I didn't realize that Prof. Werner went insane. Or is this a sudden onset? Pity.
Why not just privatize the Bank of England again, and leave the banks alone in setting Libor? Then maybe they would feel warm and fuzzy and lend more.
Ralphonomics
Richard Werner says government should borrow from private banks – I’m baffled.
Ralph Musgrave
20 comments:
Werner believes in "crowding out." From Princes of the Yen (2002) he states (p.275):
During the 1990s, most fiscal spending was funded not through money creation, but through borrowing from the private sector. Such fiscal spending must crowd out private activity. Fiscal policy becomes a zero-sum game that merely reallocates existing resources.
He thinks that "unlike fund raising via the capital merkets, borrowing from banks will not withdraw puchasing power from other parts of the economy, as banks can create new money out of nothing." So, to his way of thinking, in the first case there is no net gain in "new money" while in the latter case there is.
Is this the same Richard Werner? Here he seems to have a very different opinion: http://www.youtube.com/watch?v=zIkk7AfYymg
Most of this interview makes him sounds very MMT-ish.
Werner doesn't seem to realise that a treasury bond is a "loan contract".
Basically what Werner is saying is that the Treasury should deficit spend and sell bonds to banks, and then the banks should hold on to the bonds and not sell them on to non-banks. This would lead to a overall net increase in bank deposits.
That's all he's saying.
But he doesn't say how or why the banks would choose to keep all these bonds.
For his plan to have the intended effect (i.e. a net increase in bank deposits), either a) there would have to be no additional demand for government bonds from non-banks, or b) the government would have to oblige the banks to keep all the bonds and not sell them on to non-banks.
Makes you wonder whether Werner actually knows what he's talking about.
So ole Werner wants to give the banks a risk-free return.
How generous he is with our purchasing power.
When will people stop assuming the need for banks seeing that they are inherently dishonest and unstable. Has the world become "of, by and for" the banks?
Werner is behind positive money's plan for monetary reform and full-reserve banking.
The proposal in the article above is based on the fact that we don't currently have that system, and instead we have a system where governments match their deficit spending with bond issuance (i.e. 'borrowing').
Werner says:
"Since people do not know about this, and would have trouble distinguishing the fictitious deposits from actual deposits, this bank credit money is accepted for payments"
This is quite a weird idea. He thinks people accept credits to their bank accounts in payment because they believe that those credits represent "actual deposits" (i.e. government/central bank money) being placed into their account somehow (maybe in the form of coins or notes being placed into their own personal deposit box?).
However, most people believe that banks take the money they deposit and "lend it out", so they know that the numbers in their accounts represent what the bank owes them, rather than "real money" ("actual deposits") just sitting there in their account doing nothing.
Werner is lost like the rest of them. Just because he understands PK money creation of private banks doesn't nean he understands how the system operates.
Why has Fiscal Policy Disappointed in Japan? - Revisiting the Pre-Keynesian View
on the Ineffectiveness of Fiscal Policy
http://repec.org/mmfc04/9.pdf
Equation (5) indicates that, following Say’s Law, each dollar of additional government spending must crowd out exactly one dollar of private spending. The change in government expenditure ∆g is countered by a change in private sector expenditure of equal size and opposite sign. Thus the level of aggregate income will be unchanged and the multiplier for bond-financed government spending is zero. Notice that this conclusion is not dependent on the classical assumption of full employment. Instead of the employment constraint, the economy can be held back by a lack of money. Fiscal policy can thus crowd out private demand even in the context of less than full employment.
Another economist who is totally lost. I gave up on him long time ago.
I once asked the guy that runs a blog posting his talks about his takes on MMT. Never got a response.
So close.... yet so far.
Raplph Mugrave writes in comments:
"But my hunch is fiscal policy does raise interest rates and thus crowd out a bit of private investment spending unless the central bank takes countervailing measures (i.e. buys back some of the extra government debt)."
This is like saying if private sector starts borrowing more the interest rates will go up and central bank cannot control target rate. NO MATTER HOW YOU SLICE IT, WERNER IS WRONG AND SO IS RALPH MUSGRAVE.
The change in government expenditure ∆g is countered by a change in private sector expenditure of equal size and opposite sign. Werner
No. For one thing, net credit repayment destroys purchasing power so government expenditure is NECESSARY when new loans do not keep pace with the repayment of old loans (plus interest!) IF the private sector is not to lose purchasing power.
Is this the same Richard Werner? Here he seems to have a very different opinion: http://www.youtube.com/watch?v=zIkk7AfYymg
Most of this interview makes him sounds very MMT-ish.
He is very MMT-ish. That's why I asked whether he had lost his mind.
I saw Cullen Roche hailing him as the most important economist currently alive while I was on twitter yesterday, so it looks like the MR folk are following Werner into never never land.
the apparent fusion of Monetary Realism and Monetary Reformism is rather odd...
Once you've painted yourself into the ideological corner of "I hate the JG so much that everything MMT says about state money must be wrong" the next logical step is to paint a cartoon door on the wall and step through it into never never land.
I oppose the JG because I favor a BIG and a universal bailout at least until all deposits are 100% covered by reserves.
Also Victoria Chick (a student of Minsky) on money
Why don't Economists understand money?
F. Beard, righteous!
Rsp
1. The govt deficit always creates new net financial assets for the pvt sector, whether "financed" with bonds to dealers or banks or "financed" with money.
2. Dealers are backed at the margin via repo markets by banks and the central bank, so in fact govt bond sales to dealers aren't crowding out.
3. BIG and JG aren't mutually exclusive, as MMT has stated many times.
Thanks, Scott.
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