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MMT economist explains the difference between Japan's and Greece's debt to Urmas Varblane - YouTube
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hello ladies and gentlemen
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this is the money matters show we got
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two economists with us tonight
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economist jormus verblaney thanks for
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coming your miz
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thank you for having me also we have mmt
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economist in studio tonight
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welcome george good to be here tonight's
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topic is unsustainable government
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finances
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and how has it got so far how has it got
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so bad
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the debts governments have accumulated
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are frightening
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the problem is not only in eurozone
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u.s has enormous debt load that next
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generations have to deal with
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we will start with economist jormus
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varblaney
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he is expert in government finances
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i read an article in newspaper where you
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wrote about japan government debt and
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why it is still being financed at
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historically low interest rates
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but i don't want to do the talking for
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you yorma's vorblaney
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i am sure the viewers want to know why
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is greece having trouble and japan
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is not it is a good question and like
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you mentioned
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i have written about this in newspaper
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first of all
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japan is very rich country japanese
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people have a lot of savings
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they save a lot also they are patriotic
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people
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that is why they finance their
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government if you look at who holds the
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japanese government debt
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then you find that it is mostly domestic
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private sector
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so it is held domestically on the other
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hand
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greece's debt is held by foreign banks
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in large part
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of course they are not patriots of
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greece also the greeks are not as big
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savers as the japanese are
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that would be a simple answer to your
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question
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i noticed that george wants to add
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something to that
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yes thank you your ms vorblaney doesn't
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seem to understand that greece is in
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eurozone
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greece's government as currency user in
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monetary union
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japanese government is currency issuer
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japan's government is the only legal
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entity on planet earth who can issue gen
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greece's government cannot issue euros
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this has nothing to do with patriotism
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it doesn't matter who holds the debt
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japanese government is currency issuing
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monopolist
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it can never run out of money it is not
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correct that japanese government debt
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gets funded because of private sector
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savings government deficit adds to
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private sector savings
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it is macroeconomic accounting identity
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private sector has so much savings
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because of government deficit spending
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in the past
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greece's government is like a household
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it needs to have money in its accounts
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before it can spend
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most economists don't understand that
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japan has its own sovereign monetary
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system
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that is why this japanese debt puzzles
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so many
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why is japanese government issuing debt
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at all then
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it could just issue money yes it could
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that would cause inflation
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you were mixing up a lot of issues here
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can we agree that japanese government
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can never
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run out of money because it is currency
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issuer
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jinns don't come from europe or america
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can we agree on that
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yes i agree with that of course i don't
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agree that japan can just print money
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without
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consequences hold your horses
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first you seem to be concerned about
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japanese government funding itself when
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deficit spending
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now we understand that funding is never
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a problem for a currency issuing
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government
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that right there should tell you the
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difference between greece's debt and
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japan government debt
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are you still wondering about patriotism
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and asking yourself who holds the debt
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are you still talking about that there
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is a lot of private sector savings and
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that is why japanese government debt
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gets funded at a low interest rate
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now we know the government debt adds to
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private sector savings and there doesn't
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need to be any prior private sector
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savings for the debt to be funded
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what are you trying to say here that
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japanese government can just spend and
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spend endlessly without consequences
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i think george wants to say that
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japanese government cannot go bankrupt
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thank you he wants to say that japanese
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government solvency is not
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issue government deficit spending can
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cause inflation
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thank you that's what i am saying so you
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are saying there is going to be
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inflation your miss
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yes that's what i'm saying right now we
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are in liquidity trap
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but once we get out of the liquidity
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trap a whole hell is gonna break lose
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that's why we central bank monetary
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policy is not working right now properly
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the liquidity trap story is based on
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islm
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and islam is based on loanable funds
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theory
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it is inapplicable in today's monetary
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system
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for those television viewers who are
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interested in economics
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the islm mortal was not invented by john
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maynard keynes
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it was invented by john hicks and even
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hicks said it was a classroom gadget at
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best
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this is from wikipedia quote hicks later
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agreed that the model missed important
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points of keynesian theory
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criticizing it as having very limited
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use beyond a classroom gadget
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and criticizing equilibrium methods
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generally
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so here you have it islm is not i repeat
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it is not keynesian economics and even
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the creator of the model didn't think it
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was anything more than a classroom
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gadget
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regardless of that we have bunch of
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monitors running around and talking
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about it like it was something holy
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it fits their belief system why is it
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inapplicable in today's monetary system
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because central banks today control the
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price of money
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they don't control the quantity of money
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haven't we all heard that central bank
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announces its target interest rate
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how could it control money supply if it
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wants to control the price of money
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it doesn't control money supply money
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supply is determined by all market
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participants except
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the central bank okay can we talk about
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inflation
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then i didn't expect such a heated
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debate today in the studio
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so we don't have time left to talk about
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eurozone problems
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can you george tell us little bit about
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inflation
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yes sure government spending adds
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aggregate demand to economy
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and taxes remove aggregate demand from
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economy
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if you think about it money doesn't cost
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anything to money issuing monopolist
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monetary system is the tool to achieve
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what is desired politically
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if it is desired that half of population
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is unemployed
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then so be it but i don't think that is
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what is really desired
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we hear fairy tales about how we have to
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be deprived from real goods and services
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and how this is somehow going to improve
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our living standards
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can government deficit spending cause
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inflation
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sure it can it causes inflation when
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aggregate demand exceeds economic
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capacity
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i am sorry to interrupt you our time is
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up
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thank you george thank you yourmas
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you
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