one thing, pension contributions tend to get hiked when rates go down, etc?

Comment: Agree it’s complicated. The money supply does not change, but the aggregate value of assets should increase with lower rates. That asset increase generate some level of additional spending.* It’s all about inducing spending, and whether asset holders feel confident enough.

Mosler: But income down. And assets aren't all that high in Japan with 30 years of near 0 rate policy and massive QE. There's lots more to it.

Comment: Please don't throw anything - but QE did cause inflation in the only bubble where the money went, Wall Street. Stock prices sourced well beyond the rest of the economy struggled - proving that the money never made it to the bottom 99%.

Mosler: Not because of QE.

Mosler: Market forces cause real investment to "crowd out" real consumption.

Comment: Therefore QE leads to artificial asset bubbles while stimulus checks would lead to consumption and greater GDP growth?

Mosler: QE is a placebo.

Comment: BOE Expected to Expand Bond-Buying Program The Bank of England is expected to increase its asset-purchase program by at least GBP 100 billion, aiming to support the UK economy and ensure stability of financial markets. The central bank is also seen extending the QE programme beyond July while the bank rate is expected to be left at a record low of 0.1 percent.

Mosler: All the global CB senior staffers have to know by now that QE and the likes is just a placebo, which thereby makes them all complicit in perpetuating a fraud.

Mosler: There is a distinction between the effect of QE and the effect of a change in rates, all discussed in my publications.

Comment: Key point. Any EM policy maker will be very critical of #MMT, because they know that the ultimate constraint on a country and it's ability to ease fiscal & monetary policies is the currency. Across EM, currencies have been in free-fall, sharply curtailing the ability to do QE etc.

Mosler: In any case with floating fx policy, QE per se is just a placebo. It only increases M under narrow definitions that don't include tsy secs. Fixed fx is an entirely different matter.

Comment: My question for the MMTers would be: if I'm in charge of the Fed, and I promise to inject $50T/year of reserves and do so forever...and you all believe that I'm 100% serious about doing so...what would happen to nominal GDP? Would banks just sit on massive amts of reserves?

Mosler: Nominal GDP isn't a function of QE. And yes.

Comment: As the @federalreserve puts a wrap on its Framework Review, key decisions remain to be made. One big one: how best to harness the power of its balance sheet to fight recessions. Permanently low interest rates put central banks in a tough spot; they need new tools. 1/5.

Mosler: Remembering our meeting 10 years or so ago. I wasn't concerned about the then concerns of QE having an inflationary effect as I was about QE at the time removing some $90 billion of interest income from the economy and thereby imparting a deflationary bias.

Comment: Government liabilities and fiscal policy deals with the change in the absolute size of government liabilities over time. One is a stock; the other is a flow. By that definition, FOMC decisions have *always* had a fiscal component through seigniorage revenues.

Mosler: Reminds me of when I met with a senior Fed researcher and I expressed by concern that the $90 billion or so annual profit from QE the Fed turned over to the Treasury was a drag on the economy. His response was to very emphatically state that he believed QE was a stimulus... ;)

Comment: Rate cuts to make the stock market go up 30% is way more income for people who have money than 5% on the 10 yr .

Mosler: 0 rates, massive QE, yield curve control for going on 30 years hasn't seemed to do all that much for stocks in Japan, so maybe the US stock thing isn't so much about that?

Comment: As speculation builds around another rate cut from the ECB, EUR/$ is rising, an illustration just how ineffective negative rates are in easing financial conditions. Much more effective would be: (i) a strong narrative in press conferences around deflation risk; (ii) bigger QE.

Mosler: Negative rates are an asset tax. QE is being used to keep euro spreads narrow but otherwise is just a placebo for the macro economy/aggregate demand, etc.

Comment: Bonds aren’t that dissimilar to the tax demand in that they’re another way of encouraging those who are good at not paying taxes to still want to get hold of the currency. Collect 10 invisible dogs and we’ll give you an eleventh (creature of the state).

Mosler: QE evidences otherwise as it has not increased the rate of inflation.

Comment: The problem with this is that excessive QE causes a devaluation of the currency and can affect the credit standing of the country. Something that I have yet to hear a proponent of MMT address.

Mosler: MMT proponents know that QE is just a placebo that doesn't do anything of the sort.

Comment: It devalues the currency. The more of something there is, the less each one of those things (including pounds) is worth (like the settings on Nigel’s amp in Spinal Tap). So you could increase how many pounds government had but it wouldn’t increase what they could buy with them.

Mosler: QE doesn't change the number of pounds people have. That's why it doesn't do anything.

Comment: The Treasury issues securities that will be rolled over indefinitely. Whether these securities exist as currency, reserves, bills, notes or bonds does not really matter (especially over long periods of time).

Mosler: Yes, which is why QE is just a placebo.

Comment: Well, if the Fed doesn't actually have a yield curve target, the effect of its bond purchases on the yield curve would be a wash. Are you saying there is no demonstrable effect of Fed bond purchases on the long rate since 2008?

Mosler: So if markets believe Fed bond buying increases demand/lowers unemployment, forwards rates would go up. So, ironically, QE leads to lower long rates only if markets believe QE doesn't work to increase demand/reduce unemployment? ;)

Comment: QE is a tax. It stops interest payments on Treasuries using an asset swap.

Mosler: Instead, the Fed pays interest on the reserves spent via QE.