"The question is, what happens if the government gives people $5 trillion of cash, but takes away $5 trillion of treasury debt? Monetarism says that this gives the exact same inflation in both cases, as only the money supply matters."
Maybe under straw man monetarism...
Treasury debt can offer liquidity services and serve as a partial substitute for money. If you're measuring money supply with a simple sum statistic, then it's not going to capture this effect. That's why things like Divisia monetary aggregates were created. During the GFC, Divisia M4 including Treasuries didn't see anywhere near the same movement as M2.
I am not an economist, but on the surface your $5 trillion of cash $5 trillion of debt feels a little like Mogdalini and Miller's theory of corporate finance where it doesn't matter if a company issues debt or equity when it comes to valuation.
My question to you regarding M4 and M2 is "Do we care?". Or are we indifferent as long as expectations are the same.
Japan & Japanese people, investors, workers, retirees—almost none genuinely believe the debt will be repaid.
Any theory actually dependent upon this belief is a weak theory. It’s not clear how changing the fantasy of repayment with other beliefs weakens the other parts of the theory. Comparing 250% with a more dangerous Argentina 40% is good, important, but fails to show its belief in repayment. Other options: 1) fairly gradual and steady-adding 2% per quarter hasn’t caused a crises, so shouldn’t in the future, 2) J debt held by Japanese is considered safe by the Japanese people & investors, so ratio to GNP is not important, 3) none can imagine any realistic crisis that results in a huge financial crisis only—for all imagined crises, China war or climate catastrophe, the real material world becomes far far more important than Yen bond holder value decreases. (This might be due to limited imaginations.)
I do think these 3 are among the most important differences, and all are more realistic than the fantasy of expected repayment (without crisis).
Not to mention, or, let’s not forget the helicopter money drop option to pay off all bond holders with freshly printed cash so as to fulfill the promises, tho with some. huge expected inflation and. asset purchasing.
It’s excellent to compare different theories and tease out results.
Loans = deposits, not the other way around. So, the multiplication process produces breathtaking relationships. For example, the source of interest-bearing deposits is non-interest-bearing deposits either indirectly through the currency route or through the bank's undivided profits accounts.
"The question is, what happens if the government gives people $5 trillion of cash, but takes away $5 trillion of treasury debt? Monetarism says that this gives the exact same inflation in both cases, as only the money supply matters."
Maybe under straw man monetarism...
Treasury debt can offer liquidity services and serve as a partial substitute for money. If you're measuring money supply with a simple sum statistic, then it's not going to capture this effect. That's why things like Divisia monetary aggregates were created. During the GFC, Divisia M4 including Treasuries didn't see anywhere near the same movement as M2.
I am not an economist, but on the surface your $5 trillion of cash $5 trillion of debt feels a little like Mogdalini and Miller's theory of corporate finance where it doesn't matter if a company issues debt or equity when it comes to valuation.
My question to you regarding M4 and M2 is "Do we care?". Or are we indifferent as long as expectations are the same.
Japan & Japanese people, investors, workers, retirees—almost none genuinely believe the debt will be repaid.
Any theory actually dependent upon this belief is a weak theory. It’s not clear how changing the fantasy of repayment with other beliefs weakens the other parts of the theory. Comparing 250% with a more dangerous Argentina 40% is good, important, but fails to show its belief in repayment. Other options: 1) fairly gradual and steady-adding 2% per quarter hasn’t caused a crises, so shouldn’t in the future, 2) J debt held by Japanese is considered safe by the Japanese people & investors, so ratio to GNP is not important, 3) none can imagine any realistic crisis that results in a huge financial crisis only—for all imagined crises, China war or climate catastrophe, the real material world becomes far far more important than Yen bond holder value decreases. (This might be due to limited imaginations.)
I do think these 3 are among the most important differences, and all are more realistic than the fantasy of expected repayment (without crisis).
Not to mention, or, let’s not forget the helicopter money drop option to pay off all bond holders with freshly printed cash so as to fulfill the promises, tho with some. huge expected inflation and. asset purchasing.
It’s excellent to compare different theories and tease out results.
Banks don't lend deposits. So, Japan saves more and keeps more of their savings impounded in their banks. Case closed.
Loans = deposits, not the other way around. So, the multiplication process produces breathtaking relationships. For example, the source of interest-bearing deposits is non-interest-bearing deposits either indirectly through the currency route or through the bank's undivided profits accounts.