An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
Bizarre. How could someone think that bank lending is simply a function of the quantity of their reserve assets? Banks make loans that they perceive to be profitable.
Could they make a mistake and blow up a loan bubble? Sure. But they can do the same thing even if the Fed first "mops up" the reserves.
I'm confused how bankers, including central bankers, could NOT understand how banking works? I understand that in school they may have been taught wrongly, but you'd think after being on the job it would occur to them… 'hmmm… this doesn't quite operate the way I was taught.'
Imagine the same being true for a mechanic or a surgeon.
I guess this brings into the equation comments from the other day about being paid to not know as a powerful force, willful ignorance, an implicit and/or explicit filtering process that filters out those people who say the wrong things, etc.
Warren has a great metaphor of the central banker being like the kid in the back seat with the fake steering wheel who thinks he's driving. The central banker has some theoretical model of a positive correlation between economic phenomenon X and central bank action Y. So when he sees X is starting to happen, he does Y, like the kid who turns the wheel just as the car is starting to turn - thus generating the proof his own hypothesized correlation. Since the correlation always holds, and he has the same hubristic illusion of agency we all share, he assumes his actions are the cause of the events.
Look, I try to make the case that all of this is but for a lack of what we can look at in the secular sense as "cognitive disfunction" rather than some sort of "conspiracy" where these zealous advocates of all of these falsehoods somehow really know what is going on, but instead are out of their "freewill", intentionally dispensing frauds and lies...
I offer this example here of Koo to make my point...
How can Koo get this so wrong? At THIS point?
If Koo cant get it, how can John Boehner get it?
How can Jim Demint get it? How can Paul Ryan get it? How can Simpson Bowles get it? Eric Cantor? even Peterson?
Koo has sat before MMT academic presentations many times... yet he STILL does not get it..
After seeing this, there can be NO DOUBT as far as I am concerned, that there is some sort of TERRIBLE pall of ignorance effecting humanity that is literally of "Biblical proportions" that we are witnessing...
You don't think many of them realize the truth, but concously or unconsciously, choose to ignore what they know to be true because their careers are sustained by not admitting such things?
For example, that bernard lietaer talk the other day where he talks about a conversation with Krguman where Krugman says "Didn't they ever tell you? Never touch the money system?"
It could be willful ignorance… supression and repression.
These secular cognitive folks claim that you have to both know and not know something to be self deceived....
Koo has never evidenced the fact that he knows how all of this works... so he cannot be self-deceived imo...
Neither can anyone who remains out of paradigm...
They are all caught up in old gold standard thinking and overly simplistic mental models ("dilution") and dont have the math skills to be able to get themselves out of it independently...
because they cant get out of it independently, they have to rely on whom they recognize as an "authority" on these issues and they become subject to and even part of the orthodoxy of the academe of economics which in these times is all false...
They are caught up in an "infinite loop" of falsehood... it looks like this is generally how all "falsehood" operates...
"falsehood" "finds" the weak minded thru trial.
These weak minded do not possess the ability to discern truth independently (say in this case thru math skills)... then, thru language communication techniques, or what the Lord termed in the Greek scriptures "reasonings" or dialogimous (think 'dialog') literally "thru-casting", these falsehoods (which look like they ONLY can be spread thru language) take hold of the human and are reinforced via what the Lord termed battologesete or 'battology' (useless repetition) I believe and false metaphor... perhaps some other techniques that I have not been able to pattern yet...
see the secular account of this in what Tom has posted up from Lakoff out at Berkeley...
The only way out of this for them is to first be confronted with TRUTH, then be able to choose to "fight" in reaction to a cognitive confrontation of "fight or flight" , and then LOSE the "fight"... from what I see, they usually go with "flight" and can never get anywhere...
Correction... In the scriptures, dialogimous (think 'dialog') is literally "thru-saying", the overall operation is "thru-casting" or diabolos which is a derivative of the name given to the adversary of God, or literally "thru-caster" ...
The other day…in actuality…that video went viral last week as I saw it posted at Naked Capitalism and several other econ-related sites…MNE had it posted here months ago…but it's great to see these ideas gaining traction and Lietaer speaks very favorably of MMT in that video.
Matt, Bill Still was supposed to have an interview with Lietaer this past week, will have to find out how it went.
It's not that worrying about what to do when loan demand does pick-up in the future, it's when he says...
"Loan books could grow more than tenfold in the US and five fold in Japan and Europe if bank reserves remain at current levels..."
The impicit mechanism he's taking about is the money multiplier effect. The reality is that it deosn't matter how large the pile of reserves is, loans are not constrained by that. If he understood how the system worked at the operational level he would understand that banks make loans which create deposits and DEMAND for reserves. The CB will provide those extra reserves on demand. So it doesn't matter how big the pile of reserves is when demand for loans does return. AND there are plenty of fiscal and monetary policy tools to rain in any crazy level of loan demand should it actually happen.
And while interest rates may rise as one form of policy response it does not mean the bond vigilanities and insolvency of sovereign governments will all of a sudden appear.
Another way of putting it is loans are not a function of reserves, loans are a function of demand for credit, constrained by the creditworthiness of borrowers.
But even if he were right it's a bit should we say inopportune to write about possible downsides of precisely the result everyone with some sense has been demanding (for more than 20 years in Japan's case!) and yet has failed to materialize until now: economic growth and solid job creation.
He should concentrate his intellectual efforts and energy on persuading TPTB to go for fiscal deficits to promote recovery - instead of imagining possible scenarios far into the future where the eternal bogeyman inflation might raise his head.
Because, who cares about supposed inflation possibilities after a couple of years of strong growth when the system seems simply incapable of providing us with said growth?
Bank Economists of the Koo type should start living here on Planet earth and leave sterile speculations about possible worlds to where they belong: the realm of neoclassical academia.
Wow, I guess it's jump on Koo time. Does it make everyone feel better when they get to do their recitation of MMT aphorisms?
One of the things that Koo asserted in his book was that there were Yin and a Yang phases in the economy. I don't remember which was which. The idea was that in one phase, twiddling the fed funds rate changes aggregate demand. In the other, it doesn't. Historically, the former is the normal case. Is it so bizarre to expect that we will never experience it again?
17 comments:
Bizarre. How could someone think that bank lending is simply a function of the quantity of their reserve assets? Banks make loans that they perceive to be profitable.
Could they make a mistake and blow up a loan bubble? Sure. But they can do the same thing even if the Fed first "mops up" the reserves.
Just more proof too many CB'ers don't understand banking.
However I would like to think that if someone could convince Koo otherwise he'd get it all pretty quick.
I'm confused how bankers, including central bankers, could NOT understand how banking works? I understand that in school they may have been taught wrongly, but you'd think after being on the job it would occur to them… 'hmmm… this doesn't quite operate the way I was taught.'
Imagine the same being true for a mechanic or a surgeon.
I guess this brings into the equation comments from the other day about being paid to not know as a powerful force, willful ignorance, an implicit and/or explicit filtering process that filters out those people who say the wrong things, etc.
Warren has a great metaphor of the central banker being like the kid in the back seat with the fake steering wheel who thinks he's driving. The central banker has some theoretical model of a positive correlation between economic phenomenon X and central bank action Y. So when he sees X is starting to happen, he does Y, like the kid who turns the wheel just as the car is starting to turn - thus generating the proof his own hypothesized correlation. Since the correlation always holds, and he has the same hubristic illusion of agency we all share, he assumes his actions are the cause of the events.
Folks,
Look, I try to make the case that all of this is but for a lack of what we can look at in the secular sense as "cognitive disfunction" rather than some sort of "conspiracy" where these zealous advocates of all of these falsehoods somehow really know what is going on, but instead are out of their "freewill", intentionally dispensing frauds and lies...
I offer this example here of Koo to make my point...
How can Koo get this so wrong? At THIS point?
If Koo cant get it, how can John Boehner get it?
How can Jim Demint get it? How can Paul Ryan get it? How can Simpson Bowles get it? Eric Cantor? even Peterson?
Koo has sat before MMT academic presentations many times... yet he STILL does not get it..
After seeing this, there can be NO DOUBT as far as I am concerned, that there is some sort of TERRIBLE pall of ignorance effecting humanity that is literally of "Biblical proportions" that we are witnessing...
rsp,
Matt,
You don't think many of them realize the truth, but concously or unconsciously, choose to ignore what they know to be true because their careers are sustained by not admitting such things?
For example, that bernard lietaer talk the other day where he talks about a conversation with Krguman where Krugman says "Didn't they ever tell you? Never touch the money system?"
It could be willful ignorance… supression and repression.
*the other day*… as in I saw it for the first time the other day when Paul posted it in a comment.
Koo says
But nightmare scenario awaits when private loan demand recovers
That is, he is worrying today about a scenario where recovery is finally going ahead, full steam with loan demand strongly picking up.
Worrying about what could possibly go wrong (inflation, higher interest rates, you name it) if the economy starts going in the right direction.
A bit as if a guy who's in the middle of the desert, thirsty, worried about the unpleasant side of a rainy day.
An extreme case of confused priorities, perhaps?
JK,
Here is a post I did a while back where the article referenced analyzes the "self-deception" phenom...
http://mikenormaneconomics.blogspot.com/2012/11/self-deception-self-delusion-and-self.html
These secular cognitive folks claim that you have to both know and not know something to be self deceived....
Koo has never evidenced the fact that he knows how all of this works... so he cannot be self-deceived imo...
Neither can anyone who remains out of paradigm...
They are all caught up in old gold standard thinking and overly simplistic mental models ("dilution") and dont have the math skills to be able to get themselves out of it independently...
because they cant get out of it independently, they have to rely on whom they recognize as an "authority" on these issues and they become subject to and even part of the orthodoxy of the academe of economics which in these times is all false...
They are caught up in an "infinite loop" of falsehood... it looks like this is generally how all "falsehood" operates...
"falsehood" "finds" the weak minded thru trial.
These weak minded do not possess the ability to discern truth independently (say in this case thru math skills)... then, thru language communication techniques, or what the Lord termed in the Greek scriptures "reasonings" or dialogimous (think 'dialog') literally "thru-casting", these falsehoods (which look like they ONLY can be spread thru language) take hold of the human and are reinforced via what the Lord termed battologesete or 'battology' (useless repetition) I believe and false metaphor... perhaps some other techniques that I have not been able to pattern yet...
see the secular account of this in what Tom has posted up from Lakoff out at Berkeley...
The only way out of this for them is to first be confronted with TRUTH, then be able to choose to "fight" in reaction to a cognitive confrontation of "fight or flight" , and then LOSE the "fight"... from what I see, they usually go with "flight" and can never get anywhere...
rsp,
Correction... In the scriptures, dialogimous (think 'dialog') is literally "thru-saying", the overall operation is "thru-casting" or diabolos which is a derivative of the name given to the adversary of God, or literally "thru-caster" ...
"*the other day*…" - JK
The other day…in actuality…that video went viral last week as I saw it posted at Naked Capitalism and several other econ-related sites…MNE had it posted here months ago…but it's great to see these ideas gaining traction and Lietaer speaks very favorably of MMT in that video.
Matt, Bill Still was supposed to have an interview with Lietaer this past week, will have to find out how it went.
@Jose,
It's not that worrying about what to do when loan demand does pick-up in the future, it's when he says...
"Loan books could grow more than tenfold in the US and five fold in Japan and Europe if bank reserves remain at current levels..."
The impicit mechanism he's taking about is the money multiplier effect. The reality is that it deosn't matter how large the pile of reserves is, loans are not constrained by that. If he understood how the system worked at the operational level he would understand that banks make loans which create deposits and DEMAND for reserves. The CB will provide those extra reserves on demand. So it doesn't matter how big the pile of reserves is when demand for loans does return. AND there are plenty of fiscal and monetary policy tools to rain in any crazy level of loan demand should it actually happen.
And while interest rates may rise as one form of policy response it does not mean the bond vigilanities and insolvency of sovereign governments will all of a sudden appear.
"loans are not constrained by that" - Adam1
Another way of putting it is loans are not a function of reserves, loans are a function of demand for credit, constrained by the creditworthiness of borrowers.
We might want to come up with a "test" question to ask people who claim to know what is going on such as:
"If the Operations Desk at the CB saw that the FFR was rising above the CB target rate, what should they do?"
Or a similar question to qualify people...
If they cant answer that, then they dont really know what they are talking about....
rsp
@Adam1
Yes, I understand Koo blows it on reserves etc.
But even if he were right it's a bit should we say inopportune to write about possible downsides of precisely the result everyone with some sense has been demanding (for more than 20 years in Japan's case!) and yet has failed to materialize until now: economic growth and solid job creation.
He should concentrate his intellectual efforts and energy on persuading TPTB to go for fiscal deficits to promote recovery - instead of imagining possible scenarios far into the future where the eternal bogeyman inflation might raise his head.
Because, who cares about supposed inflation possibilities after a couple of years of strong growth when the system seems simply incapable of providing us with said growth?
Bank Economists of the Koo type should start living here on Planet earth and leave sterile speculations about possible worlds to where they belong: the realm of neoclassical academia.
Wow, I guess it's jump on Koo time. Does it make everyone feel better when they get to do their recitation of MMT aphorisms?
One of the things that Koo asserted in his book was that there were Yin and a Yang phases in the economy. I don't remember which was which. The idea was that in one phase, twiddling the fed funds rate changes aggregate demand. In the other, it doesn't. Historically, the former is the normal case. Is it so bizarre to expect that we will never experience it again?
"twiddling the fed funds rate changes aggregate demand." - Carl
Twiddling the fed funds rate can maybe reduce aggregate demand, how can it increase it (other than short-term) so that the gains are sustainable?
Transferring wealth from one part of the economy to another is not a gain, so what is the net effect of a short-term increase in aggregate demand?
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