I met Professor Robert Shiller when I worked at Fox several years ago. At the time, I thought he was pretty smart.
Boy was I wrong!!!
Here's the dude's greatest financial idea: He thinks the USA should issue "shares" so that it doesn't have to rely on debt. (Read here).
I'm speechless.
So Shiller thinks the USA has to raise money from investors to be able to pay for the things it needs to provide for its citizens? Seriously? The US needs to raise the very dollars it issues, through an IPO, to fund itself..wha? That's his big innovation? Anyway isn't taking money from its citizens called taxation? Doesn't it already do this?
They gave this guy a Nobel Prize.
Shiller is a freakin' idiot. This is our academic elite. And Forbes Magazine...what can I say? Utter garbage.
If he wants to get away from debt, just stop issuing bonds since they are operationally unnecessary, or if it is deemed desirable to support non-government net saving with government securities, issue perpetual consols that never mature (unless called in) at a specific rate and let the yield fluctuate in the market.
ReplyDeleteWould need to get rid of FDIC deposit caps if we go to a "pure" (no govt securities) deficit spending regime
ReplyDeleteIIRC, Warren suggests going to plain vanilla banking, careful regulation/oversight, and 100% government guarantee for all deposits. This would end the mixing of banking with other financial activities under one roof.
ReplyDeleteWarren would keep T-bills up to 90 days. If longer term issues are deemed to have public purpose, then go to consols. But T-bills can be rolled over indefinitely.
In a way, FRNs (or reserves) are already shares in the US Government since those with the most of them have the most votes.
ReplyDelete100% government guarantee for all deposits.
ReplyDeleteThat's a fascist idea - the banks create deposits and the monetary sovereign guarantees them.
Warren, you're clueless about ethics.
What?
Deleteor if it is deemed desirable to support non-government net saving with government securities, Tom Hickey
ReplyDeleteBorrowing by the monetary sovereign is welfare for the rich. Welfare should be based on need and not be proportional to the fiat one has to hoard.
Indeed, one should be charged for the risk-free storage of fiat past a legitimate need for liquidity.
Once you go to 100% guarantee for all deposits, you basically have a public banking system. Might as well just go all the way then.
ReplyDeleteI think its time declare war on the whole tribe of contemporary neoliberal economists. They are enemies of democracy, enemies of equality, enemies of community and enemies of decent government. They won't be happy until they have privatized the entire world and turned it into a planet of corporations with no government at all.
ReplyDeleteMoney, since it has no maturity date, would be classified as equity for income tax purposes. It's a preferred share with an extremely low coupon...
ReplyDeleteOne should never call a fake Nobel price a Nobel price. That's exactly what they want. It's just a simple price handed out by the Swedish Riksbank (central bank), which aim is to promote certain economic policies. It's shamefully allowed into the real Nobel ceremony, to give it the credibility it doesn't deserve.
ReplyDeleteF. Beard - can I make a suggestion? Write down your position on a single blog post somewhere, and then that way when you feel like making the exact same point on every post in the econoblogosphere (I take it you aren't too keen on government backing of private credit) you can just post a link. It would save you time, and would also be easier for everyone else to skim over.
ReplyDeleteOr he is just trying to cash on something. There is always the other options, as Cipolla noted, there are idiots, saints, geniuses, and crooks.
ReplyDeleteI agree with F.Beard’s objections to private banks creating deposits with taxpayers backing them. Mary Mellor, who featured on this blog yesterday strongly agrees with that.
ReplyDeleteBut having access to a 100% safe bank account is a basic human right, plus some entities (e.g. lawyers in the UK) are required to keep clients’ money in a 100% safe fashion. So how do we combine that requirement with the obvious advantages to be gained from having banks which lend on depositors’ money in a less than 100% safe fashion, so as to earn interest and all without taxpayers being liable in any way?
Well Lawrence Kotlikoff has worked it out. It’s to have two sorts of bank account. One is 100% safe and government backed. But nothing is done with the money. So it’s by definition 100% safe. So there's next to no taxpayer liability there. Second, depositors can elect to have their money loaned on, but in that case depositors carry the full risk, not the taxpayer. See:
http://www.bloomberg.com/news/2013-03-27/the-best-way-to-save-banking-is-to-kill-it.html
Positive Money, Prof. Richard Lerner & Co advocate a similar system. See:
http://www.positivemoney.org.uk/wp-content/uploads/2010/11/NEF-Southampton-Positive-Money-ICB-Submission.pdf
Although I'll bet Shiller invokes European debt in order to sell it, this isn't an idea that should be dismissed out of hand. Done right, it could actually be used to improve the distribution of income.
ReplyDeleteHowever, as outlined, it sounds pro-cyclical, e.g.: "Moreover, they would have received a contractual and automatic “bailout” in the form of lower dividend payments if their economies did not follow the expected growth path." Shiller clearly has the fiscal/monetary aspect woefully confused, I think.
@Rohan,
ReplyDeleteSuggest all you want, the good it will do you. I've suggested several times that blogs have an Ignore feature to spare the sensitive eyes of people like yourself but since this site doesn't you'll just have to suffer.
Besides, my comments are short and to the point so there's not much to scroll past.
And if I'm repetitious, I'll repeat what I think to be the truth everytime I think it appropriate to counter error though I hope that with practice I've learned to communicate more effectively.
Meanwhile, if you can refute instead of just complain then please do so.
Having private designated agents do the work puts space b/n government and the governed. If you have govt agents doing the work, the service at the counter becomes a political issue, let alone the lending.
ReplyDeleteAnd if we are going to remove FDIC caps, we better make damn sure to narrow the banks and restrict bank lending to public purpose. We have no obligation to support loans that dont serve public purpose.
ReplyDelete@Charles Hayden,
ReplyDeleteYes therefore direct government lending is ruled out.
But so are private designated agents since the ability to repay the public's purchasing power plus interest, so-called creditworthiness, is morally irrelevant. So private designated agents violate Equal Protection under the Law too.
The monetary sovereign should simply spend, distribute and grant its fiat into existence and tax some of it out of existence again. Anything thing else violates equal protection under the law.
Once you go to 100% guarantee for all deposits, you basically have a public banking system. Might as well just go all the way then.
ReplyDeleteIIRC, Warren's view is that banking is a public-private partnership with banks acting as agents of the government for risk management.
Public-private partnerships, especially wrt to profit seeking, is fascism.
ReplyDeleteRisk management? The risk being to the value of fiat? Then reduce fiat to legal tender for government debts only and allow genuine private currencies for private debt only. Then if the monetary sovereign overspent relative to taxation and the real growth rate, only the monetary sovereign and its payees would suffer the resulting price inflation. Indeed, the private sector would face a LOWER real tax burden since fiat would become cheaper to buy with a private currency.
Tom, Warren’s statement that banks should “act as agents of the government for risk management”, is a muddle.
ReplyDeleteAn agent is someone who does something on behalf of someone else. Banks mediate between lenders and borrowers: that’s nothing to do with government.
I’d re-phrase that as, “Banks mediate between lenders and borrowers, and the risk should be born ENTIRELY by those concerned (i.e. lenders, bank shareholders, etc) with taxpayers being left with no sort of risk.”
And that’s easily achieved simply by bumping up capital requirements to far above their present level, as advocated by e.g. Martin Wolf and Anat Atmati. They want capital to be something like 20% of bank assets. In contrast, Lawrence Kotlikoff effectively wants the ratio to be 100%.
Ralph, the view of MMT economists is that Kotlikoff is one of the last people to ask about anything monetary.
ReplyDeleteWould need to get rid of FDIC deposit caps if we go to a "pure" (no govt securities) deficit spending regime Charles Hayden
ReplyDeleteYour implicit assumption there is that the banks should have a default monopoly on the risk-free storage of and transactions with the GOVERNMENT'S MONEY, fiat, (worse, with credit leveraged many times over their reserves in fiat). That's bogus.
Let the banks insure their own private money or bear all the risks (along with their creditors and entirely voluntary depositors) of leveraging their reserves in fiat.
As for fiat itself, ONLY the monetary sovereign itself should provide a risk-free storage and transaction service for it. And that service should make no loans and pay no interest and should be free up to normal household limits on account size and number of transactions.
Come on folks. Do you deny that the private sector can come up with money solutions that do not depend on government privileges?
the view of MMT economists is that Kotlikoff is one of the last people to ask about anything monetary. Tom Hickey
ReplyDeleteWell, Warren Mosler does not have all the answers either though he's been very useful wrt to the mechanics and theory of fiat.
But if we're to have a true private sector then let's have one; fascism is so old hat and so is socialism. And boring the Lord is no way to get on His merciful side.
I often read Ralph's comments about banks lending out customer's money, along with the folks at Cullen's place that make claims about 90% of the 'money' being 'inside' money created by the private banking system. I just want to point out a couple facts, that aren't particularly convenient for the so called Realists or even for the bankster, 'rein' in the bank crowd:
ReplyDeleteAs of ~July this year:
Total Houshold Mortgage Debt, US = 9.373 Trillion
(US Government Issued Mortgages, Total ~ 5.799 Trillion
FANNIE 3,190,354,000,000
FREDDIE 1,942,469,000,000
FARM 194,211,000,000
FHL BANKS 465,110,000,000
FAMC 7,124,760,000 There are other GSEs, these were the biggest I had time to scrape their quarterly reports.. so this tally understates the total)
So 61% of Mortgages are directly made by Government. (not including guarantees from FHA, HUD and VA etc)
US Government Directly Issued Student Loans (not including guarantees) ~ 1 Trillion, DOE, Perkins etc $1,040,000,000,000
While total Consumer credit to households is 3.039 Trillion.
So I think we need to try and be realistic and understand that private banks play a very small role in extending credit in the economy compared to government. Most of the lending by banks is limited amounts of consumer credit. Banks buy lots of securities issued by government, from the GSEs, and they do dominate the commercial real estate credit markets. But there is a giant gap between reality and the rhetoric. It is inside money, but it is government taking the risk and creating the credit.
Ryan,
ReplyDeleteIn view of the trillions underwritten by Fannie, Freddie etc (which are effectively branches of government) it’s true to say in respect of the credit created in the US that government carries much of the risk. However, that credit is INITIALLY created by commercial banks. Then government underwrites it.
But even that arrangement is unique to the US. I.e. in most other countries, there is no Fannie / Freddie type underwriting of mortgages (though governments / central banks do undertake to give support to banks in trouble – with shareholders being made to share the pain in the UK).
Incidentally Positive Money and others normally put the figure at 97% rather than 90%. 97% was about right before the crises, but is currently an overestimate in view of the large amounts of central bank money created thanks to QE.
LOL!!! I agree Mike. It proves he knows nothing. Absent QE it would still require the FED to fund every IPO as there would never be sufficient FED balances to purchase any shares. Nothing operationally would change, just the labels.
ReplyDelete@Ryan,
ReplyDeleteAnd when, if, the economy recovers won't the banks rush in to blow another bubble?
Besides direct government lending violates Equal Protection under the Law too since no one is so-called creditworthy of his neighbor's purchasing power.
What does 100% government guarantee for all deposits have to do with banks in the sense that it would make the banks more profligate? [Or invoke fascism.]
ReplyDeleteThe government guarantee, like the FDIC today, would insure the depositor, not the bank. When my local WAMU went under, the depositors got their money back if the amount in each account was under $125,000 or $250,000 (can't remember when the FDIC raised it), not WAMU.
100% government guarantee for all deposits would obviate the need for treasuries for the majority of savings accounts over $250,000 because savers would get the same risk-free safety that treasuries provide today. N'est-ce-pas?
@F. Beard,
ReplyDeleteBorrowing by the monetary sovereign is welfare for the rich.
A monetary sovereign doesn't borrow. It issues. Do your homework.
Any way you read it, your statement is incomprehensible.
Then it's even worse since the monetary sovereign pays interest for nothing! And that's not welfare for the rich, my main point?
ReplyDeleteAre you another one of those obstructionist defenders of the banks?
Fine. But I'm getting tired of dealing with you fascists and one day I may just quit and let you reap what you richly deserve.
Not you googleheim, MRW.
ReplyDeleteBut yeah, I'm getting tired of Progressives too. You might as well describe color to man blind from birth as talk about ethics with Progressives.
Their elitist blame the victims approach is sickening too and reminds me of this:
A righteous man has regard for the life of his animal, but even the compassion of the wicked is cruel. Proverbs 12:10
the mini hamsters in laurence kotlikoff's brain died in a speeding accident when he tried to add a few figures up on the CBO website:
ReplyDeletehttps://www.youtube.com/watch?v=5TV5eCu8PKs
anyone who thinks kotlikoff knows anything about economics or makes any sense in general after watching this clip needs to pass a basic aptitude test to determine whether he/she is fit to remain in society
bonus track from one of our favorite academics - lars syll:
https://www.youtube.com/watch?v=-muxC0h5bjE