Bank America Analysts. Incompetents, Or Outright Liars? I'm Guessing Both.

   (Commentary posted by Roger Erickson)

"The PBOC is [acting] through selective cuts in the reserve-requirement - the portion of of deposits that banks need to keep in reserve, rather than lending out ... the Bank of America analysts said in a report"

Seriously. They said that with a poker face that was either straight, or just ignorant, or indicative of racketeering.

At what point do we just throw in the turban, give up on this electorate, and try Islamic banking? It can't possibly be as corrupt AND dumb, simultaneously ... can it?*

If we're going to practice kabuki banking, why stop there? Say, here's an idea. How about we just require banks to declare fiat reserves, so that they won't run out of the public fiat that they're tasked with reporting to the Federal Reserve? If they can't run out of our fiat to "loan" out, that would also remove the need to bother with fiat credit ratings, and make Liar's Loans fully fiat as well? Fraudulent form over adaptive function would be complete!

PT Barnum would likely approve. It'd be worth the price of admission just to watch that bill sail through Congress. :( Heck, even Alice in Wonderland would probably approve. Plus, "capitalists" could get the popcorn concession for the comedy show. In capitalist theory, we'd all win by most losing.


* It once seemed like a good idea to have all students learn the fundamentals of finance by age 10, but NOT if BOA & the American Banking Association are allowed to control the indoctrination, er ... "curriculum" - or whatever they call their obsolete, gold-std program. If we followed their lead, the DoD would also return to using flintlock muskets and a sailboat navy, and "policy agility" would disappear from our vocabulary, not just our  reality.

What The Hell Does This Say About The Difference Between Orthodox Economics and Actual Results?

Commentary by Roger Erickson

Yale economist James Tobin explained that banks don't lend banking reserves 50 years ago.

50 years ago?

Didn't Marriner Eccles & the entire Fed staff make it all implicitly OBVIOUS ~1934?

We had to wait ~30 years for the 1st economist to alert other economists to altered operations?

Be still my beating heart!

And another 50 years for a trickle of economists and economic programs and textbooks to start to notice?

Is the hair standing up on anyone else's neck?

What the hell - INDEED! - does this say about the difference between orthodox economics and actual results? Is the difference between economic theory and operational practice always 100%, not just greater in practice than in theory? And is that by design, or insularity, or insanity ... or all 3?

In economics, progress does NOT occur one funeral at a time! Rather, economics has become immune to reality! Since the forced retirement of Marriner Eccles from the Fed, progress in political economy now requires the death of entire generations of economics textbooks, and Nobel Prize Committees too. Weren't Nobel Prizes supposed to be for practical applications?

When it comes to burning books, maybe we should make an emergency exception for all existing economics text books? Do it as a threat to National Security.

I sincerely hope that the NSA is finally recording THIS commentary!

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