Tuesday, June 4, 2013

How much are Warren Mosler's business cards worth?

While it somewhat lacked in structure, a good time was had by everyone in the live chat section of the big Warren Mosler vs Bob Murphy debate last night. You can see a replay of the debate here.

One of Mosler's running themes (and which Murphy turned into a running gag) was the idea that he (Mosler) could give his business card a positive price by requiring members of the audience to hand over said card to Mosler's bouncer should they wish to leave the room unmolested. Voilà, modern fiat money. In order to get his fiat cards out into the audience, presumably Mosler would have had to spend them into existence by purchasing stuff from the the audience. Only then would audience members be able to afford to leave the room without being subjected to the bouncer's whims.

In the MMT literature, this is called twintopt.* A state imposes an obligation on its citizenry to pay a tax, and then dictates what good or item (the "twintopt") will be sufficient to discharge that debt. Whatever is made into twintopt, be it US dollars, coupons, or business cards, they will now be valued and circulate. This is the tax-drives-money, or chartal theory of money.

I don't doubt that the theory could be true in practice. For instance, I describe in this post how McDonald's Corporation could give colourful bits of paper coupons a positive value by imposing an obligation on the burger-eating community to pay for all Big Macs with these coupons. No doubt Mosler's business cards could also earn a positive value if he required people to submit cards as an exit fee. Rather than chartalism, I prefer to call this the coupon theory of money in order to underscore that it has nothing to do with the state. Corporations and individuals can issue "chartal" coupon media of exchange just as easily as the State can.

But Mosler's business card analogy doesn't make it as far as US dollars. To see why, let's go the reverse direction and remove twinopt status.

Having been converted by Murphy, let's say that Mosler's bouncer becomes a libertarian and moves to New Hampshire.  With twinopt no longer being enforced, audience members can now leave the room without having to post a business card as payment and the market value of Mosler's cards will quickly fall back to 0. So far the chartal tax-drives-money theory of money is borne out perfectly.

Next let's migrate this idea over to the modern US monetary system. Say that the US government announces that it will no longer accept US paper dollars or US dollar-denominated cheques/deposits as payment for taxes and instead will require Mosler-issued business cards. What happens to the value of the US dollar? According to the taxes-drives-money theory, the US dollar, which no longer serves as twintopt, should rapidly become valueless, just as Mosler's business cards became valueless after the desertion of his bouncer.

Here's what actually happens. Since US paper currency and US-denominated deposits & reserves are now useless for the set of transactions involving the US government, individuals, banks, and corporations will all seek to simultaneously reduce their inventories of these instruments. After all, they're a less effective medium of exchange.

This disinclination to hold dollars will in turn drive prices up. In order to ensure that prices don't rise above their inflation target, the Federal Reserve will suck up and destroy all unwanted currency and reserves. The Fed does so by selling assets. It has gold, bonds, foreign exchange, economics books, and other things in its vaults which it will continuously use to purchase dollars until the urge to divest dollars has been quenched. Thus the run on US dollars set off by their lack of tax acceptability is just as quickly matched by a decreased supply.

Mosler's business cards will probably be fairly liquid thanks to their government prop. The interesting thing is that despite no longer being required to pay taxes, the dollar will continue to have the same value as before.  And while it will be useless in government transactions, the private sector will probably continue to use US paper currency and US dollar reserves among each other as a handy medium of exchange. Something other than taxes drives the value of US money, it would seem.

New-fangled metallism provides an explanation. I say new-fangled because it's not old-fashioned metallic backing per se that helps pin down the dollar. Rather, what does the pinning is the general financial assets that the central bank holds (MBS, bonds, stocks, gold, whatever), combined with the bank's threat to use those assets to ensure price stability. Taxes certainly contribute to the dynamic, but they're not in the driver's seat.

*Specifically, Understanding Modern Money by L. Randall Wray


  1. The idea of Mosler's business card becoming money based on the threat of violence to people who fail to be able to pay a levy in them raises some interesting possibilities for monetary policy.

    If the monetary authorities wanted to maintain the Mosler at a fixed value against other goods then rather than buying and selling assets to achieve this it could just raise or lower the level of threatened violence. A light beating for failure to pay taxes when money demand is low and (say) limb amputation during a recession to discourage hoarding.

    More seriously: I think the MMT guys have some valuable insights into the role of fiat money in a modern economy but I think their focus on the use of money for taxes as the primary reason why fiat money has value is deeply flawed.

    1. "More seriously: I think the MMT guys have some valuable insights into the role of fiat money in a modern economy but I think their focus on the use of money for taxes as the primary reason why fiat money has value is deeply flawed."

      Rob, I think you are spot on with this.

    2. I disagree this is spot on, and i think an examination of the history of currency develop tends to confirm that it is the power to dictate what currency is acceptable at the state level that determines what people use as the main Currency.

      Christine Desan has done a lot of the heavy lifting on the legal history of this with regards to English and American law - have you read much of her work? If not, I would highly suggest doing so.

      In addition, i think a point you are not thinking about here is that taxes do not just include proactively imposed income taxes and the like, but all forms of legally incurred liabilities. This includes contracts, property claims, tort duties, etc. So it's not just interactions with the government during which the value of dollars becomes worthless, it is also in any private interaction that imposes a legal obligation.

      So everytime a Wall Street firm that was continuing to operate in $US had a legal dispute and got a damages award, they would only be required to pay in Mosler cards (of course, most of the time people settle, but even then the tendency to settlement would be informed by the knowledge that only the nominal value in Mosler cards would be enforceable).

      Indeed, I could even steal your $US account holdings, and your only form of redress (apart from criminal sanctions) would petition for damages . . . in Warren cards. An interesting examination of the significance of legal nominalism can be found in David Fox's "Case of Mixt Moneys: Confirming Nominalism in Common Law of Obligations" article (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1763741).

      At a more basic level, I am confused why in your thought experiment the Federal Reserve would continue to intervene to defend the value of the $US in this situation, if the $US had ceased to become legal tender? Does the Fed intervene in the manner you are talking about if the price of American goods and services as denominated in pesos, or the pound, changes? Surely if the government switched over to Mosler cards, the Fed would be responsible for defending the price in $Mosler, not $US, unless they also simultaneously abandoned floating fx. It seems the thought experiment is incomplete, which is why you are getting an anomalous outcome.

  2. Taxes help explain why most Canadians prefer the Canadian dollar to the U.S. dollar, most Mexicans prefer the peso, etc. You don't need to use the same money you are taxed in (except when actually paying taxes), but it's convenient.

    What determines the value of money is another issue entirely.

    The way I would put it is, the central bank sets the price level, subject to the constraint that the CB is solvent at the target price level. Taxes can be used to bail out an insolvent central bank, so they matter to that extent.

  3. I don't think you're quite on track with the scale of the reaction to your scenario. Once The A,erican people can no longer use dollars to settle their tax liabilities there will be a national rejection of the currency. People will cease their work paid in dollars and instead seek work paid in Moslers. There is nothing whatsoever the Fed can do to counter this. The problem with your argument is you still implicity assume the value of the dollar is primarily determined by supply and demand, then argue against taxatio-driven currency on that basis.

    The Fed cannot control what people think or their desires, nor does it control the money supply. In fact the only way it could conceivably reduce the number of dollars available to the private sector is via QE, which is the exact opposite of selling assets.

    1. "People will cease their work paid in dollars and instead seek work paid in Moslers."

      Impossible to say. But if all Americans do reject dollars, it remains the case that the Fed will contract its issue at a pace sufficient to ensure that in the interim, the dollar's value remains pegged to the CPI. The lack of tax acceptance doesn't drive their price to 0, as is the case with Mosler's cards when the bouncer splits.

    2. Uhhmmmm: This is almost too obvious to even comment. So the Fed--a branch of govt--stands ready to buy dollars in exchange for gold; so dollars retain some value. And that disproves Warren's point?

      Taxes Drive Money is a sufficient condition to drive a currency. No one ever said it is a necessary condition. If I've got Fort Knox and I want to buy--oh, let us say--Zimbabwe's currency, I can keep it valuable even if Zimbabwe abolishes all taxes.

  4. Mosler says government gives value to its currency by taxing. Your criticism is that if government stopped taxing the currency it has established, you believe it would retain some degree of value (because of its historical use)? Did I miss your point?

    1. I'm talking specifically about US dollars. If the Treasury stops accepting taxes in dollars, the fact that the Fed is willing to buy back unwanted dollars to enforce its inflation target means they will retain value.

  5. "what does the pinning is the general financial assets that the central bank holds"


    It's strange that this manifestly sensible idea is rejected by monetary theorists from one end of the spectrum to the other. Sometimes it seems that it's the only thing they agree on.

    North American Colonial currencies give a great example of how real paper money was really issued. Cash-strapped governments would pay their bills with their IOU's, which would be accepted in payment of taxes or for other government assets. These IOU's circulated as money because they were backed by the government's assets, including future 'taxes receivable'. Modern central banks just add a step. Rather than paper money being backed by taxes receivable, the money is backed by the central bank's bonds, which are in turn backed by taxes receivable.

    (I think an earlier version of this comment got lost in the spam file, so this is a re-posting.)

    1. Nothing in the spam file, Mike. Sorry about that.

      I like your point about central banks just adding a step. A central bank is a way to ringfence a certain set of assets and partition them off from the rest of the government's assets on which claims exist, sort of like how a corporation will secure a bond with a specific machine or factory.

  6. Suppose Warren Mosler were issuing new business cards all the time, so that the stock of business cards were growing faster than the number of people in the room. Suppose furthermore Warren promised (like the Bank of Canada) that he would always issue enough business cards so you could always buy one 2% cheaper if you just waited a year. Would they still be valuable?

    1. I think so. As long as his bouncer is still standing at the door threatening to beat anyone up who tries to leave without proffering a card.

    2. But if the flow supply of water were always greater than the flow demand for water, at any positive price, what would be the equilibrium price of water, even if we would die without drinking it? Zero. Water would be a free good, flowing off into the ocean. People would know they could always pick up one of Warren's cards off the floor, if they ever needed one. (The only thing that might upset this equilibrium is if someone tried to corner the market, by picking up all the cards off the floor. The same thing could happen with water, if someone moved quickly enough.)

    3. Assume that the aggregate value of the beatings that the bouncer can perform is equal in unpleasantness to a loss of 100 oz. of silver. If Warren has handed out 100 business cards, then each card will be worth 1 oz. If he has handed out 200 cards, then each card will be worth 0.5 oz., regardless of the number of people in the room. If the aggregate value of the beatings falls at 2%/year, then so will the value of the cards.

    4. Nick, that is making me think a bit. So Warren is promising to ensure that his business cards only fall in value at 2% a year. If the cards were to fall to zero because they are perceived to be a free good, then given Warren's promise of no less than -2% a year inflation, he'll have to do something to support their price. Maybe he can jack up the amount of cards the bouncer requires at the door, thereby forcing people to scramble for cards? Enough people may anticipate that Warren will take adopt this policy in order to make good on his promise of only -2% a year and their buying will drive up the price such that Warren doesn't even have to act.

    5. JP: 98% of $0 is $0.

      Solve for the competitive equilibrium price if every time his bouncer collected a card from someone leaving the room that card was resold in a competitive auction, and the stock of cards in the room was always greater than one. P=$0 (as long as nobody corners the market, because then we wouldn't have competitive equilibrium).

    6. Or think of it this way: if the rate of interest on other assets is greater than minus 2%, nobody would buy a card at any positive price until one second before they wanted to leave the room. So the stock demand is almost zero. If the stock supply always exceeds zero, the only equilibrium price for the cards is $0.

    7. I agree that if other assets yield say 0%, and Warren's cards yield -2%, then nobody in their right mind will want to hold them. (I suppose that cash is different since it provides a large non-pecuniary return, enough to outweigh its negative pecuniary return? But say that the non-pecuniary return on Warren's cards or small).

      So from the time Warren announces the -2% target, the stock demand evaporates and everyone is a seller. Card prices immediately begin to collapse. Once they fall by more than 2%, say they have dropped by 3%, it makes sense to become a stock holder again. Warren promises to ensure that the decline doesn't go beyond -2% a year, so if you buy after the 3% fall you're guaranteed a 1% return. The stock demand re-emerges. If Warren reneges on his promise, then the price will fall to $0.

      But I'm not sure about this. What do you think?

    8. You assume that Warren is price level path targeting. If he were inflation targeting, he would let bygones be bygones for the initial price collapse.

      But even if he were price level path targeting, there cannot be an equilibrium path in which the price of his cards falls and is expected to fall by 2% per year and people hold strictly positive stocks (unless other equally illiquid assets also yield minus 2%). People would hold positive stocks if the actual price fell below the target path, expecting Warren to buy them back to get back up to the target path. But Warren would need to buy them (almost) all back to hit that target path.

    9. There's a real-world example of Warren's 'business cards' economy:


    10. Couldn't we have a sort of Chuck Norris effect. As long as everyone expects that Warren will do something dramatic to hit the target, then Warren doesn't actually have to do anything dramatic?

    11. Another thought. Will there be an equilibrium price for central bank money when a central bank decides to make its notes fall by 3% rather than just 2% a year, all other asset yields and returns staying the same? Why wouldn't the stock demand evaporate and central bank notes fall to $0?

    12. JP:

      The old Bank of Amsterdam used to charge an annual storage fee of 2-3% for its bank money, so they had a situation just like you are describing. People kept their money in the bank because the liquidity services of the money were maybe 10%/year. If liquidity services fell below 2-3% then people would withdraw their money. So it looks like the answer to your question is that nothing weird happens as long as liquidity services are big enough to offset the 2-3% inflation, but if inflation gets too high, then people will either let their money reflux to the bank (through various reflux channels), or the money will fall to zero.

    13. JP @8:34. We could get a "Peso Problem" equilibrium, where everyone thinks there is a small probability that Warren will at some unknown future time renege on his promise to target inflation, stop putting his cards back into circulation, so the price will rise a lot.

      JP @8:54. That is certainly theoretically possible. Empirically, from observing hyperinflations, we know that it will not happen until inflation gets very very high. Only in Zimbabwe did it happen, AFAIK. The demand curve for central bank money has a very very high intercept where it hits the vertical axis. It seems to asymptote towards the vertical axis, more or less. There's an incredible amount of ruin in even a crappy currency, once everyone gets used to it. Massive Mengerian network effects.

    14. Nick: "...on his promise to target inflation, stop putting his cards back into circulation, so the price will rise a lot."

      If there's a probability that Mosler'll renege doesn't that mean the price will fall? Or do you mean to say that it will fall to a lower price and from there rise a lot in order to provide a return sufficient for people to hold it?

      Mike: Thanks for the analogy. Sounds like my chequing deposit. I'm paying yearly fees of 1% or so, but I don't cash in since deposits are so convenient.

    15. Suppose Warren promises a price level target with the price of his cards falling at 2% per year.

      If people believe his promise, nobody will hold his cards. They will wait until the very last second before they leave the room to buy one.

      If people think he might renege on his promise and let the price of his cards fall faster than 2%, people will be even more unwilling to hold his cards.

      If people think he might renege on his promise and make the price of his cards *rise*, people might want to hold some, for capital gains, or just as an insurance policy (to insure against a high price of cards at exactly the time they want to leave the room).

  7. JP,

    you appear to be saying that state money has value because the government accepts it in payment.

    The treasury accepts it in payment of taxes (among other things), and the central bank accepts it in payment for assets, such as gold or bonds.

    The Wray/Kelton/Fullwiler claim is actually that taxes are sufficient, but not necessary, to give value to money. Nonetheless they claim that taxes "drive" fiat money.

    "Corporations and individuals can issue "chartal" coupon media of exchange just as easily as the State can".

    No MMTer would disagree with that, as far as I'm aware.

    "And while it will be useless in government transactions, the private sector will probably continue to use US paper currency and US dollar reserves "

    In your example the US paper currency and reserves would still be useful in government transactions as the central bank would continue to accept them in payment.

    The question is why the central bank would continue to accept money no longer accepted by the treasury, and why the CB would care about inflation in terms of dollars, if US dollars were no longer the state currency. Your example doesn't appear to make much sense!

    1. "The question is why the central bank would continue to accept money no longer accepted by the treasury"

      For the sake of argument say that the central bank becomes a private clearinghouse. Dollars are its brand, and it tries to maintain a stable purchasing power in order to make its brand more competitive. It does so by using its assets to buy back dollars when their demand falls. Same story. Taxes needn't drive the positive value of dollars.

    2. Would this private clearinghouse have to pay taxes?

      If so, would the government allow this private clearinghouse to pay its taxes with money it just creates itself?

      Would others have to pay their taxes with money created by the private clearing house?

    3. It's more likely that a truly private clearinghouse would have to pay its taxes in money which it couldn't create, just like everyone else.

    4. Ok, let me try something even more stripped down. The monarch abdicates and privatizes the apparatus of the state. There are no more taxes.

      The monarch's central bank is now privately owned, basically a clearing house. Despite the absence of taxes, the central bank's notes will still have a positive value because it has the ability to repurchase the entire note issue.

    5. If the government privatized the central bank, it would have to sell off all the bank's assets. Presumably these would have to be bought with the central bank's own liabilities... Wouldn't this reduce the amount of outstanding cb liabilities to near-zero?

      Also, if the government decided to end itself it would, I assume, sell off its real assets in exchange for outstanding bonds or cb/state liabilities, thus extinguishing those bonds and other liabilities.

      So it seems like all you'd be left with is private debts and real assets.

      However all those private debts, including MBS, are denominated in US dollars - and US dollars would no longer exist, in the sense that US dollars are specifically liabilities of the state, and if the state no longer exists then those state liabilities also no longer exist. A new, private, central bank/clearing house wouldn’t have a legal right to print ‘US dollars’. It would have to issue a new currency of its own.

      Which means that all those private debt contracts would have to be re-written... But on what basis would creditors have the legal right to demand payment in some other asset?

      It sounds like what you're actually describing in your hypothetical example is the complete implosion of the monetary system!

    6. Lol, you're making this way too complicated than it needs to be. Send me a private email if you want to continue the discussion, but I don't want to continue it here lest it become painful for future readers of the comments section.

    7. "Ok, let me try something even more stripped down. The monarch abdicates and privatizes the apparatus of the state. There are no more taxes."

      There would also be no more property rights, or contractual enforcement, would there? The "Taxes Drive Money" narrative is a useful shorthand, but should really be extended to include the Judicial Branch, i.e. "monetary obligations drive currency". So unless your anarchtopia did not have any mechanism for contractual or property rights enforcement, it seems there would always have to be some body imposing tax-like obligations, which would then - thanks to twintopf - be likely to become the defacto unit of account and main currency.

  8. The primary reason people will want to use US dollars is because there will be capital gains taxes on any gains accrued from the exchange of dollars for foreign currency (and for precious metals). Absent such taxes, one could save and transact in the most stable form of money and convert at the last minute or when the dollar is at a low point in order to pay taxes in dollars.

    Foreign currency transactions. If you have a gain on a personal foreign currency transaction because of changes in exchange rates, you do not have to include that gain in your income unless it is more than $200. If the gain is more than $200, report it as a capital gain.


    Publication 525 - Taxable and Nontaxable Income - -For use in preparing 2012 Returns

    100 years ago, Von Mises explained that the so called "state theory of money" was "acatallactic" and thus did not even consider the topic of relative purchasing power which is in fact expressed as subjective valuations in voluntary exchanges. The entire topic is alien to MMTers. They do not and cannot engage it.

    Another acatallactic doctrine seeks to explain the value of money by the command of the state. According to this theory the value of money rests on the authority of the highest civil power, not on the estimation of commerce. [1] The law commands, the subject obeys. This doctrine can in no way be fitted into a theory of exchange; for apparently it would have a meaning only if the state fixed the actual level of the money prices of all economic goods and services as by means of general price regulation. Since this cannot be asserted to be the case, the state theory of money is obliged to limit itself to the thesis that the state command establishes only the Geltung or validity of the money in nominal units, but not the validity of these nominal units in commerce. But this limitation amounts to abandonment of the attempt to explain the problem of money.


  9. JP,

    I don't think we even have to use hypotheticals to illustrate the MMT weaknesses. Think "Argentina", US Dollars, "Blue Dollars" and pesos. Argentina has a central bank, a printing press, capital controls, yet still many transactions occur in USD.

  10. You say that to avoid hyperinflation "the Federal Reserve will suck up and remove all unwanted currency and reserves [...] by selling assets"
    When did the Fed ever massively sell out assets to avoid currency devaluation? Rather, central banks buy valuable assets with fiat paper, and then swap those public assets for valueless bonds of collapsing states/banks/corporations to serve the interests of its real masters: banks and corporations.
    The day the public will decide to revoke the central banking system and peak into the vaults, I fear we will find out that the supposedly huge public assets held by our central banks have all been converted into Greek bonds and shares of banks that no longer exist...
    I don't believe that Central Banks will be helpful when hyperinflation quicks in. Their real mission is limited to control money creation in order to maintain a sustainable level of looting. The day they fail, they will just hand over the situation to the armed forces.

  11. You make good points such as the bouncer becoming a libertarian.

    Some similarity in an altogether different scenario:

    A lot of the Neochartalists' saying works provided the exchange rate is truly truly floating. But nations struggle to freely float and have central bank intervention in the foreign exchange markets and in the process accumulate debt in foreign currency, public debt have "liability dollarization" and so forth and to their own concession fiscal policy should give in in such scenarios.

    So even if the central bank/Tsy makes Neochartalist vows to not intervene and borrow in foreign currencies, it may end up changing its mind because the fx markets may force their hand.

    Sorry, point off topic but thought there is some similarity to your argument.

  12. fundamentally a dollar is 'worth' what it can buy. And taxes buy you out of the penalty for not paying them.

    Yes, without taxes the Fed could sell assets in exchange for dollars but I agree it probably wouldn't do that, and if it did it would 'run out' of whatever assets it was trying to sell to support the dollar at anything above 'no value'. Think of 'the bank of the confederacy' if there was one, trying to support any value for confederate dollars after they lost the US civil war, and lost taxing authority, for example.

    1. Hi Warren. I suppose that the 'Bank of the Confederacy' might have problems providing support, but the modern day Fed's large portfolio of MBS should provide it with the ammo to repurchase all unwanted dollars above a price of 0. MBS provide streams of revenue regardless of tax authority.

    2. exchanging mbs for dollars doesn't support the fx value of the dollar, no?

    3. If the dollar were to fall against other currencies it seems to me that large open market sales of MBS should mop up excess dollars and prop up the exchange rate.

    4. Warren:

      1) A green piece of paper relieves you of having to pay 1 oz of silver to the paper's issuer. A blue piece of paper entitles you to claim 1 oz of silver from the paper's issuer. Both pieces of paper are backed by the issuer's assets, and both will be worth 1 oz. There is no need for the circular "worth what it can buy" theory.

      2) The Fed sells its assets (mainly bonds) for dollars all the time, and it would not 'run out'. It has plenty of assets to buy back all the dollars it has issued at their current value.

      3) The confederate dollar lost value because its issuer lost its assets, which had consisted mostly of future taxes receivable. That's consistent with the idea that the value of money is determined by the value of its issuer's assets.

    5. JP,

      "large open market sales of MBS should mop up excess dollars and prop up the exchange rate"

      MBS are just promises to pay more dollars in future. Why would exchanging present dollars for promises to pay more dollars in future (MBS) give a value to dollars (i.e prop up the exchange rate)?

    6. James:

      If the Fed has a $100 MBS (or any other kind of asset) then the Fed can sell the MBS back to the homeowner who issued it, in exchange for $100 of federal reserve notes. The homeowner then burns the MBS, while the Fed burns the federal reserve notes.

      The same thing could happen indirectly: The Fed pays $100 of MBS for $100 of FRN's, and burns the FRN's. The new holder of the MBS demands payment of $100 of FRN's from the homeowner, and the homeowner burns the MBS. End result is that both the MBS and the FRN's get burned.

  13. But more important, how about my point that Prof. Murphy's statement that Austrian economics business cycle theory is about market interest rates sending signals for investment? And when the Fed lowers rates to try to support output it's introducing a distortion, etc.? My response is that may be true for fixed fx where market forces determine rates, but not floating fx where the cb necessarily sets the term structure of 'risk free rates' if it wants that term structure above 0. That is, without 'govt. intervention'= tsy secs and interest on reserves= spending that exceeds taxation results in excess reserves and a 0 fed funds rate. Seems to me this means Austrian business cycle theory is at best applicable to fixed fx regimes?

    1. All newly created money causes a market distortion. This is the so called Cantillon effect. The ABCT depends on a particular distortion, when this new money is used for investment. This is technically caused by fractional reserve commercial banking, not by the central bank. Robert Murphy himself explained this in his Mises Academy course "Economics of the Great Depression", I suppose he didn't have enough time in the debate to emphasise this nuance. Central banks only exacerbate this and add new problems.

      The interest rate changes are merely another way of looking at the problem, they might not be the best way to understand the argument.

  14. I suspect that if you 'translate' Austrian economics from fixed fx to floating fx you get MMT

  15. I'm sorry but I don't see how a central bank could be hoped to ensure continued use of a fiat currency in the absence of the government backstopping that currency.
    If a currency was being abandoned due to the population choosing to move over to using another currency, then MBS denominated in the abandoned currency would also start becoming utterly worthless. If the central bank started selling off its stock of MBS as a way of trying to create scarcity of its base money, the price impact of that selling would mean that less base money would be recovered than previously had been created when the central bank bought its stock of MBS in the first place. This is particularly true when the starting point is a vast excess of bank reserves such as currently in the USA, Japan or the UK. The central bank could sell off ALL of its assets and there could still be a glut of essentially worthless base money. The long duration of assets such as >10year MBS means that they have a price that swings around much more than the currency value. Obviously IF the central bank had plenty of foreign currency denominated assets then things would be different BUT that isn't the case with say the Fed is it?