Mosler on CNBC

==========

Reuters: Can Europe print money to get out of its fiscal hole?

As an aside I'm not entirely sure jesse said this:

It is a comment on the huffpo piece, from someone who has 400 odd comments, which I don't see being Jesse. But I could be wrong

Care to respond to this exchange of comments from the 'Can Europe print money' article link, J.R...?





10:20 pm ESTwhen do you stop? 2 trillion? ten?

Posted by rjs0 | Report as abusive Feb 8, 2010
10:44 pm EST“When do you stop?”

Well, Mosler would say you “stop” when aggregate demand has been restored to more optimal levels – full, or fuller, employment, greater resource utilization, etc. And you “scale back” through higher taxes when inflation begins to heat up. Taxes destroy money and reduce the spending capacity of the private sector. That is their primary function in a fiat world.

Per Mosler, fiscal policy is the best tool the government can use to regulate the temperature of the economy. Faced with a collapse in aggregate demand the government will/should/must run larger deficits. Rather than bailing out banks or spending on time-delayed public works projects, Mosler advocates a bottom-up bailout of consumers via an open-ended, perhaps permanent payroll tax holiday. This would put more money in the hands of working Americans and lower labor costs for businesses small and large.





Now I understand you don't like taxes, but printing lots of money doesn't mean hyperinflationary collapse when applying MMT. Hyperinflation occurs when fiat regimes pretend they are still on a commodity currency.

I don't know what you are talking about but lol at "when applying MMT"

MMT = nonsense. The world is real. Lots of people think lots of crazy stuff. Crazy thoughts don't change reality.

Word, sleuth award to you!!

Jesse's comment at huffpo is after it. Jesse apparently incorporated it into his blog piece.

Perfect.

There are dozens of examples of countries printing tons of money and having tons of problems in the aftermath- and these guys want to try a grand experiment promising that "this time it will be different" because "hey- our money isn't worth anything anyway"

How is that perfect? His post is basically the same absolutist statement as Muslim Jihadists chanting "God is God! There is no God, but God!"


As J.R. once said wealth is not money, goods and services are wealth. Sometimes you need to expand the money supply in order to induce production of goods and provision of services.

Sometimes I need to congratulate the excellence that is your gimmick account.

Increasing wealth is about increasing goods and services that people want more than what they have to give up for them. Printing money to pay for this stuff makes 1/2 of the equation impossible to figure, but what we do know right now is the market has said "we don't need any more of X,Y and Z at these prices"- the Monkey Monetary Theorists are basically saying "The Market is wrong- lets take what people wanted (under distorted conditions) 5 years ago and use that as a proxy for what they want now and make that instead of this whole 'prices' mechanism.

Like I said

Now that is a quality response, tolbiny. But I disagree when you say people no longer want X, Y, and Z. The whole point of fiat devaluation is to make sure that people intent on only a hoarding of their capital, the would be "Lords" if you will can't swoop down like an Eagle and snatch up all the deflated land of the would be serfs! Yes, we must indeed punish the savers, since the alternative would be a return to feudalism and human bondage. Never again!

This is a joke, right? I don't want to respond seriously and then look like an idiot because I got leveled.

There will always be tyranny of one man over another, that is just human nature. The need to mock, to weaken, to make rot of one group in order for another group to grow in power and signifigance.

We can only hope to ruled by tyrants that are more petty than others. What is better for the masses, to be a serf to a Lord, or to have petty thieves taking only parts of their labor?


You who would be Lords hate the petty theif, as he hates you. But the petty thief has the consent of the governed. Though the proles have short memories the goldbugs managed to make a lasting impression during their reign of iniquity.

His latest blog is a really good one http://bilbo.economicoutlook.net/blog/?p=9106. This should be the final nail in the Austrian coffin for anyone that doesn't have an incurable unobjective bias.

A sample.




"Today I am considering the latest broadside from controversial German philosopher Peter Sloterdijk, who Jurgen Habermas referred to as a fascist. Sloterdijk responded to that criticism by labelling Habermas, in turn, a fascist. That debate was about bi-genetics and Sloterdijk’s implicit support for a “master race”. It was an interesting debate in itself and goes to the fundamental discomfort that exists in Germany about their past. But today I am considering his views on freedom and governments who he labels fiscal thieves and suggests that modern democracies have conspired to allow ever increasing numbers to live of the toil of others courtesy of state intervention.

The Austrian School fanatics would love this guy. Sloterdijk’s latest article was published in the Winter 2010 edition of the City Journal and was entitled – The Grasping Hand.

As an aside, the City Journal is “a quarterly magazine of urban affairs, published by the Manhattan Institute”. So who are the Manhattan Institute? Turns out they are a free-market ideas think tank and hand out the annual F.A. Hayek’s Prize to honour his vision of economic and individual liberty. They display curious inconsistencies though in advocating for “free markets” yet also considering that financial markets need to be tightly regulated by government to avoid the latter bailing out the former during a bank crisis.

Sloterdijk starts with the contention that “(t)he modern democratic state pillages its productive citizens”. Which got me wondering if democracy means we can vote them out – which means that, despite our limited political choices these days, the control of the political process by the media doing the bidding for the top-end-of-town, and the flawed balloting systems in some countries (including the US), this would be a situation where we sanction the state pillage. Sort of self-pillage.

He begins by juxtaposing classical liberalism and anarchism – both movements which were “motivated by the mistaken hypothesis that the world was heading
toward an era of the weakening of the state” and hoped that:

… man’s plunder of man would soon come to an end. In the first case, this would result from the elimination of exploitation by
unproductive classes, that is, the nobility and the clergy. In the second case, the key was to reorganize traditional social classes into little groups that would consume what they produced.

I have no problem with this characterisation. Sloterdijk says that neither movement survived the political developments into the C20th, and that:

The modern democratic state gradually transformed into the debtor state, within the space of a century metastasizing into a colossal monster-one that breathes and spits out money. This metamorphosis has resulted, above all, from a prodigious enlargement of the tax base-most notably, with the introduction of the progressive income tax. This tax is the functional equivalent of socialist expropriation. It offers the remarkable advantage of being annually renewable-at least, in the case of those it has not bled dry the previous year.

There seem to be a lot of confusions in this characterisation.

First, if it is breathing and spitting out money that capacity would appear to be organic to the state. So then why is it a debtor state? The reality is that the likes of Sloterdijk who err towards classical liberalism in his “economic” ideas (and I use that term loosely because he knows nought about the way the monetary system operates) although his other works (as noted) on bio-genetics are ominously scary and invoke the master race notions that Plato first espoused and were taken up very patently by Sloterdijk’s countrymen and women in the 1930s and beyond."

The way to crush the bourgeois is to grind them between the millstones of taxation and inflation.
– V.I. Lenin

Clearly the problem was the gold standard and not a shortage of stuff, if only we printed money there would be no real world scarcity and everyone would have an ipad and BMW and whatever else the egalitarians believe we all would have but not for the rich capital hoarders.

Hi AC,

You posted the wrong quote.

Waiting patiently for something about AE,

J.R.

You have to read the whole blog to get to that.


The way to crush the bourgeois is to grind them between the millstones of taxation and inflation.
– V.I. Lenin


This is true, but there will be no inflation. Taxes would be raised during a recession which will reduce the pool of fiat and combat inflation. As long as citizens earn salary in fiat this hurts neither the rich nor the poor. Since if the rich choose to protest and not pay the increased the taxes then the money pool would not shrink and they would pay through inflation anyway.


And note that if the rich did not pay their situation does not improve, but the poor would be hurt since the money pool did not shrink.


Lenin would not destroy the taxed capital.



Now I'm all for the rich protesting against fiat money, but that's not what they do. They protest against higher taxes, which MMT tells us is useless.

You are right. Its too bad our wonderful public school system doesn't teach you anything about economics... then they'd be protested for lower spending instead of lower taxes!

Although if the "average" American had even a modest understanding of any type of economics we might not be at this point in the first place.

I continue to be amazed by how many words Billy can use to say almost nothing at all. Care to give me the sample of the part where he "refutes" Austrian Economics in a simple blog post? I can't bring myself to read the whole thing and if you already have...

Why bother? I don't expect anyone with a vested bias in Austrian theory to be convinced by it. That would be like walking into a church and converting everyone into an agnostic by way of reasoned argument.

My posts are directed at those whose minds aren't already permanently made up.

http://mises.org/resources/3250

This should be the final nail in the MMT coffin for anyone that doesn't have an incurable unobjective bias.

Sample:

That just seems like a long winded pretentious diatribe full of high sounding platitudes to me.


Let's get specific. How can a government overspend when they are not constrained by commodity backing? How can there be rampant inflation when the pool of capital is reduced after taxation?



And I am not biased towards MMT. A gold standard deflationary enviroment would personally benefit me greaty since my bankroll would grow without me even having to play. But in the long term I suspect that would lead to another proletariat revolution and we all know that anyone with any incentive to profit from capital gets hauled off to the labor camps when that happens.



“Men are born soft and supple; dead, they are stiff and hard. Plants are born tender and pliant; dead, they are brittle and dry. Thus whoever is stiff and inflexible is a disciple of death. Whoever is soft and yielding is a disciple of life. The hard and stiff will be broken. The soft and supple will prevail." Lao Tzu

I feel the following blog may be the most important one to read for any aspiring goldbugs. I will simply paste the whole thing since people don't like clicking links for some reason.




Gold standard – convertibility and fixed exchange rates

When we talk about the gold standard we are referring to the system which regulated the value of currencies around the world in terms of a certain amount of gold. When the gold standard was in vogue (C19th into the C20th) it was the major way that countries adjusted their money supply.

How does it work?

First, a currency might be valued for its intrinsic value (so gold or silver coins). This is a pure commodity currency system. In the C18th, commodity money systems became problematic because there was a shortage of silver and this system steadily gave way to a system where paper money issued by a central bank was backed by gold. So the idea was that a currency’s value can be expressed in terms of a specified unit of gold. So we might say that a unit of paper currency (a dollar note) might be worth x grains of gold. To make this work there has to be convertibility which means that someone who possesses a paper dollar will be able to swap it (convert it) for the relevant amount of gold.

Britain adopted the gold standard in 1844 and it became the common system regulating domestic economies and trade between them up until World War I. In this period, the leading economies of the world ran a pure gold standard and expressed their exchange rates accordingly. As an example, say the Australian Pound was worth 30 grains of gold and the USD was worth 15 grains, then the 2 USDs would be required for every AUD in trading exchanges.

The monetary authority agreed to maintain the “mint price” of gold fixed by standing ready to buy or sell gold to meet any supply or demand imbalance. Further, the central bank (or equivalent in those days) had to maintain stores of gold sufficient to back the circulating currency (at the agreed convertibility rate).

Gold was also considered to be the principle method of making international payments. Accordingly, as trade unfolded, imbalances in trade (imports and exports) arose and this necessitated that gold be transferred between nations (in boats) to fund these imbalances. Trade deficit countries had to ship gold to trade surplus countries. For example, assume Australia was exporting more than it was importing from New Zealand. In net terms, the demand for AUD (to buy the our exports) would thus be higher relative to supply (to buy NZD to purchase imports from NZ) and this would necessitate New Zealand shipping gold to us to fund the trade imbalance (their deficit with Australia).

This inflow of gold would allow the Australian government to expand the money supply (issue more notes) because they had more gold to back the currency. This expansion was in strict proportion to the set value of the AUD in terms of grains of gold. The rising money supply would push against the inflation barrier (given no increase in the real capacity of the economy) which would ultimately render exports less attractive to foreigners and the external deficit would decline.

From the New Zealand perspective, the loss of gold reserves to Australia forced their Government to withdraw paper currency which was deflationary – rising unemployment and falling output and prices. The latter improved the competitiveness of their economy which also helped resolve the trade imbalance. But it remains that the deficit nations were forced to bear rising unemployment and vice versa as the trade imbalances resolved.

The proponents of the gold standard focus on the way it prevents the government from issuing paper currency as a means of stimulating their economies. Under the gold standard, the government could not expand base money if the economy was in trade deficit. It was considered that the gold standard acted as a means to control the money supply and generate price levels in different trading countries which were consistent with trade balance. The domestic economy however was forced to make the adjustments to the trade imbalances.

Monetary policy became captive to the amount of gold that a country possessed (principally derived from trade). Variations in the gold production levels also influenced the price levels of countries.

In practical terms, the adjustments to trade that were necessary to resolve imbalances were slow. In the meantime, deficit nations had to endure domestic recessions and entrenched unemployment. So a gold standard introduces a recessionary bias to economies with the burden always falling on countries with weaker currencies (typically as a consequence of trade deficits). This inflexibility prevented governments from introducing policies that generated the best outcomes for their domestic economies (high employment).

Ultimately the monetary authority would not be able to resist the demands of the population for higher employment.

The onset of World War I interrupted the operation of the gold standard and currencies were valued by whatever the specific government wanted to set it at. The ensuing 25 odd years saw significant instability with attempts to go back to the standard in some countries proving extremely damaging in terms of gold losses and rising unemployment. The UK abandoned the gold standard in 1931 as it was facing massive losses of gold. It had tried to maintain the value of the Pound in terms the pre-WW1 parity with gold but the war severely weakened its economy and so the pound was massively over-valued in this period and trade competitiveness undermined as a consequence.

After World War 2, the IMF was created to supercede the gold standard and the so-called gold exchange standard emerged. Convertibility to gold was abandoned and replaced by convertibility into the USD, reflecting the dominance of the US in world trade (and the fact that they won the war!). This new system was built on the agreement that the US government would convert a USD into gold at $USD35 per ounce of gold. This provided the nominal anchor for the exchange rate system.

The Bretton Woods System was introduced in 1946 and created the fixed exchange rates system. Governments could now sell gold to the United States treasury at the price of $USD35 per ounce. So now a country would build up USD reserves and if they were running a trade deficit they could swap their own currency for USD (drawing from their reserves) and then for their own currency and stimulate the economy (to increase imports and reduce the trade deficit).

The fixed exchange rate system however rendered fiscal policy relatively restricted because monetary policy had to target the exchange parity. If the exchange rate was under attack (perhaps because of a balance of payments deficit) which would manifest as an excess supply of the currency in the foreign exchange markets, then the central bank had to intervene and buy up the local currency with its reserves of foreign currency (principally $USDs).

This meant that the domestic economy would contract (as the money supply fell) and unemployment would rise. Further, the stock of $USD reserves held by any particular bank was finite and so countries with weak trading positions were always subject to a recessionary bias in order to defend the agreed exchange parities. The system was politically difficult to maintain because of the social instability arising from unemployment.

So if fiscal policy was used too aggressively to reduce unemployment, it would invoke a monetary contraction to defend the exchange rate as imports rose in response to the rising national income levels engendered by the fiscal expansion. Ultimately, the primacy of monetary policy ruled because countries were bound by the Bretton Woods agreement to maintain the exchange rate parities. They could revalue or devalue (once off realignments) but this was frowned upon and not common.

Whichever system we want to talk off – pure gold standard or USD-convertible system backed by gold – the constraints on government were obvious.

The gold standard as applied domestically meant that existing gold reserves controlled the domestic money supply. Given gold was in finite supply (and no new discoveries had been made for years), it was considered to provide a stable monetary system. But when the supply of gold changed (a new field discovered) then this would create inflation.

So gold reserves restricted the expansion of bank reserves and the supply of high powered money (Government currency). The central bank thus could not expand their liabilities beyond their gold reserves (although it is a bit more complex than that). In operational terms this means that once the threshold was reached, then the monetary authority could not buy any government debt or provide loans to its member banks.

As a consequence, bank reserves were limited and if the public wanted to hold more currency then the reserves would contract. This state defined the money supply threshold.

Some gymnastics could be done to adjust the quantity of gold that had to be held. But overall the restrictions were solid.

The concept of (and the term) monetisation comes from this period. When the government acquired new gold (say by purchasing some from a gold mining firm) they could create new money. The process was that the government would order some gold and sign a cheque for the delivery. This cheque is deposited by the miner in their bank. The bank then would exchange this cheque with the central bank in return for added reserves. The central bank then accounts for this by reducing the government account at the bank. So the government’s loss is the commercial banks reserve gain.

The other implication of this system is that the national government can only increase the money supply by acquiring more gold. Any other expenditure that the government makes would have to be “financed” by taxation or by debt issuance. The government cannot just credit a commercial bank account under this system to expand its net spending independent of its source of finance.

As a consequence, whenever the government spent it would require offsetting revenue in the form of taxes or borrowed funds.

Ultimately, Bretton Woods collapsed in 1971. It was under pressure in the 1960s with a series of “competitive devaluations” by the UK and other countries who were facing chronically high unemployment due to persistent trading problems. Ultimately, the system collapsed because Nixon’s prosecution of the Vietnam war forced him to suspend USD convertibility to allow him to net spend more. Here is an interesting historical video of Nixon abandoning the Bretton Woods system on August 15, 1971. This was the final break in the links between a commodity that had intrinsic value and the nominal currencies. From this point in, governments used fiat currency as the basis of the monetary system.

Fiat currency

The move to fiat currencies fundamentally altered the way the monetary system operated even though the currency was still, say, the $AUD.

This system had two defining characteristics: (a) non-convertibility; and (b) flexible exchange rates. You need to recognise this major shift in history before you can understand why the economic policy ideas that prevailed in the previous monetary systems (based on convertibility) are no longer applicable. You cannot assume that the logic that applied in the fixed exchange rate-convertibility days translates over into the fiat currency era. The fact is that it doesn’t.

What I call neo-liberal macroeconomic reasoning is really the sort of reasoning that prevailed in the days prior to fiat currency. While there were debates about how to conduct macroeconomic policy in those days, there were some obvious key constraints that I have outlined above. This is irrespective of whether you want to call yourself a Keynesian or a Monetarist. The shift in history also renders most of the textbook economics outdated and wrong, in terms of how they depict the operations of the fiat monetary system.

When I talk about modern monetary theory I am referring to the fiat monetary system. I am recognising that a fundamental shift occurred in history when Bretton Woods collapsed and this has dramatically altered the opportunities available to sovereign governments.

First, under a fiat monetary system, “state money” has no intrinsic value. It is non-convertible which means that you can take a $AUD coin to the government and in return you will get a $AUD coin back. There is no responsibility to do more than this. So for this otherwise “worthless” currency to be acceptable in exchange (buying and selling things) some motivation has to be introduced. That motivation emerges because the sovereign government has the capacity to require its use to relinquish private tax obligations to the state. Under the gold standard and its derivatives money was always welcome as a means of exchange because it was convertible to gold which had a known and fixed value by agreement. This is a fundamental change.

Second, given the relationship between the commodity backing (gold) and the ability to spend is abandoned and that the Government is the monopoly issuer of the fiat currency in use (defined by the tax obligation) then the spending by this government is revenue independent. It can spend however much it likes subject to there being real goods and services available for sale. This is a dramatic change.

Irrespective of whether the government has been spending more than revenue (taxation and bond sales) or less, on any particular day the government has the same capacity to spend as it did yesterday. There is no such concept of the government being “out of money” or not being able to afford to fund a program. How much the national government spends is entirely of its own choosing. There are no financial restrictions on this capacity.

This is not to say there are no restrictions on government spending. There clearly are – the quantity of real goods and services available for sale including all the unemployed labour. Further, it is important to understand that while the national government issuing a fiat currency is not financially constrained its spending decisions (and taxation and borrowing decisions) impact on interest rates, economic growth, private investment, and price level movements.

We should never fall prey to the argument that the government has to get revenue from taxation or borrowing to “finance” its spending under a fiat currency system. It had to do this under a gold standard (or derivative system) but not under a fiat currency system. Most commentators fail to understand this difference and still apply the economics they learned at university which is fundamentally based on the gold standard/fixed exchange rate system.

Under a fiat currency system, if the government sets limits on its spending – for example, a rule restricting real growth of spending to be 2 per cent – then this is purely voluntary. It might be a sensible rule given the scale of nominal demand relative to real capacity but it is purely voluntary. These rules, however, usually arise from some mis-perception that the size of the budget deficit is a concern or the growth in public debt is a concern. Neither are particularly relevant to anything germane.

Third, in a fiat currency system the government does not need to finance spending in which case the issuing of debt by the monetary authority or the treasury has to serve other purposes. Accordingly, it serves a interest-maintenance function by providing investors with an interest-bearing asset that drains the excess reserves in the banking system that result from deficit spending. If these reserves were not drained (that is, if the government did not borrow) then the spending would still occur but the overnight interest rate would plunge (due to competition by banks to rid themselves of the non-profitable reserves) and this may not be consistent with the stated intention of the central bank to maintain a particular target interest rate.

Importantly, the source of funds that investors use to buy the bonds is derived from the net government spending anyway (that is, spending above taxation). The private sector cannot buy bonds in the fiat currency unless the government has spent the same previously. This is a fundamental departure from the gold standard mechanisms where borrowing was necessary to fund government spending given the fixed money supply (fixed by gold stocks). Taxation and borrowing were intrinsically tied to the government’s management of its gold reserves.

So in a fiat currency system, government borrowing doesn’t fund its spending. It merely stops interbank competition which allows the central bank to defend its target interest rate.

The flexible exchange rate system means that monetary policy is freed from defending some fixed parity and thus fiscal policy can solely target the spending gap to maintain high levels of employment. The foreign adjustment is then accomplished by the daily variations in the exchange rate.

Conclusion

The two monetary systems are very different. You cannot apply the economics of the gold standard (or USD convertibility) to the modern monetary system. Unfortunately, most commentators and professors and politicians continue to use the old logic when discussing the current policy options. It is a basic fallacy and prevents us from having a sensible discussion about what the government should be doing. All the fear mongering about the size of the deficit and the size of the borrowings (and the logic of borrowing in the first place) are all based on the old paradigm. They are totally inapplicable to the fiat monetary system.

Its the into to a 900 page book on economics written in the 1940s, what would you expect?

This isn't the right starting point. If you think that spontaneous order will lead to "a more efficient allocation of societal resources than any design could achieve" then from an efficiency standpoint, anything >0 is overspending. There are a lot of really good reasons to think this is true.

But even if it is true, a case can be made that net optimization isn't the best end-goal. What if through intervention we can increase net utility even while decreasing net production? Well, this is where it gets complicated. Suffice it to say I don't think you can and all attempts to do so have and will decrease both. I'm also morally opposed, but that is another matter.

The most obvious answer is when there is a large disparity between spending and taxing. For obvious reasons taxing takes a lot more political will than spending. ****, spending actually buys you political will!

I'm not really for a gold standard either. It would be a step in the right direction but the end goal would be a free market in money. The biggest advantage of a gold standard is that it would put a limit on the amount of redistribution of real wealth that the state can do.

Either way, hoarding isn't really a concern.
http://mises.org/money/2s9.asp

Money only has value in a relative sense, and relative values are essentially determined by utility*scarcity. The utility of money is based ~ 100% on its function as a means of exchange (or how much heat you can get from burning the bills, right Germany 1921-1923?) but if its scarcity is essentially zero then its value is Utility * 0, which makes it valueless (or unable to be valued) which means it has no value as a means of exchange and its real value is 0 * 0. Any actions that imply an exponentially growing money supply will inevitable lead to a currency that has zero value- it matters not if it has commodity "backing" or not.

Money =! Capital

Every Sunday a Baker buys enough flour, butter, eggs, milk and sugar for his weekly production. During stable MS times he has his eye on one goal- making enough money to cover his costs from his Sunday purchase with some left over as profit for himself. In times of high MS volatility he needs to keep a second eye on his expected costs next Sunday- even if he makes a 10% profit on last Sunday's purchases he will be out of business next week if he doesn't have enough cash to buy his next round of flour etc, and so to stay in business he has to charge next weeks prices this week. Saying that we are going to drain all this money from the pool in three weeks doesn't change this dynamic in the slightest since the baker won't exist in three weeks to benefit from the return to 'normal' prices if he doesn't increase his prices now.

While thought experiments are useful in understanding the thrust of individual arguments, we should not pretend that they are definitive, because they rarely capture the entirety of the dynamics that are actually present.

There are factors in price besides just supply of money (as you well know). I could just as easily say every Sunday a Baker buys all the ingredients and makes bread, but one day half his usual customers lose their jobs and now he hasn't sold a lot of his bread. Even though he makes a 10% profit on the bread he has sold, he is out of business. He now has to keep his eye on the long term demand for bread for his typical customer base, and has to save up enough money to ride out a storm should they all lose their jobs and he has to lower prices dramatically or simply stop selling bread in this part of town all together. These are very, very high costs to impose on a small business owner.

I don't understand the adamant rejection of the idea that a drop in aggregate nominal demand is a real economic phenomenon. That is, it's not the value of bread that goes down, but rather most people no longer have the money to purchase bread at current prices. The idea that all prices will simply downward adjust is wrong, and not just because of behavioral phenomenon (which are, themselves, quite real). There is also the technical matter that those with money will suddenly find their money worth quite a bit more during this period and will provide a serious counter-measure as they bid resources away from bread production and into some far less efficient and more luxuriant purchases (such as seven layer cakes). The floor that the Baker can charge for bread is affected by the price of his inputs, and these inputs will not adjust downwards by the same magnitude as the drop in wealth when there is massive unemployment and structural adjustment in the economy. Printing $ and giving them to poor people during these times maintains an aggregate demand for goods that will, after all, still be required after the readjustment (such as bread, clothes, etc) and thus represents minimal risks of malinvestment. This itself is, of course, not the complete picture, but it is on the canvas.

We are discussing MMT- which claims that a government running a fiat back system can't ever print "to much" money. However the printing of money is a more predictable phenomenon than the local UE rate changes that are required to have the same kind of effect on an individual business. This has been observed in many cases of hyper inflation where the last few months typically see price increases of 10-100x greater than the actual increase in the MS.

This is all true. The problem isn't that there aren't AD/AS shocks- the problem is that these forces/intricacies prevent simply printing and distributing money as a solution to these problems. Money is injected into the system asymmetrically, and those that get it first have the most influence on where it goes. The first to get it are (in our system) the Fed since they create it. This causes all kinds of distortions downstream.

Step 1: The Fed creates money- supplies it to the banks
Step 2: The banks look for the most valuable investments in terms of their appetite for risk/reward
Step 3: The best investments are those with the most backing by the fed (implied or explicit) because the fed limits the risk of those investments while also providing massive upside.

This is why you get large sectoral bubbles when the fed stimulates the economy rather than more even economic growth that the fed 'wants', and why bubbles look like they are self perpetuating until the fed takes- or threatens to take, the punch bowl away.

Take a look at what has happened the past few years. The fed has massively pumped up their balance sheet- and yet loans to businesses have dried up, even though it is widely held that loans to businesses are necessary to revitalizing the economy. Instead we have a massive rebound in stocks and a huge surge in Treasuries.