Monday, July 4, 2016

Another example of the orthodoxy recognizing that Post-Keynesian descriptions of endogenous money are the right ones

Maybe one day, these obvious observations will become the norm throughout the economics profession. But for all of those that complain about the glacial pace of PK-MMT uptake in the mainstream, my guess is that articles like this coming out of a temple of the orthodoxy like the IMF would have been nonexistent in the 90's.

But seeing as I didnt do any financial reading or investigation in the 90's (I was in high school) this trickle of PK-MMT rationality coming out of the Group-think vortex may have always been the norm and I was just ignorant of it in the past. So maybe we havent progressed  at all, and its just my perception that different. Anyone have any thoughts or recollections?

Its damn hard work to be objective!

The Truth about Banks

Practical implication

Many policy prescriptions aim to encourage physical investment by promoting saving, which is believed to finance investment. The problem with this idea is that saving does not finance investment, financing and money creation do. Bank financing of investment projects does not require prior saving, but the creation of new purchasing power so that investors can buy new plants and equipment. Once purchases have been made and sellers (or those farther down the chain of transactions) deposit the money, they become savers in the national accounts statistics, but this saving is an accounting consequence—not an economic cause—of lending and investment. To argue otherwise is to confuse the respective macroeconomic roles of real resources (saving) and debt-based money (financing). Again, this point is not new; it goes back at least to Keynes (Keynes, 2012). But it seems to have been forgotten by many economists, and as a result is overlooked in many policy debates.­
The implication of these insights is that policy should place priority on an efficient financial system that identifies and finances worthwhile projects, rather than on measures that attempt to encourage saving, in the hope that it will finance desired investment. The “financing through money creation” approach makes it very clear that with financing of physical investment projects, saving will be the natural result.­ 

49 comments:

Kristjan said...

Nice Auburn, I wasn't paying any attention to IMF papers in 90s. Wouldn't you think they would not teach money multiplier in universities in 2000-s then? That's when I studied economkics and I was given the whole enchilada. I remember being explained that government default makes investors sceptical for tens of years to come and trust would be hard to restore, they would demand higher risk premiums.

Andrew Anderson said...

The implication of these insights is that policy should place priority on an efficient financial system that identifies and finances worthwhile projects, rather than on measures that attempt to encourage saving, in the hope that it will finance desired investment. The “financing through money creation” approach makes it very clear that with financing of physical investment projects, saving will be the natural result.­ [bold added]

Yes, companies and billionaires will pile up even more savings while the general population continues to be dis-employed with automation financed with their own legally stolen purchasing power.

The correct approach to lower interest rates is via equal fiat distributions into individual citizen accounts at the central bank for on-lending, if desired, to 100% private banks with 100% voluntary depositors or to other entities.

But who cares about correct, proper, ethical, non-thieving fiat and credit creation when the current system is working so well, eh? /sarc

Auburn Parks said...
This comment has been removed by the author.
Auburn Parks said...

Andrew-

Why is it so hard for you to understand that deposit insurance was not implemented to protect bank profits, its there to protect customer savings?

"Yes, companies and billionaires will pile up even more savings while the general population continues to be dis-employed with automation financed with their own legally stolen purchasing power."

This is only true if we continue to fail to implement policies that are necessary to achieve a reasonable balance of national income distribution like high marginal tax rates to enforce an effective compensation ceiling, a high rate above a certain amount of inheritance to prevent excessive family wealth accumulation, and policies to ensure worker leverage against capital like union organizing and true full employment policies. Doesnt really have much to do with banking alone.

Andrew Anderson said...

its [deposit insurance] there to protect the depositors. ap

Accounts at the central bank are inherently risk-free. What need then for insuring the deposits of what should be 100% private banks with 100% voluntary depositors when all citizens could easily have accounts at the central bank instead?

So deposit insurance is to protect the banks, not the citizens.

Auburn Parks said...

Honestly Kristjan, I was such a terrible college student that I cant remember much of by Econ 101 classes. Other than how dumb I thought the excessive fixation on supply and demand curves.

Postkey said...

"The implication of these insights is that policy should place priority on an efficient financial system that identifies and finances worthwhile projects, . . . "

Professor R.A. Werner has been pointing this out since 1992?

“Importantly for our disaggregated quantity equation, credit creation can be disaggregated, as we can obtain and analyse information about who obtains loans and what use they are put to. Sectoral loan data provide us with information about the direction of purchasing power - something deposit aggregates cannot tell us. By institutional analysis and the use of such disaggregated credit data it can be determined, at least approximately, what share of purchasing power is primarily spent on ‘real’ transactions that are part of GDP and which part is primarily used for financial transactions. Further, transactions contributing to GDP can be divided into ‘productive’ ones that have a lower risk, as they generate income streams to service them (they can thus be referred to as sustainable or productive), and those that do not increase productivity or the stock of goods and services. Data availability is dependent on central bank publication of such data. The identification of transactions that are part of GDP and those that are not is more straight-forward, simply following the NIA rules.”
http://eprints.soton.ac.uk/339271/1/Werner_IRFA_QTC_2012.pdf

Auburn Parks said...

"Accounts at the central bank are inherently risk-free. What need then for insuring the deposits of what should be 100% private banks with 100% voluntary depositors when all citizens could easily have accounts at the central bank instead?"

Because having the Fed be a deposit taking institution for hundreds of millions of people is a stupid idea. Accounts at Chase are risk free up to $250K, which is more than enough more most people. If you need a larger risk free account cause you are rich, then buy TSY Cds, those have for all intents and purposes an infinite level of deposit guarantee.

"
So deposit insurance is to protect the banks, not the citizens."

Not even a little bit.

Andrew Anderson said...

This is only true if we continue to fail to implement policies that are necessary to achieve a reasonable balance of national income distribution like high marginal tax rates to enforce an effective compensation ceiling, a high rate above a certain amount of inheritance to prevent excessive family wealth accumulation, and policies to ensure worker leverage against capital like union organizing and true full employment policies. ap

It's far simpler to simply preclude the legalized theft in the first place. And that approach is morally unassailable, unlike yours.

Besides, what good will union organizing do when almost all necessary work is done by robots?

Auburn Parks said...

Postkey-

That link is to a 2011 paper by Warner. Dont get me wrong, Im certainly not claiming that Prof Warner hasnt been making the endogenous money case since the 90's only that the link doesnt show that. Maybe I missed something skimming through though?

With that said, do you consider Warner to be part of the establishment orthodox? I dont think thats accurate.

Whats the foundation of the orthodoxy anyway? Textbooks? OECD? World-bank? IMF? Harvard? Chicago?

Auburn Parks said...

"It's far simpler to simply preclude the legalized theft in the first place. And that approach is morally unassailable, unlike yours.

Besides, what good will union organizing do when almost all necessary work is done by robots?"

I dont know what "legalized theft" means in your world. And I dont know what you think is "morally unassailable" either.

We are decades and decades away ffrom anything approaching a shortage of work needing to be done by humans, so I think this complaint of yours is irrelevant to the argument.

Andrew Anderson said...

Because having the Fed be a deposit taking institution for hundreds of millions of people is a stupid idea. ap

Why is that? What is so hard about fiat accounting and transactions? Even for hundreds of millions of citizens, their businesses, State and local governments, etc? Don't some commercial banks have millions of depositors?

And besides, is not fiat for the use of all citizens? Then why may only depository institutions deal with fiat in account form and not be limited to unsafe, inconvenient physical fiat, aka "cash"?

Andrew Anderson said...

I dont know what "legalized theft" means in your world. ap

It means government privileges for depository institutions and by extension for usury and for the most so-called credit-worthy, the rich.

Ralph Musgrave said...

The passage from the IMF article quoted above certainly expresses a currently fashionable idea, but it’s actually nonsense. Reason is thus.

If the economy is at capacity (i.e. no more demand is possible without causing excess inflation) and private banks try to lend more, that will spark inflation, so the central bank will thwart that by raising interest rates. Net result: no more lending or demand takes place.

In that scenario, the only way to fund extra investment is (as per the traditional view of banking) for savers to save more and lend it to investors. In that case, the extra saving cuts demand, which makes room for the extra demand stemming from the extra investment spending. That outcome should actually come about as a result of the latter increase in interest rates by the central bank.

An alternative scenario is that the economy is NOT AT capacity. In that case there is indeed room for extra investment spending. And that will raise employment and perhaps bring the economy up to capacity. But that point is of limited relevance because private banks just don’t get us out of recessions. That is, they act in a PRO-CYCLICAL manner: i.e. the FAIL TO lend more recessions, and in contrast, create and lend out money like there’s no tomorrow in a boom, thus exacerbating the boom.

I’ve never been hugely impressed by Michael Kumhoff: he claimed in paper a few years ago that a very large debt jubilee was necessary as part of implementing full reserve banking, which is an odd idea: certainly not an idea any other advocates of FR banking adhere to, far as I know.

Andrew Anderson said...

that a very large debt jubilee was necessary as part of implementing full reserve banking, which is an odd idea: Ralph Musgrave

Well, logically full reserve banking will or at least should* require new reserves. A Steve-Keen-like debt jubilee would provide new reserves and in a fair manner via equal fiat distributions to all citizens.

*The banks may currently be awash in illegitimate reserves due to illegitimate purchases of private assets by the central bank. Those assets should be sold to sop up those illegitimate reserves in conjunction with a new fiat distribution equally to all citizens - to maximize the amount of new fiat that can be distributed.

Tom Hickey said...

It is very difficult to know what the output gap may be or where being at capacity actually is. The central bank doesn't wait until it deems the economy to be at capacity to raise rates. It estimates the output gap and how quickly it is shrinking and begins raising rates gradually.

This is a guessing game because there is no formal model or rule to inform central bankers accurately on this.

Further complicating the matter is contemporary economics are open and tightly integrated into the global economy so focusing on domestic conditions is insufficient.

In that scenario, the only way to fund extra investment is (as per the traditional view of banking) for savers to save more and lend it to investors. In that case, the extra saving cuts demand, which makes room for the extra demand stemming from the extra investment spending. That outcome should actually come about as a result of the latter increase in interest rates by the central bank.

The fly in the ointment here is that saving = not consuming. Not consuming sends a signal to business to lower investment. Unplanned inventory is counted toward investment.

Increased saving doesn't make room for increased investment since increased saving = decreased consumption.

Auburn Parks said...

"Why is that? What is so hard about fiat accounting and transactions? Even for hundreds of millions of citizens, their businesses, State and local governments, etc? Don't some commercial banks have millions of depositors?"

Oh I dont know, maybe having to do with the fact that there are somthing like 100,000 bank branches in the USA. I dont see any reason to have the Fed build out that many branches and more. Besides private banks do a pretty good job handling retail banking operations for people. Beside for a few instances of rip-off fees that can be fixed with a little regulation, the banks do a good job. I have yet to see you articulate a reason for why the system as currently designed is so terrible save for your incorrect understanding of what deposit insruance does.

"It means government privileges for depository institutions and by extension for usury and for the most so-called credit-worthy, the rich."

What privilege is that? deposit insurance? Thats not for the benefit of the banks (save maybe to prevent destabilizing and unnecessary bank runs), its to protect customers.

Auburn Parks said...

Ralph-

New investment in production increases supply along with demand for a net nothing wrt to inflation in many cases, so that part of your argument doesnt make any sense. And "full capacity" is a meaningless ceterus paribus argument, it may serve a purpose for illustrating a concept but its certainly not something thats active in the real world

Andrew Anderson said...

Not that I advocate full reserve banking. Instead, fully private banks with full voluntary depositors should be allowed to create as many liabilities as they dare.

Auburn Parks said...

Tom-

I think you hit the nail on the head wrt production and demand issues. Especially for the dollar economy, basically the whole world is in our supply chain, as we can import basically however much we want and not have to worry about huge FX swings since foreigners generally prefer to save and invest the dollars they earn and not convert them into either their domestic currency or some other global reserve currency.

So Ralph's concept of "full capacity" in the case of the USA would necessarily mean that basically the entire world is incapable of any more production. Its a scenario so implausible and unrealistic even Mankiw might reject it :)

Auburn Parks said...

Andrew -

"Not that I advocate full reserve banking. Instead, fully private banks with full voluntary depositors should be allowed to create as many liabilities as they dare."

The banking system currently is voluntary, nobody forces you to have an account at a commercial bank, hell, there are millions of people who are "unbanked".

Andrew Anderson said...

I dont see any reason to have the Fed build out that many branches and more. ap

Wouldn't be necessary since simple transactions with fiat can be handled over the Internet or at local Post Offices and ATMs. Lending is not a proper function of the central bank so loan officers and underwriting would not be necessary.

So practical objections to accounts for all at the central bank are bogus.

What else you got?

Auburn Parks said...

Andrew-

btw we already have these things that you long for in the mutual funds, private equity, and hedge fund markets. You invest your money with these companies (even B of A and Chase have brokerage accounts that have no FDIC insurance) and have absolutely no govt guarantee that you wont lose all your money.

Can you please articulate why you think banks are so evil in terms that actually map onto reality? Meaning dont bring up deposit insurance or voluntary banking. thanks.

Auburn Parks said...

AA-

"Wouldn't be necessary since simple transactions with fiat can be handled over the Internet or at local Post Offices and ATMs. Lending is not a proper function of the central bank so loan officers and underwriting would not be necessary."

Not all transactions can be made over the internet and phone, I have personally had to go into the bank on mulitple occasions so clearly this part is wrong. I actually support postal banking, but unlike you I have no delusions that postal banking can replace all retail commercial bank operations for hundreds of millions of people.


"So practical objections to accounts for all at the central bank are bogus."

Please tell me how the simple, realistic points that I brought up are "bogus". Furthermore, please describe why any of this is necessary.

"what else you got?"

Well, you have failed utterly to make a cohernet case for why we should totally overhaul our current retail\commercial banking systems. So I dont really need to ask anything else as Im still waiting.

Andrew Anderson said...

The banking system currently is voluntary, nobody forces you to have an account at a commercial bank, ap

Au contraire, that's the only way US Social Security recipients can receive their benefits.

But even if Social Security recipients still received physical checks, it is dangerous to carry large amounts of cash.

So yes, people are forced to use depository institutions.

Andrew Anderson said...

Can you please articulate why you think banks are so evil in terms that actually map onto reality? ap

Sure. A deposit is legally a loan. So the poor, the least so-called credit worthy, are forced* to lend to banks for the benefit of the banks themselves and to lower the borrowing costs of the rich, the most so-called credit worthy.


And you're the one who mentions evil banks. I merely wish to de-priviledge them.

*Or be limited to unsafe, inconvenient physical fiat.

Auburn Parks said...

AA-

"Au contraire, that's the only way US Social Security recipients can receive their benefits.

But even if Social Security recipients still received physical checks, it is dangerous to carry large amounts of cash.

So yes, people are forced to use depository institutions."


Shocking, you are talking out of your ass and are totally wrong.

The Direct Express® card is a
debit card you can use to access your
payments. And you don’t need a
bank account.
With the Direct Express® card
program, we deposit your federal
payment directly into your card account.
Your monthly funds will be available on
your payment day — on time, every time.

https://www.ssa.gov/pubs/EN-05-10073.pdf

Its literally on the first fucking page. Im holding my breath for you to admit that your entire premise is wrong now that one of the foundations of your logic has been shown to be inaccurate.

Andrew Anderson said...

but unlike you I have no delusions that postal banking can replace all retail commercial bank operations for hundreds of millions of people. ap

I've said nothing about replacing commercial banks, credit unions, etc. They would still exist but as fully private businesses with fully voluntary depositors.

The central bank would simply provide risk-free accounting and transactions in fiat but for all citizens, not just the "banks."

Auburn Parks said...

AA-

"Sure. A deposit is legally a loan. So the poor, the least so-called credit worthy, are forced* to lend to banks for the benefit of the banks themselves and to lower the borrowing costs of the rich, the most so-called credit worthy.
"

You are truly an ignorant person about this stuff. First of all, nobody is forced to have a bank account, so that part is wrong. And being a depositor at a bank does not lower the borrowing cost of the rich, peoploe with high incomes and assets are by definition more credit worthy than poor people, but what the fuck does that have to do with anything? This whole paragraph is so confused Its hard to even parse what concepts you are talking about.

"And you're the one who mentions evil banks. I merely wish to de-priviledge them.

*Or be limited to unsafe, inconvenient physical fiat."

Deposit insurance is not for the privilege of banks, its to protect depositors so your entire argument is wrong here.

Auburn Parks said...

AA-

"I've said nothing about replacing commercial banks, credit unions, etc. They would still exist but as fully private businesses with fully voluntary depositors. "

Chase is already a fully private business and it already has fully voluntary depositors.

So what on Earthh are you talking about?

Andrew Anderson said...

As far as I can see, DirectExpress works through a bank (the one that issues MasterCard) so it still amounts to a forced loan.

Andrew Anderson said...

Chase is already a fully private business and it already has fully voluntary depositors. ap

No, it isn't and no, it hasn't.

1) It's deposits are insured by government so it isn't fully private.
2) It can't be said to have fully voluntary depositors since citizens are not allowed to deal with fiat except in unsafe, inconvenient physical form. Yet fiat is for the use of all citizens, not just for usurers.

Auburn Parks said...

"As far as I can see, DirectExpress works through a bank (the one that issues MasterCard) so it still amounts to a forced loan."

lol. Mastercard is not a bank and no bank issues mastercard. Just another category error from you.


"1) It's deposits are insured by government so it isn't fully private."

Your deposits are insured by the Govt so youre not fully private....moron

"2) It can't be said to have fully voluntary depositors since citizens are not allowed to deal with fiat except in unsafe, inconvenient physical form. Yet fiat is for the use of all citizens, not just for usurers."

Wrong again, citizens have full access to fiat use thanks to Govt deposit insurance as that promise basically guarantees citizen savings exactly as if they were narrow Govt currency.

So once agian, you are fully incapable of articulating anything resembling a coherent argument

Matt Franko said...

"glacial pace of PK-MMT uptake"

The pace is effectively zero... ie not moving over a time rate that is meaningful to a human being...

Auburn check out the youtube I posted below where the guy talks about the concept of 'reification' which is explained here:

https://en.wikipedia.org/wiki/Reification_(fallacy)

Here is the key take away:

"Reification (also known as concretism, hypostatization, or the fallacy of misplaced concreteness) is a fallacy of ambiguity, when an abstraction (abstract belief or hypothetical construct) is treated as if it were a concrete, real event, or physical entity. "

OK... A FALLACY OF ABIGUITY...

The word "money" is a figure of speech, what is a figure of speech? ok here is figure of spech:

https://en.wikipedia.org/wiki/Figure_of_speech

"However, clarity may also suffer from their use, as any figure of speech introduces an ambiguity between literal and figurative interpretation."

so when we use the figure of speech "money!" we are creating a fallacy of ambiguity.... ie we are trying to reify an abstraction... "money" is an abstraction...

so you have all of these people confused by the figure of speech "money" and they can never get anywhere....

Its not a glacial pace... we are getting NOWHERE...

All you uncovered here is that somebody has finally documented how a commercial bank is regulated... you could just read the Tymoigne stuff for better information than this coming from these IMF morons who have happened upon a crumb...

If we keep talking about reifications like "endogenous money!" we will continue to get NOWHERE... guaranteed...

We should not be using the word "money" at this point anymore we've been at this long enough... .. when we use this word we are trapping ourselves in a fallacy of ambiguity and it is holding us back from making any progress AT ALL...



Auburn Parks said...

Regarding this line:

"Mastercard is not a bank and no bank issues mastercard."

the "no bank issues" part is an overly broad generalization as its unclear what "issues" means in this context. Looks like banks do issue visa and mastercard branded plastic once a vendor license is signed, and then Visa mastercard handle the payments processing parts. But that would have to be in very close cooperation with the banks as they are both effectively payment processing companies and its unclear where the line of separation is drawn without further research.

However, none of that belies the fact that Andrew is totally wrong about describing a debit card used for SS and other Govt payments is involuntarily forcing people to have accounts at commercial banks.

Andrew Anderson said...

And being a depositor at a bank does not lower the borrowing cost of the rich, ap

Yes, it does since otherwise the bank might have to borrow additional reserves should deposits move to another bank or be cashed out.

Currently, deposit insurance and the lack of accounts for all citizens at the central bank mean deposits are largely captive at depository institutions so the cost of reserves is artificially low - so the effect is admittedly but still unjustly, small.

Auburn Parks said...

Matt-

I think your entire "money is a figure of speech" meme is not productive. I dont think it clarifies anything and I dont think its relevant to the general discourse.

It certainly doesnt have anything to do with acknowledging that yet another orthodox publication has correctly identified the endogenous money approach as accurate and operative as compared to the myth of the loanable funds market.

It may be the case the progress is not happening fast enough to make a serious dent, I am not claiming it is. But one thing I know for sure is that you have no idea have fast the progress is. You have not shared any systematic research program demonstrating that the current ratio of PK-MMT paradigm artilces, interview, papers, conferences, etc to orthodox is greater, less than, or equal to, the ratio between the two from the 90's, 80's, 70s' etc. SO you ahve no logical or scientific basis for concluding that we are going nowhere aka our "pace is effectively zero".


Auburn Parks said...

AA-


"Yes, it does since otherwise the bank might have to borrow additional reserves should deposits move to another bank or be cashed out."

This is irrelevant to whether the depositors are rich or poor. It doesnt help whatever argument you are making at all. the interest rate in the reserve market is set by the fed, not the ratio between rich and poor depositors.

"Currently, deposit insurance and the lack of accounts for all citizens at the central bank mean deposits are largely captive at depository institutions so the cost of reserves is artificially low - so the effect is admittedly but still unjustly, small."

The cost of reserves is set by the CB and it has nothing to do with anything you just wrote here. The natural rate of interest on reserves is zero so Im not sure what you are talking about here either

Andrew Anderson said...

Your deposits are insured by the Govt so youre not fully private....moron ap

Since there's no need for that insurance then it's clearly a privilege for the banks.

Wrong again, citizens have full access to fiat use thanks to Govt deposit insurance as that promise basically guarantees citizen savings exactly as if they were narrow Govt currency. ap

A lot of words to admit that my point is correct - citizens do not have full access to fiat since they must work through government-insured private banks. If they did have full access then the banks would have to pay higher interest rates for fiat since individuals, businesses, etc have a greater need for liquidity in aggregate than the banks do.

Andrew Anderson said...

the interest rate in the reserve market is set by the fed, ap

Yes, unjustly so. The proper way to lower interest rates is via equal fiat distributions to all citizens, not loans from or OPM's by the central bank.


The natural rate of interest on reserves is zero so Im not sure what you are talking about here either ap

Who can say what interest rates in fiat would be if the citizens were allowed to deal with it? Currently, only depository institutions may do so and that's unjust on its face.

Andrew Anderson said...

Individual citizen, business, State and local government, etc. accounts at the central bank would constitute an alternative payment system to the one that must work through banks.

Why are you against that? Do you prefer that the banks hold the economy system hostage via the payment system?

Andrew Anderson said...

Make that OMP's not OPM's.

Brian Romanchuk said...

Returning to the original article, I think there has always been flashes of common sense around economics. Nobody really cared about the endogenous/exogenous money debate for a long time (for example, during the 1990s), until it became an issue raised by PK/MMT economists. (The original debate flared up when Monetarism was a thing, but nobody cared after money supply targeting jumped the shark. Sure, textbooks were wrong, but who really cared, besides academics?)

The debate above underlines my view that money (and banks) need to be banned from economic theory, so we can talk about what really matters...

Postkey said...

"The debate above underlines my view that money (and banks) need to be banned from economic theory, so we can talk about what really matters... "

L.O.L.

Matt Franko said...

"I think your entire "money is a figure of speech" meme is not productive."

Auburn,

Only morons would argue about what a figure of speech means... that is working IN REVERSE... the accurate terms logically PRECEDE the utterance of the figure of speech... its a complete waste of time...

Here is some data:

Time Magazine weeks ago article by idiot MMT people's darling James Grant: "America, we have a problem.

We owe more than we can easily repay. We spend too much and borrow too much. Worse, we promise too much. We conjure dollar bills by the trillions–pull them right out of thin air. I won’t insist that this can’t go on, because it has. I only say that it will eventually stop. I don’t know the date, but I believe that I know the reason. "

Cover... of.... Time.... Magazine.... April 14, 2016

Keep arguing about "money!" you will never get anywhere...

And Brian is correct we need to stop talking about "money!" and banks (and GDP) and start talking about USD appropriations and taxations and real issues of public policy related to production/provision...

And this is interesting from Brian:

"Nobody really cared about the endogenous/exogenous money debate for a long time (for example, during the 1990s), until it became an issue raised by PK/MMT economists."

If this is true then these people are actually the ones responsible for starting this whole circle jerk about "money!"...

Andrew Anderson said...

And Brian is correct we need to stop talking about "money!" and banks (and GDP) and start talking about USD appropriations and taxations and real issues of public policy related to production/provision... Franko

No, he's not correct since once the economy recovers sufficiently the banks will start another boom-bust cycle and concentrate wealth even further.

Matt Franko said...

And PS the article isnt even correct:

"Bank financing of investment projects does not require prior saving,"

Go to a bank to get a loan for a car that doesnt even exist, or a property that isnt even built... they wont lend you the munnie...

The car is already manufactured and everybody has been paid with prior savings... the house is already built or the building materials transported and paid for with prior savings...

Go try to get a loan against A/R without a signed invoice ie meaning the production is done and everybody has been paid with prior savings (except you of course..)

I applied years ago for like a bit over $100k and the bank told me I would have to deposit the loan amount (of prior savings) into a hold account that I would work off as I paid it back...

So this IMF article isnt even true all production takes place using prior savings... even the federal govt wont pay until the work is done.... only the final sale is financed and again this financing will not take place unless the production is already completed...

Like I said you could get more out the the Tymoigne series without wasting your time scanning for crumbs from these IMF people...

Postkey said...

“Saving does not by itself increase the deposits or ‘funds available’ for banks to lend. Indeed, viewing banks simply as intermediaries ignores the fact that, in reality in the modern economy, commercial banks are the creators of deposit money. This article explains how, rather than banks lending out deposits that are placed with them, the act of lending creates deposits — the reverse of the sequence typically described in textbooks.”
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q102.pdf

Calgacus said...

Auburn Parks: I think your entire "money is a figure of speech" meme is not productive. I dont think it clarifies anything and I dont think its relevant to the general discourse.

Yes. Saying that doesn't make it so. Claims that there is a problem with MMT's understanding of "money", that the definition of, the viewpoint on money that MMT is built around has some problem, which is never specified - doesn't make it so. Such claims don't make it "a figure of speech" or poorly defined with a confused meaning depending on context, any more than saying the same things about "rest mass" (for instance) would.