SRW is a monetarist, and therefore believes that somehow, the quantity of reserves banks trade with one another to clear cheques, impacts the aggregate demand, but has never been clear on exactly how. Here is his mechanism -- lower interest rates generate the "ever greater inducement of ever less solvent households to borrow in order to sustain adequate demand" -- because how else can it work? And the biggest ticket item households can leverage against is real estate, so housing is the closest you can come to for a monetary mechanism.Winterspeak.com
There is a simpler way for the Government to stimulate aggregate demand: higher deficits through lower taxes of more spending, depending on your politics. When you are a currency issuer, you don't borrow to spend, you simply spend the currency into existence, and tax it into non-existance if you spend too much.
Interfluidity: Borrowing is a feature, not a bug
Winterspeak
3 comments:
Yes, real estate market has always been the biggest monetary transmission mechanism to increase the credit flow through the economy.
Problem being that the collateral being used to leverage the aggregate level of credit is subject to supply/demand and price making, the ponzi dynamic collapses when household incomes can't sustain that same leverage.
And this 'monetary transmission' mechanism can't never provide new net financial assets necessary to clear the liabilities within the private sector. So private balance sheets can't never be repaired through an ever increasing growth of credit as much as monetarists want.
The perpetual motion machine fuelled by wealth transmission from workers to capitalists through credit channels is an unsustainable illusion, at some point there will be either a fix through public meaning or a collapse of that same machine,a break down of sorts. Just like it has been going on since modern banking was invented anyway.
The perpetual motion machine fuelled by wealth transmission from workers to capitalists through credit channels is an unsustainable illusion - Ignacio
Well. now there's at least two of us.
Say this too often you will get a wedgie from the perpetual-motion true-believers. Apparently the credit circuit trumps the concept of entropy.
Yes, I'm aware that entropy applies to real world processes, and money has no mass or energy. No kidding.
What the money system has in common with entropic processes is friction…losses that cannot be eliminated.
Therefore the mathematics of decay cannot be avoided (without a helping hand).
"It is impossible for an effect to be stronger than its cause" -(Aquinas, 1274)
I liked this comment by Winterspeak:
It is the very unwillingness of the Govt to distribution to the non-Govt which has made the Govt so reliant on the finance sector to shore up AD via credit. It is the growth in finance which has, by and large, lead to the top end of wealth becoming so skewed. If the Govt was willing to distribute, then it could have taken the banks down in the aftermath of the 2008 crises instead of propping them up.
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