John Carney debunks the myths about reserves, money supply, bank lending, and inflation. Will will the people who need to hear it, like Rick Santelli and the Zero Hedgies, read it?
CNBC NetNet
An outdated monetary policy model stirs fears of Fed policy
John Carney | Senior Editor
John Carney | Senior Editor
6 comments:
this has all been said a thousand times before
for a controlled media this large, does everything have to be said 12,000 times before it sinks in?
Yes.
Yes again.
This would never have happened if the economics profession had established a clear understanding of the difference between liquidity and capital. And this is absolutely fundamental to risk management. Much of the profession remains adrift on the issue of risk. It's absolutely amazing that a good chunk of it still doesn't know this, apparently. Some very serious surgery is required on the entire subject matter of economics.
Ok, that's 2.
Yes.
Yes.
Yes.
Yes.
Yes.
Yes.
Yes.
Yes.
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Yes.
There. Just publish that 1000 times.
Next, Marriner Eccles DID clearly distinguish liquidity & capital, back in 1938.
(please cut & paste, 12K times)
John Law did a pretty good job too, sometime in the 1600s?
And both Greeks & Chinese did too, sometime BC.
There's another monkey wrenching up the works somewhere. Ari Stock Rats & Liar Quids? :)
All Control Frauds by any other names, Innocent or not?
say, maybe Law/Eccles/Lerner/Mosler need only a 12K Press-Release engine?
Virtual advertising, extolling the merits of actually thinking AND exploring options?
Or, with 2 concepts included, would that message have to be repeated 24K times, or even some multiple of that? (Don't answer. :( )
Consequently, monetary policy actually has little to do with money. It is more accurately thought of as the control of precisely the interest rate at which the central bank provides the reserves (over which it has a monopoly of creation) that are demanded by banks.
I've been trying to fight a frequently lonely battle against people using the term "monetary policy" when what they actually mean is "central bank policy".
Governments do have many fiscal and regulatory tools available that can increase the demand on banks for loans, and result in more loans and more bank deposit liabilities in the system. And if that happens - at least in more normal times without excess reserves - banks will demand in the aggregate an increase in reserve balances to settle the greater volume of interbank payment obligations that will be the natural result of higher levels of deposits. And the Fed and Treasury in working together will typically accommodate that demand by emitting appropriate amounts of government interest-bearing debt with the Fed then repurchasing some of it. So we get an increase in both M1 and MB.
So the government can do things that effect the quality of money in broad general circulation and in bank reserve accounts. That's monetary policy. The mistake is thinking this is all under the control of the central bank, and that the Fed acting alone can somehow push money out into the economy by creating the demand for its own liabilities.
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