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This is nicely done.
I think Carney's intentions are good and It is nice that he is trying. he doesn't realize how far apart these two schools really are. If this conversation really would have taken place, the MMTer would have at least thought to himself: you are totally illiterate in economics. The Austrian wants a monetary system that he thinks existed in history. It never really did. What the Austrian thinks he is up against is some Keynesian ideology. He doesn't understand that MMTer understands how monetary system(s) work(s). If Austrian dream ever came true(for example gold would be money and people would not use IOUs as money) then interest rate would be erratic. This kind of system would be highly unstable. Market needs one price. IMO this is what MMTer would think: You think you are free market promoter but you don't understand what market is and how It functions. It is not barter.
This is one of his best so far...Resp,
Kristjan, that was the point of Carney's article though. To tell the Austrian that the FFR couldn't reflect free mkt savings desires *even* if you wanted wanted them to. It's not a matter of the Fed just stepping away and letting the mkt do its thing. The Fed is the de facto FFR setter. The MMTer in his mock conversation had to keep repeating the point "no you don't get it" because the Austrian kept thinking the MMTer was affirming his/her belief that Fed interventionism was an unnecessary option, whereas in reality, the FFR can only be policy variable.
to wh10, yeah, he made that point
What John did not say but only implied is that the currency issuer in non-convertible floating rate system is a monopolist that is not operationally constrained. That realization would really drive Austrians and also a lot of others crazy.
I thought it was really good. He did a great job of pointing out that all the problems we see are not inherent or operational but simply political. If we get the right people enforcing the right rules then we have a chance to limit the instability.I liked it
Another good article from Carney.
Kristjan, I agree that given a relatively inflexible money supply that “interest rates would be erratic” as you put it. But I don’t agree that (to quote you) that “this kind of system would be highly unstable”.I don’t favour returning to the gold standard, but I do favour full reserve banking: a system which involves a relatively inflexible money supply. Under full reserve, interest rates would shoot up given a housing bubble, and that would choke off the bubble. To that extent, we’d have LESS INSTABILITY. The interest rate gyrations would not be a problem for those who matched long term investments with long term loans. As to those taking a gamble and funding long term investments with short term loans, sod them: if gamblers lose their money I couldn’t care less.
"the currency issuer is a monopolist that is not operationally constrained"I think Austrians might not deny this but they would argue that not being constrained is a scam and a form of default, counterfeiting and legalised theft (at least if it results in price inflation, which they are adamant is an inevitable result of increases in the money supply).
"As to those taking a gamble and funding long term investments with short term loans, sod them: if gamblers lose their money I couldn’t care less."The only problem with this logic is that it still requires that the gamblers don't get bailed out. As we've recently seen this requires the right mix of political decisions.
Ralph: "I don’t favour returning to the gold standard, but I do favour full reserve banking: a system which involves a relatively inflexible money supply."I fail to see what is the difference between Austrian ideas and yours then. You might not say that gold is money and fractional reserve banking is a scam but It translates to the same thing imo. Money supply is relativly inflexible by Austrian vision. It grows only when gold is discovered.In my country there is this disturbed individual who wrote a book about money and economy. The book is garbage but you might find some of the ideas interesting. He is not very far from Ausrtians.1. If you sell something and get money in return then what you are really doing is loaning a real asset. That real asset should belong to you, not to the borrower, he is only using It.2. Money is property right and therefore cannot be sold, traded, loaned etc.3. Title or a property right is like your name or a court decision that doesnt belong to you. You cannot sell a title. You are really selling an asset and only real assets can be sold, traded, loaned etc4. Financial assets are illusory assets, fantoms that are created by banks for the purpose of embezzlement.5. It is the biggest mistake of mankind to think that financial assets are assets at all, they should be outlawed.6. In his opinion this is the only reason we have crisis because capital and wealth have natural tendency to grow. when asked about malinvestment, he says that this is impossible in aggregate because people are not so stupid.I bet you get the idea. He goes around and asks people: what happens when you sell your house and receive money in return that bank created? You are really lending your house, he explains. His conclusions come from pure logic and a priori knowledge, in this sense he is no different than Austrians.
Kristjan,I think he would emphasize money expansion should be in the hands of the government via deficits instead of an huge capability on the private banks to create credit.I'm skeptic on the capability to limit leverage power of the private sector, there are always ways around it (see shadow banking system) as it looks like a natural consequence of over optimism in growth times.But with occidental countries reaching a point where growth is reaching limits (for various reasons) a more stable system wouldn't be a bad idea . More weight would be put in investing in proper things, instead on just expanding the quantity of assets and leverage geometrically. More investment funds or specialized banks, with less leverage over all, more competitive capital investment and investment funds less funny credit for building real state bubbles.Then the only issue would be to guarantee that falling rates of profits, hoarding money, and income distribution don't become a problem. And there is where the public power to create money, tax and create laws come handy.
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