Thursday, August 16, 2012

The Chicago Plan Revisited - by the IMF

commentary by Roger Erickson

An IMF working paper is suggesting "100% reserve backing for deposits."

??

How, exactly, can one have 100% reserve backing for deposits in a fiat regime?

First, deposits are already FDIC insured (given, up to a limit).

Second, why bother with "reserves" (whatever they mean by that term)? We're already have the case that loans create deposits, and trigger corresponding changes in "bank-reserves."

Unless I'm totally confused, these IMF authors seem very confused. Orthodox economics seems to get curiouser & curiouser all the time. They could start by at least defining what they mean by "reserves." They seem to be mixing metaphors, which inevitably leads to irrational policy advice.  Broken semantics and monetary policy don't belong in the same mix.

The Chicago Plan Revisited http://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf
http://www.imf.org/external/pubs/cat/longres.aspx?sk=26178.0

Jaromir Benes & Michael Kumhof. August 01, 2012
Summary: At the height of the Great Depression a number of leading U.S. economists advanced a proposal for monetary reform that became known as the Chicago Plan. It envisaged the separation of the monetary and credit functions of the banking system, by requiring 100% reserve backing for deposits. Irving Fisher (1936) claimed the following advantages for this plan: (1) Much better control of a major source of business cycle fluctuations, sudden increases and contractions of bank credit and of the supply of bank-created money. (2) Complete elimination of bank runs. (3) Dramatic reduction of the (net) public debt. (4) Dramatic reduction of private debt, as money creation no longer requires simultaneous debt creation. We study these claims by embedding a comprehensive and carefully calibrated model of the banking system in a DSGE model of the U.S. economy. We find support for all four of Fisher's claims. Furthermore, output gains approach 10 percent, and steady state inflation can drop to zero without posing problems for the conduct of monetary policy.


Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate



44 comments:

PeterP said...

Isn't this simply a 100% capital requirement in disguise? Reserves are created after the loan is made but there are now so many of them the bank needs ample capital prior to make a loan.

Tom Hickey said...

Isn't this simply a 100% capital requirement in disguise?

Not as long as there is LLR and banks can borrow from the cb. No operational constraint in the US, etc., but there would be in the EZ with no LLR.

Leverage said...

The main point of the paper is that banks shouldn't be able to leverage deposits as they do now to expand their balance sheets. This is good to prevent asset bubbles and financialization of the economy (basically shuffling & shifting paper assets & liabilities).

Operationally it should be done other way, as modern banking does not work that way as we know, but the point still is valid. Most probably it would require a redesign of the banking system & laws, very obvious.


Changing reserve requirements would do nothing nowadays, but the objective here is to change the reality of 'loans create deposits' to that of 'deposits create loans'.

Under such system the power and obligations to create money would return to government, now it doesn't, as the credit market and banking system are responsible of the expansion of most money in existence. This indeed would increase government deficits a lot, or maybe not, because private debt would be extremely reduced (reducing extraordinary privileges of wealthy individuals and rentiers, and some corporations with special charters, like banks).

So it won't happen (guess why it wasn't done in the GD), now you can celebrate lol.

Roger Erickson said...

If the intent is to reign in poor credit rating decisions, then the proper way to go is better regulatory enforcement, not blanket suppression of net credit extension.

Publically licensed banks and sovereign currency are utilized exactly to accelerate national innovation rates.

Limiting innovation rates is counter productive, but doing innovative work to introduce better/faster/cheaper regulation of fraud would be very productive.

David said...

"The Chicago Plan," as I'm sure you're aware is the basis of AMI's monetary reform proposals, which have been picked up and promoted in congress by Dennis Kucinich. Michael Hudson has pointed out to them that they would probably get farther if they updated their understanding of how the economy works from the 1930's thinking in which they seem to be a bit stuck. Kucinich has been floating this for a while but somehow the beltway media is not fawning over him, calling him "bold" and "courageous" like they do Paul Ryan.

Dan Kervick said...

The bearing of reserve requirements on lending behavior is felt, it seems to me, on the costs of acquiring additional reserves. As MMT says, it's about price not quantity. A larger reserve requirement means higher bank costs per dollar of lending.

Given that banks are now carrying huge volumes of excess reserves, and the Fed Funds rate and other interest rates are so astonishingly low by historical standards, the effect of the policy change would be moot in the present environment. But in a more normal situation, the effect should be significant.

Imagine a situation in which banks in the aggregate are not carrying excess reserves, and where the interbank rate is 5%. Suppose a bank has $500 million in deposits and is carrying reserves of $50 million - exactly the current 10% reserve requirement. Suppose the bank desires to expand its deposits, via loan creation, to $600 million. The bank is not constrained to meet the higher reserve requirement before making the loans, but can acquire the additional needed reserves during the calculation period and compliance period. Under a 10% reserve requirement, and assuming the 5% rate of interest for interbank borrowing, that means the bank will ultimately have to borrow $10 million at 5% - thus incurring a cost of $500 thousand.

However, with a 100% reserve requirement, a bank that wants to expand its deposits by $100 million will have to acquire $100 million in additional reserves. At 5% the cost for acquiring them will be $5 million - that is, ten times the cost under the 10% reserve requirement.

Presumably the higher costs would make banks more cautious in their lending than they are under a lower reserve requirement.

Tom Hickey said...

Presumably the higher costs would make banks more cautious in their lending than they are under a lower reserve requirement.

Or pass the increased cost on to borrowers since it would affect all banks equally. Would likely bump interest rates up a bit and perhaps result in additional charges.

Detroit Dan said...

I'll be honest. This proposal doesn't make any sense to me. Where are all the extra reserves supposed to come from? What problem are we solving?

Tom Hickey said...

Reserves enter the economy through govt expenditure and cb lending to banks.

Dan Kervick said...

Detroit Dan, I think the problem we are trying to solve is that the private sector in the years leading up to 2008 clearly generated too much bad credit. I don't think 100% reserves are the best way to address it, but the motivation is good.

However, we also have to recognize that the credit debacle was in part the result of an increasingly unequal and predatory economy in which the owners of capital robbed their hirelings over time and substituted credit for income in their transfers to workers. Unless we address that problem, then simply starving ordinary folks of credit on top of starving them of income is only a path to further national impoverishment and slavery.

Unforgiven said...

Did Canada have equivalents of the S&L debacle, etc., etc? Or do they just relegate that sort of thing to the Stock Exchanges, where it belongs?

Stupid question, I know. The Exchanges are just the sewage treatment plant for the rest of the financial world.

Ralph Musgrave said...

Tom Hickey is correct to say the proposal would “bump up interest rates a bit”. Reason is that under fractional reserve, private banks can create savings out of thin air to lend to borrowers. That obviously results in lower interest rates than would otherwise be the case.

Detroit Dan wants to know “Where are all the extra reserves supposed to come from?” Answer: central banks can create any amount of extra reserves at the click of a computer mouse. They can create money just like private banks can.

Re Detroit Dan’s question “What problem are we solving”, the answer is given in the IMF paper summary, e.g. 1. Private bank lending is pro-cyclical: it exacerbates booms and recessions. Thus if private banks are prohibited from creating money, the cycle is moderated. 2. Under full reserve, it’s near impossible for banks to go bust, i.e. bank runs are eliminated.

However, those IMF authors are jumping on a bandwagon that’s been rolling for some time, and they haven’t got a good grasp of the subject. For example they go badly wrong in relation to the bank balance sheet changes that would result from converting to full reserve banking, as I explained here a few days ago:

http://ralphanomics.blogspot.co.uk/2012/08/imf-authors-get-full-reserve-wrong.html

PeterP said...

Tom,

"Isn't this simply a 100% capital requirement in disguise?

Not as long as there is LLR and banks can borrow from the cb. No operational constraint in the US, etc., but there would be in the EZ with no LLR."

But do they borrow for the whole length of the loan? Or only for one day on which the reserve requirements are checked (it is a Wednesday I think). I am not sure the bank can ride out the whole length of the loan on borrowed reserves. Isn't it just a short term patch and in the end the bank has to come up with a more permanent was to comply with the reserve requirements stemming from the extra loan?

Thanks.

Tom Hickey said...

100% reserves is presumed to make the money supply exogenous and "scarce," determined by the amount the govt net spends plus the amount that the cb lends. But under LLR the amount that the cb lends is determined endogenously and so is the govt fiscal balance, e.g., automatic stabilization).

The overnight market still exists, so even if a bank borrows temporarily from the cb it can cover later by borrowing another bank's excess reserves.

Adam1 said...

All the proposal does is require M1, M2 and M3 (subject to what everis included in the 100% reserve requirement) to be equal to M0 which means as the banking system lends the CB must expand M0 on demand at its target rate.

As I see it the only real change is that the costs of lending move from the cost of deposits to the cost of the CB's target rate.

Ralph Musgrave said...

Adam 1, You said full reserve means that “as the banking system lends the CB must expand M0 on demand”. Nope: it’s the other way round. The CB and government (or some independent committee of economists) decide how much extra money should be spent into the economy (depending on whether stimulus is needed, etc), and that’s the ONLY extra money that private banks have to lend. If a private bank (as now) lends money into existence, it is breaking the law.

The above idea is pretty similar to Abba Lerner’s suggestion that where stimulus is needed, the government / central bank machine should simply print and spend extra money into the economy. See p.40 here:

http://k.web.umkc.edu/keltons/Papers/501/functional%20finance.pdf

Of course it would never be possible to get perfect control of private banks’ money creating activities. On the other hand it would be impossible for a large bank to flout the law in a big scale without the authorities noticing.

Adam1 said...

Ralph,
As a bank all I have to do is ensure that my level of reserves = my deposits. If I decide to underwrite a new loan then my reserves must increase to match the deposit (assuming I deposit it in a deposit account at the bank). Knowing this I can go out to the money markets and find reserves. Magically the FED will ensure that there are sufficient reserves there to meet my demand at the posted target interest rate – it has to if it wished to defend its target rate.

In our current monetary system something else would have to change beside the reserve requirement rate in order to prevent bank lending.

Tom Hickey said...

Adam 1 In our current monetary system something else would have to change beside the reserve requirement rate in order to prevent bank lending.

Yes, govt would have to assume exogenous control by limiting its policy space voluntarily or by law, comparable to a convertible fixed rate system. While a govt could do this, it would be very unpopular politically at other than equilibrium at full employment and price stability with sufficient growth to provide real resources to meet future demand. And just as gold standards are jettisoned more for political then economic reasons, so too would any comparable system given sufficient departure from equilibrium to result in political turmoil.

geerussell said...

In the process of refreshing my memory on the topic, I revisited this post at Bill Mitchell's site. The comments thread on that one just killed it.

Roger Erickson said...

another useful reference:



Central Bank Balances and Reserve Requirements
http://www.imf.org/external/pubs/ft/wp/2011/wp1136.pdf

The 2010 IMF survey showed 9 out of 121 central banks which responded had no reserve requirement:
Australia, Canada, Denmark, Mexico, New Zealand, Norway, Sweden, Timor–Leste, and the United Kingdom;
additionally, the Hong Kong Monetary Authority does not impose RR.

Most central banks oblige depository institutions to hold minimum reserves against their
liabilities, predominantly in the form of balances at the central bank. The role of these
reserve requirements has evolved significantly over time. The overlay of changing purposes
and practices has the result that it is not always fully clear what the current purpose of
reserve requirements is, and this necessarily complicates thinking about how a reserve
regime should be structured. This paper describes three main purposes for reserve
requirements – prudential, monetary control and liquidity management – and suggests best
practice for the structure of a reserves regime.

A small number of central banks do not impose RR.

13
Where there is no RR, the
central bank can allow the market to operate with very low balances (Canada), or use
remuneration to motivate banks to hold a reasonable level of reserves (Australia, New
Zealand), or agree a contractual level of remunerated reserves, so that while the level of
reserves is essentially voluntary, demand within a given period is predictable (the United
Kingdom). The level of reserves held by the banking system as a whole is largely a function
of the central bank’s decision (to the extent it can control its balance sheet); but individual
banks have some choice over the level of reserves they hold. If the level chosen by the
central bank exceeds aggregate voluntary demand, short–term rates will tend to fall (and vice
versa if the level supply falls below demanded levels). Canada and Mexico target a zero
overnight reserves balance;

Ralph Musgrave said...

Adam 1,

You claim that full reserve would not work if, given a rise in demand for loans, the central bank “wished to defend its target rate”. Quite right. Under full reserve, what controls AD and hence aggregate employment and inflation is the amount of money the government / central bank machine creates and spends into the economy (or the reverse: the amount it taxes and withdraws from the economy). Interest rates are just left to market forces.

This is made clear on p.10 of this work which advocates full reserve:

http://www.positivemoney.org.uk/wp-content/uploads/2010/11/NEF-Southampton-Positive-Money-ICB-Submission.pdf

Geerussell,

I’ve just had a quick skim through the comments on that Bill Mitchell site. There is a VAST AMOUNT of discussion of various merits and demerits in full reserve, but certainly no consensus that it’s a bad idea. But if there is some critical flaw in full reserve there that I’ve missed, I’m all ears.

Tom Hickey said...

Ralph: But if there is some critical flaw in full reserve there that I’ve missed, I’m all ears.

It seems to me that the issue is over what people think that 100% RR will result in for the financial system and the economy and what the reality is.

Leverage said...

Full reserve is not (or should not) be about liquidity&/solvency issues (this ain't a problem in our current monetary-banking systems if CB's and politicians act).

Full reserve is a matter of: a) monetary control (democracy vs. oligarchy); b) balance sheet quality (& quality of economic expansion); c) social distribution of assets vs. liabilities (less debt is not socially better, IF and only if, there ain't enough money creation to offset deflationary forces).

If we are to have a centrally planned economy as we do now with the central banking & banking cartel system at least we should do it right. Current arrangement undermines democracy in every possible way and does not allow neither socialism (state-intervened capitalism) nor laisez-faire capitalism (free banking), but rather a plutocratic regime which causes economic cycles used to undermine economic self-sustainability of most of the population against elite control.

I keep hearing how better regulation is the way to go, but this ignores the fact that better regulation WON'T ever work if there is a possibility of political capture by money changers and people with the exorbitant privilege of creating state unit of accounts privately out of thin air. Just look how Glass-Steagall was thrown out of the window, and the current monstrosity (Dodd-Frank) just favours banking cartel even more.

Full reserve can only work if the state takes over monetary control & creation in a sufficient way off course. Otherwise the system would collapse in a few years (in a laissez-faire society only reserve banking -or free banking- would allow some stability).

Leverage said...

"100% RR will result in for the financial system and the economy and what the reality is."

100% reserves won't do anything, IMF paper is bogus and does not understand banking.

What you have to eliminate are the special charters banking cartels have to leverage state-money creating credit out of nothing.

The power to create money should reside within the people, not some private parties which decide who is 'rich' or 'poor' in society just by their credit-worthiness (they can create purchasing power out of nothing).

No system is perfect but this is a major source of disruption to economic stability & wealth distribution. Anyway this issue falls on its own weight when reality is that 90% of the credit money created goes to finance consumption of households (not to some sort of investment) -through mortgages specially- or to create paper asset bubbles specially in the last decades.

joebhed said...

What's important is the authors' finding that the Chicago Plan could restore stability to money, finance and economics.
Does anyone care to argue that point, or declare it unimportant in light of MMT?

The Chicago Plan was a '30s proposal and full-reserves were achieved by what is outlined in Fisher's 100 Money and his 1939 Program for Monetary Reform proposals.
A bank could only make loans equal to its non-demand deposits.

The Kucinich Bill is a non-reserve proposal, recognizing the fallacy of reserve based banking. There is not a zero-reserve requirement. There is no reserve requirement.
All money is real money.
Just as the Chicago Plan, bank loans must be backed by balances in non-demand accounts.

The purpose of either model is to restore stability to our money system.
Such that deposit-insurance and associated moral hazard considerations are bygone.

joebhed said...

Tom Hickey says that the proposal is to make money both exogenously determined (correct) and scarce (incorrect).
Exogenously created means what Lincoln described as the supreme prerogative of government - to create the nation's money.
No problem there.
End the string-pushing at the FOMC.

But the essential purpose is to resort to a 'permanent' money system that would not be extinguished by loans. That is where the stability really comes from.
These proposals simply call for somebody being responsible to ensure that we have all the money needed to achieve GDP potential, whether it is the Chicago Plan, the 1939 Program or the Kucinich Bill.

joebhed said...

Finally, all this talk about the cost of acquiring the needed reserves is really myopic, both for the full-reserve banking and for the Kucinich Bill.

In both cases, the so-called 'reserve-money' is created by the government on a permanent, full-time basis - as money.
In realty, the cost to acquire 'reserves' to back a loan is the cost to have a term-deposit in your bank.
It's the same with the Kucinich Bill, only, as I said, there is NO reserve requirement.
Banks can only lend REAL money in their accounts.

Please don't lose sight --- this work is looking at options for restoring stability to the money system. The Chicago Plan would work today.

Dr Kaoru Yamaguchi modeled the Kucinich Bill and found the same economic stability as did the IMF authors.
http://www.old.monetary.org/yamaguchipaper.pdf

There must be something to it.

Ralph Musgrave said...

BTW, Milton Friedman argued for full reserve. See item No 1, p. 247 here:

http://nb.vse.cz/~BARTONP/mae911/friedman.pdf

He also argued for the system I mentioned above, i.e. a system where AD is controlled by the amount of money the government and central bank create and spend into the economy. See para starting “Under the proposal…” p.250.

geerussell said...

I’ve just had a quick skim through the comments on that Bill Mitchell site. There is a VAST AMOUNT of discussion of various merits and demerits in full reserve, but certainly no consensus that it’s a bad idea. But if there is some critical flaw in full reserve there that I’ve missed, I’m all ears.

Sorry, I only meant to suggest that there is a vast amount of discussion drilling down into the topic from some pretty sharp people. I didn't mean to imply a settled consensus, only to recommend the discussion as good reading.

Tom Hickey said...

BTW, Milton Friedman argued for full reserve.

That's a kiss of death is these parts, Ralph.

joebhed said...

Dan Kervick :--

""However, with a 100% reserve requirement, a bank that wants to expand its deposits by $100 million will have to acquire $100 million in additional reserves.""

I assume you mean the bank desires to increase its LOANS by $100 million.
Because if the bank wants to increase its deposits by $100 million, the bank is completely free to do so.
Banks acquire deposits from depositors.
The banker just needs to offer competitive rates and sound lending policies to savers for that $100 million being lent to her bank.
Almost like Jimmy Stewart said it was.

joebhed said...

In these parts - where we don't care about facts, law and history, where we have no cotton for what it is that any onn-heterox says, and for sure if its a damn Nobelist who we can pillory just for fun - fuggedabowtit, Ralph.
This here is kind of quasi-progressive land, sort of.
Why, what did Milton Friedman really know about money anyway?
He was actually, almost one of them there exogenists-types, if you know what I mean.
Not a super-racer, but like somebody who actually believes that if you want to have a certain quantity of money in the economy - you know, like for price stability and full employment - and you have the issuing power over the nation's money, why you just go right ahead and issue that amount.
Can you imagine what might happen to interest rates?
So, the true economic progressives at the old Chicago school who authored this public money proposal actually convinced the young Milton Friedman on its merits.
And for some reason, that is supposed to be a problem for Ralph.
And also for me.
Looking for maturity.

joebhed said...

Tom Hickey :
""It seems to me that the issue is over what people think that 100% RR will result in for the financial system and the economy and what the reality is.""

First, to reduce the Chicago Plan to simply full-reserve banking is specious.

But, more important, Irving Fisher ALWAYS presented his 100 Percent Money and Full-reserve proposals with a list of advantages to the economy, the money system and society.

Drs. Benes and Kumhof, the latter a banker, Prof of international finance and banking and developer of the global banking / financial system dynamic model, have found ADDITIONAL advantage not propounded by Fisher.

What does Tom Hickey have for us as proof of anything?

It's time to recognize both the real benefits of public money and the NEED for a National Monetary Commission.

Tom Hickey said...

It's time to recognize both the real benefits of public money and the NEED for a National Monetary Commission.

The issue is balancing the public and private sector. Right now, the private sector has too much weight on its side of the scale, and a large part of that weight is capture of the public sector. Increasing the role of the public sector will not in itself fix this. There has to be a balance of power institutionally so that neither the public nor the private sector can dominate, or there will eventually be just more trouble.

As a libertarian, I am very distrustful of govt without adequate controls, and as a realist I am very distrustful of the private sector to be concerned with the public interest, let alone act in it. And there is no invisible hand. It's a myth based on 18th century Deism and 19th century physics.

joebhed said...

To Tom Hickey

Being distrustful of government should come naturally to all.

I give you the spectrum from Friedman to Simons and Fisher, all clearly saying that the government’s (public’s) job is not to require a level playing field, but to build a level playing field – and to let the privates have at it in a way that cannot destroy the national economy.

The function of money in the national economy MAKES it a public function – as Lincoln said – the SUPREME PREROGATIVE of the sovereign people.

Government does money.
Banks do banking.

A natural balancing of the money power.

It’ll remain your job to see that the controls on government are more than adequate.
This is not about the effects ON reserves, or about the effects OF reserves.
It’s about making reserves themselves inconsequential to the national economic outcome.
If you understand the system.

For the Money System Common.

Tom Hickey said...

People sure are going to miss those credit cards and so will businesses the increased demand.

joebhed said...

Why would anyone miss their credit cards? Or their lines-of-credit.
I've said before, the cc department at the bank just needs to be holding deposit balances against its cc balances.
Same for its Line of Credit customers.
Thee is zero reason for any money-related reduction of available capital.
Only one rule.
You can't lend money you don't have.
OK, two rules.
And you can't charge over 8 percent interest.
;-)

Tom Hickey said...

You can't lend money you don't have.

That's 100 % capital requirement. You don't think that would tank private lending?

Dusty1000 said...

''I assume you mean the bank desires to increase its LOANS by $100 million.
Because if the bank wants to increase its deposits by $100 million, the bank is completely free to do so.
Banks acquire deposits from depositors.''

Under the current system, banks create deposits when they make loans. I suggest reading the IMF report in full.

joebhed said...

This to Tom Hickey.

I'd like to think that your comment is intended to be more clever than substantive.

If you read Friedman on his reform proposals which substantially mimic the Chicago Plan AND the Fisher 100 Percent Money(reserve) proposal, ALL say the only limit on bank lending would result from not NEEDING loans in order to have money.
The amount of money in existence would be exactly the same.

Anything the bank receives in deposits that are not subject to immediate withdrawal is a loanable amount.

Do you really think that the economists would back deflation in the economy that would result from banks not lending out their deposits?

You should reply with a fact that is based in either the Chicago Plan OR Fisher's Book or lectures on full-reserve banking or Friedman's Program for Monetary Stability.

joebhed said...

To Dusty1000

""Under the current system, banks create deposits when they make loans. I suggest reading the IMF report in full.""

Thanks. I've read the IMF report several times.

Why would you make a comment based on the present system, when the Chicago Plan proposed a complete reversal of the process by which banks make loans.

Under the Chicago Plan - which I have also read many times - banks would require deposits prior to making loans.

I thought that should be very clear from both the original CP and the IMF paper.

From Section IV -
The Model Under the Chicago Plan - describing the post-transition economy with regard to "Banks"

""This means that banks cannot lend by creating new deposits.

Rather, their loan portfolio
now has to be backed by a combination of their own equity and non-monetary liabilities
ˇ ft.

For the reasons discussed in section II.B, we assume that this funding ˇ ft is supplied
exclusively by the government treasury, with private agents limited to holding either bank
equity or monetary instruments ˇ dt that do not fund any lending.""

So, under the CP, banks can only lend real money - please advise what you might have read in contradiction to that.
Thanks.

Tom Hickey said...

Do you really think that the economists would back deflation in the economy that would result from banks not lending out their deposits?

A fundamental contention of MMT is that banks DON'T LEND OUT DEPOSITS!!!!

joebhed said...

So much for my request for a relevant reply.

And perhaps YOU forgot YOUR comment -
""That's 100 % capital requirement. You don't think that would tank private lending?""
- which I replied to.


Tom H. ""A fundamental contention of MMT is that banks DON'T LEND OUT DEPOSITS!!!!""

Perhaps you've missed the story line.

The Chicago Plan proposal was for the banks, after resort to full-reserve banking, to be able to lend the reserved equivalents.
A fully-reserved $Billion in deposits means a $Billion loan portfolio.

YOUR comment -
""That's 100 % capital requirement. You don't think that would tank private lending?""
- to which I replied.

So why would it tank private lending if banks could make loans EQUAL TO their deposits?
Maybe we should stick with that point.
Obviously, again, the IMF study shows the tanking of private lending is NOT he case - quite the opposite actually.

Mere MMT hyperbole.

That's one of the problems with MMT - being unable to see beyond their own reality.

Banks do not lend out deposits.
Even with full-reserve banking, banks would not lend out their deposits - only amounts equal to their deposits.

But, with full-reserve banking comes the real END to endogenous money as we know it.
Then we have exogenous money creation.
Heavens to Betsy.
Call the MMT paradigm-defense-team.

Tom Hickey said...

Joe, this was discussed ad nauseam at Warren's. I have nothing to add other than if you want banks to lend out "real money" exclusively then you need to go to 100 capital requirement. Warren has explained this better than I could and with a lot more authority, since he is "in the business" and knows how it actually operates.