A recent blog by Clint Ballinger highlights some of the similarities and differences between Positive Money’s proposals and those of Modern Monetary Theory (MMT) and other Post-Keynesian types of analysis. We thought Ballinger makes some good points that are worth highlighting, before suggesting where we think his review could be improved.....Positive Money
Frank Van Lerven
Except of course the Sovereign Money crowd are totally mistaken in thinking their changes affect anything.
ReplyDeleteYou can't re-create loanable funds any more than you can hold the waves back. Credit systems are endogenous by nature and no amount of jiggery pokery will change that.
Its an illusion
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ReplyDeleteThey are cranks. Just like this guy.
ReplyDeletehttps://www.youtube.com/watch?v=NELQDLo1AuA&feature=player_detailpage
As a serious question, are Positive Money supporters aware of the existence of a shadow banking system? I have not read too much of their literature, but from everything I saw, It looked like all their reforms would be undone within days by the shadow banking system doing an end run around the formal banking system.
ReplyDelete"It looked like all their reforms would be undone within days by the shadow banking system"
ReplyDeleteThe PM changes make all banks shadow banks. That's what they want to do - centralise the accounting because they believe, above all, in the currency view of money and its power to control things. Despite all the obvious systemic evidence to the contrary - like the existence of shadow banks!
The dynamic tricks used by shadow banks then simply get used by the main banks.
The Sovereign Money view is a religious position - like the Georgists or the flat rate tax lobby.
The difference is that they've got some good political people that are plugged in well in Westminster. Which is why these proposals are in the UK Green Party policy list - much to the chagrin of quite a few Green Party members.
Many blog posts by PM have addressed the issues of Shadow Banks. Neil, I suppose PM also gets a lot of attention because Martin Wolf the chief editor of the Financial Times and Michael Kumhoff the Head of Research at the Bank of England endorse their style of proposals, but what they know?
ReplyDeleteExample from previous blog: "Banks are only able to create money today because their liabilities (i.e. bank deposits that represent a promise to repay state money to some entity in the future) are widely accepted as a means of payment. A sovereign money system is designed to stop the banking sector from issuing liabilities that can be used to make payments, since all money that could be used for payments will be in the form of electronic money and cash, both created by the Bank of England.
For a shadow bank to create a money substitute that could compete with sovereign money, it would be essential for that money to be ‘spendable’ as easily as sovereign money. In other words, you would need to be able to use it to pay your rent, to spend money online, and to receive your salary. That means that you’d need to be able to spend your money substitutes through the primary UK payment networks that traditional banks use: BACS, CHAPS, Faster Payment etc.
By simply restricting access to these payment systems to banks that operate according to sovereign money principles, it means that any substitute created by a shadow bank would be harder to spend, and therefore not a substitute for state money.
If a shadow bank still chose to try and create a money substitute to be used outside the primary payment networks, the payment services it provided would be inconvenient to use, and would not be commonly accepted, making it an ineffective money substitute.
Of course, in a Sovereign Money system regulators and policy makers would still have the option to further regulate such activities, or simply make them illegal. Many would argue that shadow banks are simply banks that avoid registering as banks in order to avoid much of the regulation. But if they behave like a bank, then surely they should also be regulated like a bank.
Ultimately it is unlikely that monetary substitutes would emerge and make Sovereign Money reforms ineffective. On the contrary, a Sovereign Money system would effectively separate the public prerogative of issuing money, from the private prerogative of extending credit."
They haven't addressed anything. There's nothing new there that I haven't already debunked in my piece linked above.
ReplyDeleteTraditional Building Societies in the UK have operated like that for decades and I can tell you they create a large amount of spending power and can clear things very effectively via their clearing account at a third party bank.
*Because lending takes time and businesses operate on credit*.
Defining 'paid up shares' as 'not money' doesn't change the way they work in the system.
And appealing to authority is the usual last resort of cranks. Correct they do know nothing *because none of them have ever implemented an operational banking system*.
Ultimately the whole concept fails because there is *no way* to guarantee a reduction in spending power ahead of somebody else increasing their spending power.
So it doesn't work. Ever. Because *Expectations*.
It's religious rubbish of the first order. An utterly pointless waste of time that changes nothing of significance and is a distraction from what changes actually need to be made to get banks under control - dealing with what they can lend money on and to whom.