Thread: The Real Causes of Income Inequality

Fiat, taxation, and economic policies that seem to flow from theory and display the world we end up living in.

Modern Monetary Theory - MMT labels any transactions between the government sector and the non-government sector as a vertical transaction.

counter intuitive:

Therefore, budget deficits, by definition, are equivalent to adding net financial assets to the private sector; whereas budget surpluses remove financial assets from the private sector.

still counter intuitive:
The conclusion that MMT necessarily draws from this is that private net saving is only possible if the government runs budget deficits; alternately, the private sector is forced to dis-save when the government runs a budget surplus.


hmmmm what seems counter intuitive appears to be close to what actually happens.
MMT therefore does not support the notion, as some Keynesians do, that budget surpluses are always necessary in periods of high effective demand. According to the framework outlined above, budget surpluses remove net savings; in a time of high effective demand, this may lead to a private sector reliance on credit to finance consumption patterns. Rather, MMT suggests that continual budget deficits are necessary for a growing economy that wants to avoid deflation. MMT only advocates budget surpluses when the economy has excessive aggregate demand, and is in danger of inflation.

What if those private assets are sent abroad, pretty much permanently?

Originally Posted by goober

That was Bush who wanted everyone to own their own home, Barney Frank wanted to open up federal programs to small landlords with up to 6 rental units.
But Bush killed that to promote individual home ownership.

http://www.boston.com/bostonglobe/ed...ancial_fiasco/
Because while the mortgage crisis convulsing Wall Street has its share of private-sector culprits -- many of whom have been learning lately just how pitiless the private sector’s discipline can be -- they weren't the ones who "got us into this mess." Barney Frank's talking points notwithstanding, mortgage lenders didn't wake up one fine day deciding to junk long-held standards of creditworthiness in order to make ill-advised loans to unqualified borrowers. It would be closer to the truth to say they woke up to find the government twisting their arms and demanding that they do so - or else.

The roots of this crisis go back to the Carter administration. That was when government officials, egged on by left-wing activists, began accusing mortgage lenders of racism and "redlining" because urban blacks were being denied mortgages at a higher rate than suburban whites.

The pressure to make more loans to minorities (read: to borrowers with weak credit histories) became relentless. Congress passed the Community Reinvestment Act, empowering regulators to punish banks that failed to "meet the credit needs" of "low-income, minority, and distressed neighborhoods." Lenders responded by loosening their underwriting standards and making increasingly shoddy loans. The two government-chartered mortgage finance firms, Fannie Mae and Freddie Mac, encouraged this "subprime" lending by authorizing ever more "flexible" criteria by which high-risk borrowers could be qualified for home loans, and then buying up the questionable mortgages that ensued.

Originally Posted by dnsmith

Frank's fingerprints are all over the financial fiasco - The Boston Globe
Because while the mortgage crisis convulsing Wall Street has its share of private-sector culprits -- many of whom have been learning lately just how pitiless the private sector’s discipline can be -- they weren't the ones who "got us into this mess." Barney Frank's talking points notwithstanding, mortgage lenders didn't wake up one fine day deciding to junk long-held standards of creditworthiness in order to make ill-advised loans to unqualified borrowers. It would be closer to the truth to say they woke up to find the government twisting their arms and demanding that they do so - or else.

The roots of this crisis go back to the Carter administration. That was when government officials, egged on by left-wing activists, began accusing mortgage lenders of racism and "redlining" because urban blacks were being denied mortgages at a higher rate than suburban whites.

The pressure to make more loans to minorities (read: to borrowers with weak credit histories) became relentless. Congress passed the Community Reinvestment Act, empowering regulators to punish banks that failed to "meet the credit needs" of "low-income, minority, and distressed neighborhoods." Lenders responded by loosening their underwriting standards and making increasingly shoddy loans. The two government-chartered mortgage finance firms, Fannie Mae and Freddie Mac, encouraged this "subprime" lending by authorizing ever more "flexible" criteria by which high-risk borrowers could be qualified for home loans, and then buying up the questionable mortgages that ensued.

ahoy DNSmith,

this be pretty inaccurate, matey.

the CRA exists today in the same manner that it hath always existed in the past....and 'tis not leadin' to crazed loans to them who be ill-suited to repay them.

in short, the CRA be a tiny factor amongst an ocean 'o other, bigger dynamics that led to the morass we be in.

- MeadHallPirate

Originally Posted by USCitizen

What if those private assets are sent abroad, pretty much permanently?

That gets real pretty: And rolls right into the real world:


Chartalism - Wikipedia, the free encyclopedia
Imports and exports

MMT analyses imports and exports within the framework of horizontal transactions. It argues that an export represents a desire on behalf of the exporting nation to obtain the national currency of the importing nation. The following hypothetical example is consistent with the workings of the FX market, and can be used to illustrate the basis of the theory:

”An Australian importer (person A) needs to pay for some Japanese goods. The importer will go to his bank and ask to transfer 1000 yen to the Japanese bank account of the Japanese firm (person B). After looking up the relevant exchange rates for that day, the bank will inform him that this will cost him 100 dollars. The bank removes 100 dollars from the importer’s account, and goes to the FX market. It finds an individual (person C) who is willing to swap 1000 yen for 100 dollars. It transfers the 100 dollars to that individual. Then it takes the 1000 yen and transfers it to the Japanese exporter’s bank account.”

Thus, the transaction is complete. What made the transaction possible (i.e. acceptably priced to the importer) was person C in the middle of the FX swap. Thus MMT concludes that it is a foreign desire for an importer’s currency that makes importing possible.[15]

MMT concludes that imports are therefore an economic benefit to the importing nation because they provide the nation with real goods it can consume, that it otherwise would not have had. Exports, on the other hand, are an economic cost to the exporting nation because it is losing real goods that it could have consumed.[15] MMT does not, however, ignore the fact that the importing nation has given some of its currency to foreigners. This currency ownership represents a future claim over goods of that nation, which, as outlined above, are a cost. Similarly, MMT does not ignore the fact that cheap imports may cause the failure of local firms providing similar goods at higher prices, and hence unemployment. Most MMT commentators label that consideration as a subjective value-based one, rather than an economic-based one: it is up to a nation to decide whether it values the benefit of cheaper imports more than it values employment in a particular industry.[15] Lastly, MMT does not ignore the effect of an over-reliance on imported goods (such as oil) with highly inelastic demand. It is consistent with MMT theory that a nation overly dependent on imports may face a supply shock if the exchange rate drops significantly. As an operational matter, central banks can and do trade on the FX markets to avoid sharp shocks to the exchange rate.

Originally Posted by dnsmith

Frank's fingerprints are all over the financial fiasco - The Boston Globe
Because while the mortgage crisis convulsing Wall Street has its share of private-sector culprits -- many of whom have been learning lately just how pitiless the private sector’s discipline can be -- they weren't the ones who "got us into this mess." Barney Frank's talking points notwithstanding, mortgage lenders didn't wake up one fine day deciding to junk long-held standards of creditworthiness in order to make ill-advised loans to unqualified borrowers. It would be closer to the truth to say they woke up to find the government twisting their arms and demanding that they do so - or else.

The roots of this crisis go back to the Carter administration. That was when government officials, egged on by left-wing activists, began accusing mortgage lenders of racism and "redlining" because urban blacks were being denied mortgages at a higher rate than suburban whites.

The pressure to make more loans to minorities (read: to borrowers with weak credit histories) became relentless. Congress passed the Community Reinvestment Act, empowering regulators to punish banks that failed to "meet the credit needs" of "low-income, minority, and distressed neighborhoods." Lenders responded by loosening their underwriting standards and making increasingly shoddy loans. The two government-chartered mortgage finance firms, Fannie Mae and Freddie Mac, encouraged this "subprime" lending by authorizing ever more "flexible" criteria by which high-risk borrowers could be qualified for home loans, and then buying up the questionable mortgages that ensued.

If you get bored I'll make the effort to pull up the truth on the CRA. I'm not bored enough right now ... as its quite boring reading but it does illuminate truth over perception.

Originally Posted by michael h

Modern Monetary Theory - MMT labels any transactions between the government sector and the non-government sector as a vertical transaction.

counter intuitive:


still counter intuitive:
The conclusion that MMT necessarily draws from this is that private net saving is only possible if the government runs budget deficits; alternately, the private sector is forced to dis-save when the government runs a budget surplus.

Just because the theory is modern does not mean it is valid. You recognize it is not counter-intuitive. It is more than that; MMT is invalid.

Originally Posted by JohnLocke

Just because the theory is modern does not mean it is valid. You recognize it is not counter-intuitive. It is more than that; MMT is invalid.

Seems to be holding up quite well compared to Free Trade.

Originally Posted by JohnLocke

Just because the theory is modern does not mean it is valid. You recognize it is not counter-intuitive. It is more than that; MMT is invalid.

Seems to be holding up quite well compared to Free Trade.

Free trade is counter-intuitive?

Originally Posted by JohnLocke

Free trade is counter-intuitive?

It's Counter-Counter-Counter-Intuitive as it's based, as practiced, on non-Preamble individual self-interest.
Can't wait for the WTO to be taken over by China.

I see. So, in your view, the reason for income inequality is too much non-preamble free trade.

Originally Posted by dnsmith

Frank's fingerprints are all over the financial fiasco - The Boston Globe
Because while the mortgage crisis convulsing Wall Street has its share of private-sector culprits -- many of whom have been learning lately just how pitiless the private sector’s discipline can be -- they weren't the ones who "got us into this mess." Barney Frank's talking points notwithstanding, mortgage lenders didn't wake up one fine day deciding to junk long-held standards of creditworthiness in order to make ill-advised loans to unqualified borrowers. It would be closer to the truth to say they woke up to find the government twisting their arms and demanding that they do so - or else.

The roots of this crisis go back to the Carter administration. That was when government officials, egged on by left-wing activists, began accusing mortgage lenders of racism and "redlining" because urban blacks were being denied mortgages at a higher rate than suburban whites.

The pressure to make more loans to minorities (read: to borrowers with weak credit histories) became relentless. Congress passed the Community Reinvestment Act, empowering regulators to punish banks that failed to "meet the credit needs" of "low-income, minority, and distressed neighborhoods." Lenders responded by loosening their underwriting standards and making increasingly shoddy loans. The two government-chartered mortgage finance firms, Fannie Mae and Freddie Mac, encouraged this "subprime" lending by authorizing ever more "flexible" criteria by which high-risk borrowers could be qualified for home loans, and then buying up the questionable mortgages that ensued.

Wow, you found an opinion piece attacking Barney Frank.

What I am saying is that GREED played the major role, aided by the lack of regulation.
The mortgage market, like any market is driven by the balance between greed and fear, in the early part of the 21st century, mortgages became the raw material from which the most profitable product wall street ever came up with was made.
That demand which was huge, is why people lowered standards, to increase the supply of mortgages, because they were making HUGE profits converting those mortgages into derivatives.
There was no mortgage crisis in the 90's, there was a CRA, there was a mortgage crisis in Ireland, but no CRA, there was no mortgage crisis in countries that had strong regulation, and there was mortgage crisises in countries that had weak regulation of the financial sector.

Employ a little critical thinking, given the scope of the mortgage crisis, how is it possible that the CRA was the trigger?