–The Washington Post’s best economics article, ever. And still it’s wrong.

Mitchell’s laws: The more budgets are cut and taxes inceased, the weaker an economy becomes. To survive long term, a monetarily non-sovereign government must have a positive balance of payments. Austerity = poverty and leads to civil disorder. Those, who do not understand the differences between Monetary Sovereignty and monetary non-sovereignty, do not understand economics.
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A reader named Tyler, called to my attention a fine Washington Post article, written by Dylan Matthews, about Modern Monetary Theory (MMT), a sister to Monetary Sovereignty (MS): Modern Monetary Theory, an unconventional take on economic strategy

I urge you to read the article, because it makes some of the points that are most relevant to today’s economies. I’ll quote briefly from the article, then comment:

Most (economists) viewed the (Clinton) budget surplus as opportune: a chance to pay down the national debt, cut taxes, shore up entitlements or pursue new spending programs. James K. “Jamie” Galbraith viewed it as a danger: If the government is running a surplus, money is accruing in government coffers rather than in the hands of ordinary people and companies, where it might be spent and help the economy.

Almost. Yes, surpluses are a danger. Every depression in U.S. history began with surpluses, and nearly all recessions have begun with reduced deficit growth. See Items 3 and 4.

But money does not accrue in government “coffers.” The federal government has no “coffers,” nor does it need “coffers.” It creates dollars ad hoc, every time it pays a bill. Instead, when the government runs a surplus the money simply disappears.

All money is nothing more than a balance sheet debit on the government’s books, and when the government receives money, that account is credited, the two offset, and together, they disappear. There are no “coffers” (whatever that term is supposed to mean.)

In a “fiat money” system like the one in place in the United States, all money is ultimately created by the government, which prints it and puts it into circulation. Consequently, the thinking goes, the government can never run out of money.

Again, almost. The federal government doesn’t “print” money. It does print paper dollar bills, which like the titles to houses, show evidence of ownership. But titles are not houses and dollar bills are not dollars. When the government pays a bill, it sends instructions, not dollars, to its creditors’ banks. The instructions tell the bank to mark up the creditors’ checking accounts.

At the instant the checking accounts are marked up, dollars are created. This is important. The government does not first create dollars, then send them to pay its bills. The very act of bill paying is what creates dollars. The federal government itself has no dollars.

This doesn’t mean that taxes are unnecessary. The need to pay taxes compels people to use the currency printed by the government. Taxes are also sometimes necessary to prevent the economy from overheating. If consumer demand outpaces the supply of available goods, prices will jump, resulting in inflation (where prices rise even as buying power falls). In this case, taxes can tamp down spending and keep prices low.

Once again, almost. While there is some debate about whether taxes are necessary to create demand for dollars, federal taxes are not needed for this purpose. There are ample state an local taxes to compel usage of dollars.

As for consumer demand outpacing supply, this is the now obsolete “too many dollars chasing too few goods.” Inflation is a general price rise, not just the price rise of one or two products. In today’s world import/export economy, it is impossible for a general price rise to be caused by too few goods — with one exception: Price increases in oil can cause all other prices, worldwide, to rise. And in fact, inflation invariably has been associated with oil prices and not with federal deficit spending.

(Paul) Krugman regularly engages economists across the spectrum in spirited debate. He has argued that pursuing large budget deficits during boom times can lead to hyperinflation.

Not even, almost. This is the old Weimar Republic myth. You have seen the relationship between oil prices and inflation. You have seen the lack of relationship between deficit spending and inflation. In the past 40 years, since the U.S. became Monetarily Sovereign, we have had 6 recessions — and average of one ever 7 years. Each could have been prevented with adequate deficit spending.

With all the dire warnings, one reads, guess how many hyperinflations the U.S. has had. The answer: Zero.

So here we have the economics version of Henny Penny, running in all directions warning about something that never has happened here (and even in the case of the Weimar Republic, was short lived — only about two years), but completely ignoring something that happens every seven years (and we still feel the effects of the last recession).

When the government deficit spends, it issues bonds to be bought on the open market. If its debt load grows too large, mainstream economists say, bond purchasers will demand higher interest rates, and the government will have to pay more in interest payments, which in turn adds to the debt load.

Sort of. The federal government does not need to issue bonds. It could deficit spend trillions and never sell a single bond. The bond-sales process became obsolete on August 15, 1971, when we became Monetarily Sovereign. The government sells bonds because an old law says it must. The law easily could be, and should be, changed.

But when the government pays more interest, that adds to the money supply which is economically stimulative.

“You can’t just fund any level of government that you want from spending money, because you’ll get runaway inflation and eventually the rate of inflation will increase faster than the rate that you’re extracting resources from the economy,” says Karl Smith, an economist at the University of North Carolina. “This is the classic hyperinflation problem that happened in Zimbabwe and the Weimar Republic.”

Whoops, there it is. The hackneyed Weimar Republic / Zimbabwe mantra. Sorry, Professor Smith, but neither of those hyperinflations was caused by excessive money “printing.” Weimar was caused by the onerous conditions put on Germany after WWI, and Zimbabwe was caused by Richard Mugabe’s confiscatory land “reforms.” In both cases, the hyperinflation caused the money “printing,” and not the other way around.

The risk of inflation keeps most mainstream economists and policymakers on the same page about deficits: In the medium term — all else being equal — it’s critical to keep them small.

And therein lies the problem. The fear of uncontrolled inflation (which the Fed controls via interest rates), overshadows what should be a much stronger fear of recessions and depressions. The economists, in effect say, “We must prevent something rare, which we know how to control, even if it means causing something frequent, which we don’t know how to control.

“It seemed clear to me that . . . flooding the economy with money by buying up government bonds . . . is not going to change anybody’s behavior,” Galbraith says. “They would just end up with cash reserves which would sit idle in the banking system, and that is exactly what in fact happened.”

Really? How does cash sit idle? Do you mean banks don’t invest their cash balances? Nonsense. Banks invest every penny. And it functionally is impossible for invested money to “sit idle.”

According to MMT, when the government runs a surplus, it is a net saver, which means that the private sector is a net debtor.

Correct. This is a fundamental equation in economics: Federal Deficits – Net Imports = Net Private Savings

“I have two words to answer that: Australia and Canada,” Joe Gagnon, an economist at the Peterson Institute, says. “If Jamie Galbraith would look them up, he would see immediate proof he’s wrong. Australia has had a long-running budget surplus now, they actually have no national debt whatsoever, they’re the fastest-growing, healthiest economy in the world.” Canada, similarly, has run consistent surpluses while achieving high growth.

As Shakespeare said, “Comparisons are odious,” especially when comparing nations. There are so many differences among nations, one gets into a “yes, but” dialog. It is true, however, that an economy can grow while deficits decline or even turn into surpluses — for a while. For instance:

1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.

Depending on many circumstances, and economy can grow with many years of surplus, until one of the basic equations in economics takes hold: Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports. For an economy to grow, money must come from somewhere — the government, the private sector and/or from net exports.

We already have seen that Federal Deficits – Net Imports = Net Private Savings. Put the two equations together and we find that if Deficits decline, Savings will decline, which will reduce Private Investment and Consumption. This leaves economic growth reliant on Net Exports — the current German model.

There is no magic to this. GDP growth requires spending growth. Spending growth requires money growth. Ultimately, all domestic money is derived from federal deficits. The entire world of economics changed on August 15, 1971, when the U.S. became Monetarily Sovereign. Old-line economists, not recognizing this change, continue to preach lessons that were correct pre-1971.

It’s as though they still teach football strategy to students who 40 years ago, stopped playing football and now are playing baseball.

Rodger Malcolm Mitchell
http://www.rodgermitchell.com


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No nation can tax itself into prosperity, nor grow without money growth. Monetary Sovereignty: Cutting federal deficits to grow the economy is like applying leeches to cure anemia. Two key equations in economics:
Federal Deficits – Net Imports = Net Private Savings
Gross Domestic Product = Federal Spending + Private Investment and Consumption + Net exports

#MONETARY SOVEREIGNTY

40 thoughts on “–The Washington Post’s best economics article, ever. And still it’s wrong.

  1. I’m pretty certain that if one looks at the data, one finds that Canada and Australia are exporting nations and have been for a long time.

    So of course they can experience economic growth while their governments run budget surpluses, provided that the net exports are greater than the surpluses.

    There would’ve been even more economic growth in Canada and Australia if their governments hadn’t run surpluses and balanced budgets so often, since neither country has approached full capacity since the 1960s or maybe early 1970s.

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  2. “Really? How does cash sit idle? Do you mean banks don’t invest their cash balances? Nonsense. Banks invest every penny. And it functionally is impossible for invested money to “sit idle.””

    I don’t understand your critique here. All banks can do with their reserves is settle payments or loan them in the interbank market.

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      1. Well there are tons of excess reserves currently earning interest as per Fed policy, not invested in st govt bonds. Perhaps you count that as invested. But not sure why this can’t reasonably be called ‘sitting idle.’ Banks aren’t doing anything with them except earning interest.

        Galbraith’s point was that the excess reserves weren’t going to spur any bank lending.

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        1. If that’s his point, I agree. Bank lending requires motivation of two parties, borrowers and lenders. Having excess reserves motivates neither, especially since bank lending is not constrained by reserves (It’s constrained by bank capital).

          What motivates banks? High interest rates, especially rates higher than they can get elsewhere.

          What motivates borrowers? The Fed seems to think it’s low rates, but I believe the more important motivation is business and personal borrowing opportunities.

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        2. Well, everything’s relative. In general, low rates do motivate borrowers, in the sense of lower than the return he can expect to earn on the money, not necessarily lower in absolute terms than any particular fixed standard. Or, in the case of a home buyer particularly, low enough so that the debt service is affordable, given his income.

          If the Fed lowers the rate it pays the bank, then the bank can lower the rate it charges the borrower, and that would encourage more borrowing.

          The problem now is that there is little prospect of a profit on any investment, regardless of the interest rate. Corporations are borrowing and hoarding, just in order to lock in low-cost financing in anticipation of a time when investments will be profitable, but nobody is spending the loan proceeds.

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  3. As an Aussie, I should point out those surplusses were built on the back of a massive and unsustainable increase in private debt, the private savings ratio went negative in the mid 2000s, the vast majority of this has gone on blowing a massive housing bubble which in real per capita terms is bigger and far more universal than the US one was. These surplusses also dissapeared with the arrival of the global financial crisis in 07, when the Australian Federal govt wisely did some large direct fiscal stimulus, arredting the rise in unemployment and keeping the country out of recession. So the MMT position on sectoral balances holds equally well in this country. The concurrent boom in commodity prices also did it’s bit to help.

    Australia typically runs a current account deficit, and has done so for much of it’s history I believe.

    I should also note that unemployment and business conditions (outside of mining) have begun to deteriorate again as the stimulus money has run out, and the federal govt has begun to obsess about returning to surplus.

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  4. Rodger, please don’t think I’m arguing with you, but the example of Australia brings up some questions.

    If all $AU are created by the Australian government spending, and their taxing destroys them, and they have “no national debt whatsoever”, then why are there any Australian dollars in the world today? With no national debt, their total taxing (destruction of dollars) since the beginning of time is greater than or equal to their toal spending (creation of dollars). How have the dollars not all been destroyed?

    Second, Hamish seems to disagree with Matthews about a fairly obscure, but I think important point. Matthews says Australia has a trade surplus, (and that would explain the lack of a need for a budget deficit) and Hamish says they have a current account deficit. I know they are almost equal, but what is the difference and what is the significance of the current account in the sectoral balance equations, as opposed to the trade balance?

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      1. So, the debtclock web site says AU DOES have a national debt, and Joe Gagnon must just be wrong about that.

        I feel better about that, but I think I have also figured out how there could be $AU in the world even if AU did not have a national debt. All the net exports cause foreign currency to come into AU, and if the private sector exchanged their foreign currency at the central bank for $AU (created by keyboard strokes), that would add to the $AU in the world, but without adding to the national debt, as there was no borrowing involved, just an exchange of assets.

        In effect, $AU would have been created not by government spending, but by foreigners spending and by government accumulating reserves of foreign currencies, which they cannot destroy by taxation.

        The current account situation for AU is interesting. Apparently both Matthews and Hamish are correct. AU has a trade surplus, but “factor payments” outflows are larger. Wikipedia says this is unusual, but can happen: “because the trade balance is typically the largest component of the current account, a current account surplus is usually associated with positive net exports. This however is not always the case with secluded economies such as that of Australia featuring an income deficit larger than its trade surplus.”

        I’m not sure how a relatively large, developed economy can be “secluded” these days, but that is picking nits.

        Foreigners own assets in AU, and collect income from them, and that more than offsets the income to AU from exports, so there is a current account deficit with a trade surplus.

        Beyond the current account, there is the capital account, and the total is called the balance of payments.

        It seems to me that the relevant number for the sectoral balance equation, the net financial savings of the foreign sector, is the balance of payments, not the balance of trade or the current account balance. The MMT-oriented sources I found just now use X-M (net exports) in the sectoral balance equation, but they refer to it in text and graphics as “current account”, which is mathematically wrong according to Wikipedia, and makes a big difference (changes positive numbers to negative) in the case of Australia.

        While not referring to the sectoral balance equation explicitly, the second of Mitchell’s laws in the heading of this blog is mathematically accurate: To survive long term, a monetarily non-sovereign government must have a positive balance of payments.

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  5. John,

    Good. One thing to remember: The fundamental source of all Australian dollars is the Australian government’s spending. Visualize a brand, new Australia. There is no money. How do Australian dollars first get into the hands of the public? Answer: Net government spending.

    Net government spending requires government debt (unless Australia’s accounting system is different from ours). The first dollar the Australian government spends is chalked up as debt. If that dollar then is paid as taxes, there is no debt and is no dollar.

    So with zero debt there can be no dollars, long term. However, in the U.S., the total of all dollars is known as “Debt Outstanding Domestic Nonfinancial Sectors.” This includes every kind of debt, not just federal debt. So, short term, there can be dollars without federal debt. But it requires personal debt.

    In short, for any economy to grow without government deficits, it must rely on personal debt growth, over which the government has no control.

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    1. Now you’re making my head hurt.

      If Australia has laws like the US, they must issue bonds in order to have a national debt, right? Without a law like that, government could spend and create dollars without having “a national debt”. Except that a dollar is, by definition, a debt itself, in the sense that it is a promise to extinguish a tax liability. Two meanings to the word “debt”, there. The first dollar spent in a brand new Australia creates one kind of debt, but not the other.

      In a similar way, the first Australian dollar could have come into existence by a foreign currency exchange, if an Australian sold a lump of coal to a Chinese, was paid in Yuan, and took the Yuan to his (central) bank to exchange for $AU. No debt involved there, except the notion of money itself as a debt, and no spending by the AU gov’t.

      And now you’re saying that an individual can create dollars by assuming a personal debt. “I’ll gladly pay you Tuesday for a hamburger today” creates dollars, in the same way that government spending does?

      Why are these dollars “short term”? I suppose you could say that even a 30-year mortgage is “short-term” in the larger scheme of things. But once the house is there, and each subsequent owner renews the mortgage, is not that a long-term, permanent thing? Or, do you simply mean that increasing personal debt at a faster rate than personal income is “unsustainable”, like the housing bubble? It can boost economic growth for a while, until the bubble collapses.

      Different topic, but is your last statement overly broad? Consider a small Caribbean island completely dependent on tourism. Can that economy not grow indefinitely by the infusion of tourist spending, accommodating net positive private sector savings without requiring a government deficit?

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      1. Sorry about your head. But you’re right. “Debt” has multiple meanings. When debt-hawks complain about the federal “debt,” they mean the total of T-securities.<. So in that sense, we can have deficits without federal "debt."

        But yes, all money is a form of debt. As I said, what I consider to be the best definition of money is called, “Debt Outstanding Domestic Nonfinancial Sectors,” which includes personal debt — even for hamburgers.

        The first Australian dollar could not have come in existence via foreign currency exchange. Exchange for what, if there are no Australian dollars?

        The first Australian dollar was created by fiat (thus the term, “fiat money”) of the Australian government. Before then, all was barter.

        Answer to your last question: Yes. Did I say otherwise?

        How’s your head?

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        1. Getting better.

          In a brand new Australia, with no Australian money, an Australian digs up some coal and sells it to a Chinese for some Yuan. Then, having a tax liability to satisfy, he goes to the AU central bank and says “I’ll give you this Yuan if you give me some $AU with which I can pay my tax”. And they do.

          I think countries with a trade surplus create their currency this way all the time. It could have been first, or not, I don’t think it matters. Yes, it’s created by fiat, either way.

          On the last question, you said “for any economy to grow without government deficits, it must rely on personal debt growth”. I think that is different from growing on a trade surplus (tourism). No personal debt is created by tourism.

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  6. Thanks for the shout-out, Rodger. I’m happy to have shared the link. Here’s my new starting five:

    Fed Chairman – Rodger Mitchell
    Treasury Secretary – Stephanie Kelton
    Commerce Secretary – Pavlina Tcherneva
    Senate Majority Leader – Good ol’ Harry Reid
    Speaker of the House – Nancy Pelosi

    You all would have us at full employment posthaste.

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    1. Reid & Pelosi have no understanding of money. They would still want to raise taxes to bring down the deficit. Once Rodger taught them about the nature of money, they’d still want to raise taxes for “fairness”.

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      1. Realistically speaking, Reid and Pelosi are currently the best we can get in the Congress. I’d love for it to be Warren Mosler and Randy Wray, but that’s just not going to happen.

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  7. wh10 was right about Jamie Galbraiths point about cash sitting idle rodger, think you slightly misread that

    otherwise nice article

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    1. Yes, if you mean “investor” type lending. But people who lend for a living (banks) care about the spread, not the absolute level of rates. They can borrow at 6% and lend at 10% just as happily as they can borrow at 0% and lend at 4%. They will have more customers at their doors at 4% than they will at 10% (all other things being equal).

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  8. What is the upside/downside of a monetary system that issues no national debt? i.e. the U.S. government does not provide a risk free interest-earning asset (Treasuries)

    It seems like one potential upside is that investors would be forced to use savings more “productively” (as opposed to sitting in risk-free treasuries).

    Is the main problem in this situation that interest rates fall to zero, and the U.S. government (via the FED) loses the ability conduct monetary policy?

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      1. If the U.S. government no longer issued Treasuries, how would it conduct monetary policy?

        Wouldn’t Reserves skyrocket, interest rates fall down to near zero, and therefore the FED would no longer have any control of it’s inflation fighting tool?

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      2. Maybe it’s my idealism again, but if the “debt hawks” had no debt to complain about, they would evolve into some other type of hawk and complain instead about the creation of money as measured some other way. The amount of Treasuries outstanding is only an easy way for them to measure what they believe is dangerous.

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  9. >In today’s world import/export economy, it is impossible for a general price rise to be caused by too few goods — with one exception: Price increases in oil can cause all other prices, worldwide, to rise. And in fact, inflation invariably has been associated with oil prices and not with federal deficit spending.

    But shouldn’t it work the other way too? Spending (and maybe lending etc.) causing oil prices to rise? And if oil prices rising causes inflation, then shouldn’t governmental actions that increase the amount of money chasing it cause inflation?

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    1. >That might be true if oil prices resulted from market forces.

      I have a hard time believing that market forces don’t have a significant effect on oil prices. Demand in countries such as China, India and Brazil can increase hugely if their economies keep growing at a strong rate, it seems to me. And it already has, compared to the low standards of living the majority of their populations had before.

      >But the reality is, Saudi Arabia, not the market, controls oil prices

      During the last decade, oil prices seem to have multiplied. I wonder what it is that Saudi Arabia has done to cause this. Sure, their rising internal consumption, which is heavily subsidized by their government, surely has some effect on oil demand. But it’s not like they have had any drastic change in their exports.

      Here are a couple of graphs for reference concerning Saudi Arabias oil exports, found with Google in a minute.

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        1. >The Saudis are the only major oil producer that is not producing at its maximum.

          I wonder how you know this. I also wonder how much of a difference it would make to world oil markets if they did produce at their maximum, whatever it is.

          >This gives the Saudis monopoly leverage to control prices, merely by increasing or decreasing production.

          Sure, their policies can probably influence oil prices significantly. But I doubt that their policies “control” prices anywhere near completely. And as far as I know, they currently also need a certain level of dollar income from their oil exports to keep their socio-economic and political situation going, and their income would of course go down with lower oil prices.

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  10. Oh, by the way, one more point about oil prices. Even though oil prices have multiplied during the last decade or so when the whole decade is examined, during 2008 they went down heavily due to the effects of the financial crisis and recession. Now, you claim:
    >the reality is, Saudi Arabia, not the market, controls oil prices

    Doesn’t the recession’s effect on oil prices pretty much show that this claim of yours is not true? (Even though Saudi Arabia, as a major oil exporter, of course can significantly influence oil prices, at least if it can handle the political effects of such actions.)

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    1. The Saudis respond to political and economic realities. They try to gauge what will work best, all things considered. Once we were in the recession, they understood that high prices would have a bad effect on the world’s economies, so they cut prices, dramatically. Once they were sure the recession was over, they raised prices, again.

      They have become quite skilled at this balancing act.

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      1. >The Saudis respond to political and economic realities.

        Well that sounds like an admission that market forces, and not just the Saudis, are what “controls oil prices”. This is not to say that the Saudis are not a significant force on the market, but by themselves they still seem to me like a small minority of the market forces (despite being a many times bigger force than many others).

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  11. jorma,

    Feel free to interpret my comments to suit your pre-conceived notions, but the fact remains that the Saudis control oil prices by turning on and off the spigot. No other nation can do that. All other nations are pumping furiously. When one nation controls supply, that nation controls prices.

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    1. >the fact remains that the Saudis control oil prices by turning on and off the spigot.

      I’m not sure about that particular “fact”, because the Saudis still supply only a minority of the world’s oil (but by no means an insignificant amount, of course), and as you yourself said, they also respond to political and economic realities. However, one fact that does remain is that prices are not controlled only by supply, they are controlled by both supply and demand.

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  12. jorma,

    The Saudis are the only nation having the power to affect prices by turning off and on the spigot. Every other nation merely produces all they can.

    This transforms the Saudis, in effect, to a monopoly supplier, i.e. the only nation with the power to balance supply against demand.

    They calculate the demand and the price they would like to receive, and create just the right amount of supply to create that price.

    No other nation can do that.

    Rodger Malcolm Mitchell

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    1. >The Saudis are the only nation having the power to affect prices by turning off and on the spigot.

      No. Every oil producing nation has (theoretically, at least) the power to affect oil prices by their oil production related policy. And of course, every oil consuming nation can affect oil prices too by their oil consumption related policy.

      >Every other nation merely produces all they can.

      I quite doubt that. There are definitely many kinds of policies that many countries could implement that could boost oil production (at least temporarily). Think about environmental regulations and retrictions, for example, or taxation, labor market regulations, subsidies, etc. Of course, such policies’ effect on oil prices would be relatively small, as the increases in oil production would be relatively small on global scale.

      >This transforms the Saudis, in effect, to a monopoly supplier

      No. The Saudis are a significant oil producer and exporter, and as such a significant force on the market, but they are no monopoly. They only supply a minority of the world’s oil, after all. This would not change if they decided to produce a million or two barrels of oil per day more. (And I do wonder how long they could do that anyway – a couple years?)

      Here’s a question for you: What would world oil prices be if Saudi Arabia started supplying, say, 2 million barrels of oil per day more than they do currently? I think that’s about what they claim they could do (although not indefinitely, I imagine). How much lower would the oil prices be?

      Here’s another question: Do you realize that if oil prices went down significantly, oil production in other parts of the world (for example in North America) would probably go down too, even if it went up in Saudi Arabia? This would, of course, counteract some of the increase in supply by Saudi Arabia, preventing prices from going down as much as otherwise.

      It’s really starting to seem to me that you have an ideological predisposition to deny demand’s significant effect on oil prices. Again: prices are not “controlled” only by supply, they are controlled by both supply and demand.

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  13. Here is how a minority producer of oil controls prices. Let’s say the world produced 1 million barrels per day, and demanded 1 million barrels per day. The price would remain the same.

    Now further assume that every nation, but one, was pumping all the oil they could (true). That one would be the Saudis. And let’s say the Saudis were pumping 50 K barrels (5% of the total), but were capable of pumping 200K.

    So how could a nation pumping only 5% of the total control prices? Simple.

    If demand rose to 1,000,100 barrels, prices would go up — unless the Saudis decided to pump 50,100. Remember, everyone else is pumping all they can.

    And if demand fell to 999, 990 barrels per day, prices would go down, unless the Saudis decided to pump 49,990. And although the numbers are merely examples, the concept is exactly what happens.

    When every nation but one is pumping as much as possible, the total supply (and price) is controlled by the one nation that varies its output to meet demand.

    Rodger Malcolm Mitchell

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