Money/Banking/Economics

[RetroActive]

A Brief Crappy History of Money
Lastly, according to the Brundland Commission, "we are taking financial loans on future generations, without the intention or hope of repaying any of it back."

Thanks for that "short history of progress".
We need another planet, unless we conscientiously change the construct. I'm sceptical on both counts, although I'm certain the economic construct is going to radically change. The question is qui bono?

 

[RetroActive]

Firstly long time reader of these forums never commented or registered, but obviously using the nicname I have that this thread interested me

Must ask though you said to keep politics out of this thread... erm how are you going to do that? It is after all a political economy, i am always suspicious when someone claims their economics isnt political.

Greetings! I just signed up myself.

I think he is afraid it will turn into a my side is better than your side, who did what to whom mess (politically). That doesn't interest me either. You'll notice I'm struggling though. I listen to something and hear the economics or banking subject matter and only after realize they were also talking politics, oh well.

 

[rhubroma]

Thanks for that "short history of progress".
We need another planet, unless we conscientiously change the construct. I'm sceptical on both counts, although I'm certain the economic construct is going to radically change. The question is qui bono?

Dear RetroActive,

It's true, our social-economic model is f-ucked, and so we need revolutionaries. However those I have known, in my already not too brief existence, I don't trust. They were vehement in their analysis and hasty in their judgments, while often violent. Yet above all, I have the net impression that those, in by now remote times, were right in saying that any future revolution must occur within us. Especially if it's the environment that's at stake (that is our relationship with merchandize, space, the times, work, money), as well as social evolution. Well then each one of us should try to rethink how to live, to spend and what purpose money truly has in life. The most complicated revolution to realize is thus, undoubtedly, rationalizing what each of us has inside.

 

[AndyMMT]

Ha retro could do papers on this stuff and still wouldnt cover it all... and dunce? no would say you are far from it some super questions there.

will try to go through all your points 1 by 1 and apologies if i miss anything, its late, lots of red wine etc (thats my excuse and sticking to it! so will prob screw up!)

"What happens to this deposit. What effect does cash reserve requirements (or lach thereof) have? This is important, I agree."

When the loan is repayed that deposit is destroyed... so the asset and the deposit net to zero and are only in the banking system. the cash reserves are only for any reserve requirement, interbank etc.

"Banks in all cases are Capital constrained NOT reserve constrained."

This has not always been the case. At present they are only capital constrained, cash reserves also act as a restraint. There was a time when Canadian chartered banks not only had to have capital requirements + 10% cash reserves but also had to hold reserves with the Bank of Canada (nationalized) for the benefit of the Canadian people and for having the priviledge of credit creation. We've never been more in debt since the reserves were abolished."

No this is the point that cash reserves DO NOT act as a restraint, its the capital ratios (as talked about in Basle) that are the restraint...what that is is basically is the banks equity.


"Although to make it slightly more confusing its actually arguable that they are'nt even capital constrained due to the implicit guarentees given by the state

I assume that's what you meant. We could also get into what qualifies as tier 1 capital and question the value of those instuments as well, that would never end"
Yes sorry I did mean ARE NOT

Just because the endogenous side of the eqution has been amplified (open the lending window and they will borrow) it doesn't mean the exogenous side is incorrect or irrelevant. Surely the two work in relative harmony, or dischord (as the case may be) the way I'm understanding things. Thus the debate.

No, what Krugman and the other Neoclassicals do is assume that banks are intermedeires between saver and borrower but that is not the case (they are confusing funding i think). The debate (or plain old fashioned punch up really) was over this point.

The money multiplier is a complete and utter myth.


"Supply (both the central bank and the commercial banks) still governs demand (which theoretically would know no end), or should in a world that can in any way be considered "real", imo. If the floodgates are opened, expect a flood.

"Given available credit, investment precedes and 'forces' the saving necessary to finance it."

How do you make credit more or less available? Interest rates and capital + reserve requirements? Zero interest rate policy certainly changes the definition of the word saving and does force investing, certainly."

Ok what you have here is basic market monetarist theory, but as i said above loans are demand led. Its fine for a while but what you end up doing is heading towards negative nominal rates... heres Kalecki in 1943

"The rate of interest or income tax [might be] reduced in a slump but not
increased in the subsequent boom. In this case the boom will last
longer, but it must end in a new slump: one reduction in the rate of
interest or income tax does not, of course, eliminate the forces which
cause cyclical fluctuations in a capitalist economy. In the new slump it
will be necessary to reduce the rate of interest or income tax again
and so on. Thus in the not too remote future, the rate of interest would
have to be negative and income tax would have to be replaced by an
income subsidy. The same would arise if it were attempted to maintain
full employment by stimulating private investment: the rate of interest
and income tax would have to be reduced continuously."


QE is actually an asset swap, there is no change in the amount of private sector assets but its a change in the type ... in the first rounds they were swapping non interest paying non dated cash for interest paying dated bonds. what they were/are trying to do is chase people out of no risk bonds into riskier assets holding up asset prices which gives a "wealth effect" its basically jedi mind tricks.


"I have a feeling there's too much debt though, for a start"
Private debt? yes absolutely.

 

[RetroActive]

Dear RetroActive,

It's true, our social-economic model is f-ucked, and so we need revolutionaries. However those I have known, in my already not too brief existence, I don't trust. They were vehement in their analysis and hasty in their judgments, while often violent. Yet above all, I have the net impression that those, in by now remote times, were right in saying that any future revolution must occur within us. Especially if it's the environment that's at stake (that is our relationship with merchandize, space, the times, work, money), as well as social evolution. Well then each one of us should try to rethink how to live, to spend and what purpose money truly has in life. The most complicated revolution to realize is thus, undoubtedly, rationalizing what each of us has inside.

I saw a religion thread awhile back which, understandably, turned into a gong show. Perhaps someone should/could start a philosophy, natural philosophy, metaphysics type thread. 1 is unity, 2 duality, 3 relationship.

"It's true, our economic-social model is f-ucked"
Minor correction.

I can imagine something more radical, run by people more "vehement in their analysis and hasty in their judgments, while often violent" than those running the show currently but it doesn't last for but a blink (the imagining).

 

[AndyMMT]

Greetings! I just signed up myself.

I think he is afraid it will turn into a my side is better than your side, who did what to whom mess (politically). That doesn't interest me either. You'll notice I'm struggling though. I listen to something and hear the economics or banking subject matter and only after realize they were also talking politics, oh well.

Well i have to say that Ferminal knows a hell of lot more than he was letting on, he knew about Keynesian politics and history so expect knows that a lot of economics is framing, take something like national debt it can be written 2 ways but both are exactly the same but it really is political the way you put it.
So National Debt is exactly the same as Non Government Asset. Now which is more scary? well that depends on your political view.

 

[rhubroma]

I saw a religion thread awhile back which, understandably, turned into a gong show. Perhaps someone should/could start a philosophy, natural philosophy, metaphysics type thread. 1 is unity, 2 duality, 3 relationship.

"It's true, our economic-social model is f-ucked"
Minor correction.

I can imagine something more radical, run by people more "vehement in their analysis and hasty in their judgments, while often violent" than those running the show currently but it doesn't last for but a blink (the imagining).

There has already been a philosophy thread. Of course the problem with any revolution is not becoming an institution to rebel against. Hence, the rebus of our existence.

PS: And above all else once their expectations to change everything have gone up in smoke, a bred cynicism makes of them reactionaries. So many of our center right (and left) politicians proliferate as ex-revolutionaries.

 

[Ferminal]

The issue with political discussion would be if it drifts and degenerates into the sort of conditions of the two existing politics threads.

I agree economics is inherently political but try and keep such assertions based on theory rather than our partisan natures.

 

[AndyMMT]

The issue with political discussion would be if it drifts and degenerates into the sort of conditions of the two existing politics threads.

I agree economics is inherently political but try and keep such assertions based on theory rather than our partisan natures.

Fair enough and know what you mean with political threads they do degenerate pretty quickly.

 

[Fearless Greg Lemond]

http://www.volkskrant.nl/vk/nl/1110...burger-betalen-Waarom-pikken-we-het-nog.dhtml

In short: Holland has nationalized another failing bank and 'we, the people' can pay for this crap. That's how economics work thanks to the capitalistic experiment.

 

[AndyMMT]

http://www.volkskrant.nl/vk/nl/1110...burger-betalen-Waarom-pikken-we-het-nog.dhtml

In short: Holland has nationalized another failing bank and 'we, the people' can pay for this crap. That's how economics work thanks to the capitalistic experiment.

Banking as we know it will not survive, Just about all of them are de facto nationalised anyway as without the states implicit guarentee they would be under water.
Look around the world you will see whats happening in the US with the carnage in regional banks which are all being swallowed up by the big boys who were kept on life support by the state. In the UK 2 of our big 5 remaining are nationalised and the other 3 have used very dodgy tactics to keep themselves "free" Barclays with the Qatar SWF loan, HSBC & Standard Chartered through money laundering and sanctions busting.

Next the Central Banks will try NGDP targetting but it will not work and i bet at one stage they will head to nominal negative interest rates and that will be the death of banking. See the Kalecki quote in a previous comment of mine and here for what that world will be like http://coppolacomment.blogspot.co.uk/2012/12/the-strange-world-of-negative-interest.html

 

[RetroActive]

@ AndyMMT

To make the statement that "The money multiplier is a complete and utter myth." is to misrepresent what those who were designing and running the system themselves believed, along with the role of reserve ratios as a brake on credit creation.

With new markets opening up in the last 30 yrs., the world becoming wired and the subsequent "innovations" in finance it's understandable that demand would be the driver of credit creation. What effects has that had on already mature markets? Were the housing markets around the world not used as a lauch pad for all this "innovation" and expansion? I suppose what I'm asking is how is this system grounded? That's somewhat rhetorical as you'll say by demand I suppose. I recognize that bad often leads to worse but that doesn't negate that bad as a condition existed.

YOUR TEXTBOOKS LIED TO YOU – THE MONEY MULTIPLIER IS A MYTH
http://pragcap.com/your-textbooks-lied-to-you-the-money-multiplier-is-a-myth

Our findings are also consistent with the predictions of Bernanke and Gertler (1995) from over a decade ago that the importance of the traditional bank lending channel would likely diminish over time as depository institutions gained easier access to external funding.

All of these points are a reflection of the institutional structure of the U.S. banking system and suggest that the textbook role of money is not operative. While the institutional facts alone provide compelling support for our view, we also demonstrate empirically that the relationships implied by the money multiplier do not exist in the stem from the demand side, and that a better test for the lending channel is to check whether bank loans are financed by reservable deposits. Our findings suggest that this is not the case.

How's this all working out btw?

In general, our results echo Romer and Romer (1990)’s version of the Modigliani-Miller theorem for banking firms. They argue that banks are indifferent between reservable deposits and non-reservable deposits. Hence, shocks to reservable deposits do not affect their lending decisions, and changes to reserves only serve to alter the mix of reservable and non-reservable deposits. Our findings in this paper support the argument that shocks to reservable deposits do not change banks’ lending decisions.

I'm flying, gravity is a myth.

To be sure, the low level of interest rates could stimulate demand for loans and lead to increased lending, but the narrow, textbook money multiplier does not appear to be a useful means of assessing the implications of monetary policy for future money growth or bank lending.”

We can now abstract it to the moon, the only tether being the space itself in which we operate, and that's virtual.

Once debt saturation has been reached does demand actually dry up or simply the ability to realize that demand through more debt creation? Rhetorical.

Some say banking should return to or become simply like public utilities, I suppose that's just a quaint notion though.

When all else fails...
https://www.youtube.com/watch?v=wcW_Ygs6hm0

 

[RetroActive]

Banking as we know it will not survive, Just about all of them are de facto nationalised anyway as without the states implicit guarentee they would be under water.
Look around the world you will see whats happening in the US with the carnage in regional banks which are all being swallowed up by the big boys who were kept on life support by the state. In the UK 2 of our big 5 remaining are nationalised and the other 3 have used very dodgy tactics to keep themselves "free" Barclays with the Qatar SWF loan, HSBC & Standard Chartered through money laundering and sanctions busting.

Next the Central Banks will try NGDP targetting but it will not work and i bet at one stage they will head to nominal negative interest rates and that will be the death of banking. See the Kalecki quote in a previous comment of mine and here for what that world will be like http://coppolacomment.blogspot.co.uk/2012/12/the-strange-world-of-negative-interest.html

Bill Gross Warns Investors To Be Wary of the Fed's Cheap Money Fueling the Bull Market in Stocks
https://www.youtube.com/watch?v=E2MimXXeZu4

 

[AndyMMT]

If you have read Cullens take down of the money multiplier I am really not sure that I have anything to add! he is of course correct there its the standard Post Keynesian critque we dont do money multiplier, from memory he links to a Fed paper which I think you have quoted here who reject it as well.
Which is all kinda of curious that the fed know it, bankers know it and yet the fed went ahead with QE which requires the money multiplier for it to work like they "suggest"* (well apart from the intial collapse that QE prevented... I would suggest QE was anti deflationary, but that doesnt mean its inflationary)
QE though really had 2 parts, the first is that it means banks have more reserves so able to lend more but we know banks do not lend reserves so thats not right.
The second part (and this is related to Gross's comment although he has it wrong why) is that QE is intentionally designed to chase investors out of bonds and into riskier assets by driving yields down so far that the interest rates are negative (that is "real" not "nominal") this is what the fed/BoE hope will cause a "wealth affect" that is stock markets going up everything fine sort of thing so we spend more, again its Jedi Mind tricks in action (Jedi mind tricks btw was the Financial Times description not mine alas)

*when i say suggest it is more correct I think to say sold, it is after all a complex subject that somehow they had to get politicians/general public to go with so used the "banks will lend more" line instead of what they were really doing... if everyone knew what they were really doing it would have been a complete failure.

 

[RetroActive]

lolz, I'll have to do more reading. I've thought economics was a voodoo science for decades, it just keeps getting better and better. Golem lives.

 

[AndyMMT]

lolz, I'll have to do more reading. I've thought economics was a voodoo science for decades, it just keeps getting better and better. Golem lives.

Then can I give you a couple of suggestions?

moslereconomics.com Warren Mosler has some mandatory readings but you only need a couple 7 deadly innocent frauds & soft currency economics. Both free and easier reads than some, both give you a good idea of banking and the monetary system. Pragcap is fine i comment there myself now and again but its very finance orientated which of course is the reason its there.

 

[RetroActive]

Then can I give you a couple of suggestions?

moslereconomics.com Warren Mosler has some mandatory readings but you only need a couple 7 deadly innocent frauds & soft currency economics. Both free and easier reads than some, both give you a good idea of banking and the monetary system. Pragcap is fine i comment there myself now and again but its very finance orientated which of course is the reason its there.

Thanks for that. I've watched more than a few Keen videos over the last year or so, enough to know that there was a fundamental conflict going on but I didn't realize it was that fundamental. Keen makes sense in what he's saying, at least to my relatively ignorant understanding.

 

[AndyMMT]

Thanks for that. I've watched more than a few Keen videos over the last year or so, enough to know that there was a fundamental conflict going on but I didn't realize it was that fundamental. Keen makes sense in what he's saying, at least to my relatively ignorant understanding.

I like Steve as well, the one book I keep next to my PC is debunking economics to see where the neoclassicals are coming from and the ridiculous models and assumptions they use.

Wait until you look at the completely insane assumptions that Friedman put into "inflation is everywhere and always a monetary event"

Yep there is a war going on in the econ-blogosphere especially.

 

[RetroActive]

I like Steve as well, the one book I keep next to my PC is debunking economics to see where the neoclassicals are coming from and the ridiculous models and assumptions they use.

Wait until you look at the completely insane assumptions that Friedman put into "inflation is everywhere and always a monetary event"

Yep there is a war going on in the econ-blogosphere especially.

Krugman's assumptions, as Keen explains it, about the relationship between savers and borrowers and the intermediary function of the bank is hilarious enough.
If we can't get the most basic assumptions correct, it really makes one wonder, how in the world is this functioning? And these are systems that we have created, all of a sudden it's become like quantum physics. If anyone knows they're not telling.

 

[AndyMMT]

Krugman's assumptions, as Keen explains it, about the relationship between savers and borrowers and the intermediary function of the bank is hilarious enough.
If we can't get the most basic assumptions correct, it really makes one wonder, how in the world is this functioning? And these are systems that we have created, all of a sudden it's become like quantum physics. If anyone knows they're not telling.

Ah that Keen/PK was a good one PK took a bit of a kicking there but as i noted in a reply to Ferminal that PK has been interesting lately and taking the MMT line. There is an interesting story told by Bernard Lieter whos a Belgian economist that he was talking to PK years ago who warned him not to go near the monetary system as it was professional suicide. So without mentioning it PK seems to be playing a strategic game now and slipping it in. Also mentioned where Delong is at the moment (through his wife) and having tea with the MMT economists, the post keynesian schools have put aside their differences (mostly minor and symantic anyway) seems the Keynesians are mobilizing...watch this space.

 

[AndyMMT]

This is really an economic article by Prof Bill Mitchell (yes the founder of cycling news) and also one of the founders of the Modern Monetary Theory school. (although had to think long and hard where to post this so sorry Ferminal if you think its more political or even clinic material)

http://bilbo.economicoutlook.net/blog/?p=22692

Sport and doping and the spreading tentacles of capital

 

[meat puppet]

Thanks for your contributions, Andy.

Have you guys been following the Euro-Crisis? If yes, what's your recollection of

a) the situation now;

b) the success of the outright monetary transactions (OMT) policy pursued by the ECB; it's basically a promise to buy unlimited quantities of PIIGS countries' gov bonds - on condition that they impose austerity.

c) prospects of resolving the crisis?

 

[AndyMMT]

Thanks for your contributions, Andy.

Have you guys been following the Euro-Crisis? If yes, what's your recollection of

a) the situation now;

b) the success of the outright monetary transactions (OMT) policy pursued by the ECB; it's basically a promise to buy unlimited quantities of PIIGS countries' gov bonds - on condition that they impose austerity.

c) prospects of resolving the crisis?

My take
a) horrible, the unemployment figures are shocking. They are worse than the 1930s.

b) the ECB were late on the ball here, should have been done it earlier and did what a central bank is supposed to. Funny thing is that the EZ states did have a nuclear button if it had come to it through target 2 (the EZ payment system...bit like fedwire) all it would have taken was for 1 state to nationalise a bank and order it to buy its bonds... did a country threaten it? dont know.

c) they have 2 choices really 1. they have full fiscal/tax integration and work like say the US via federal goverment through redistribution/spending
or 2. they break up. That frankly is it.... will not work in the long run, might get around this current problem (although doubt it) but next time there is an endogenous shock will explode again. Currency unions/pegged currencies just do not work in the long run (yes you can have some small countries peg to a currency like some central american countries peg to the USD but thats a huge neighbour of theirs who almost run those smaller countries fiscal policies by default..but that doesnt apply in the EZ)
Now of the 2 choices I make no comment it really is up to the people of those countries to decide.

 

[Ferminal]

http://www.reuters.com/article/2013/03/16/us-eurozone-cyprus-idUSBRE92E02220130316

(Reuters) - The euro zone struck a deal on Saturday to hand Cyprus a bailout worth 10 billion euros ($13 billion), but demanded depositors in its banks forfeit some money to stave off bankruptcy despite the risks of a wider bank run.

Evil capitalists who save money must be punished!

 

[AndyMMT]

http://www.reuters.com/article/2013/03/16/us-eurozone-cyprus-idUSBRE92E02220130316



Evil capitalists who save money must be punished!

Typical i come here to get away from it for few minutes and i see a new post in this thread...somehow guessed what it would be about

Unbelievable this is one of the most idiotic things i have ever seen... are they just asking for bank runs? This is dangerous.... they really shouldnt have hit smaller depositors, dont actually care about the bigger ones ...taking a 10% hit on money laundering is probably quite cheap compared to HSBC's charges (although apparently they are now using Latvia anyway) but i seriously wouldnt fancy being a cypriot banker when the russian mobsters come a knocking.
Horsemeat would be the least of our worries in burgers!!

Oh the deal is Ferminal they are swapping the deposits for shares so on paper nominally there is no difference just composition.... but how many people would understand that? they are going to look at their bank balance and see it 6.7% down(and of course that change in composition wouldnt be liquid so almost useless)

Dont know what flavour PK you are Ferminal... obvious by my nic what i am so will always consider sov debt as the same thing as "money" or "bank deposits" whichever term you want to use. But what they have done here is put sov debt above bank deposits... which is insane.

Francis has nailed it http://coppolacomment.blogspot.co.uk/2013/03/sowing-wind.html