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the lost deposits were replaced by what functionally are deposits from the ECB via what’s called the ELA. What’s wrong with that?
Yes, there's nothing wrong with that - "that" is the only way to have the euro functioning as a single currency for all the member states of the EMU.
By the same token the commercial banks could create new deposits by lending to the government. And then the government could use said deposits to pay the foreign creditors. Yes, rollover external debt with internal debt, instead of raising taxes or cutting spending to satisfy irrational demands of creditors.
A pity that the Syriza government does not have the guts to proceed in this way - by using to the full the possibilities provided by membership of a currency union where ELAs and TARGET2 necessarily rule the roost.
I'm struggling to see in the rules where a commercial bank can't just create a government overdraft and then present that overdraft at the central bank for ELA support.
In fact why not create a nationalised bank in the state and do the same?
Mosler truly nails it here:
ReplyDeletethe lost deposits were replaced by what functionally are deposits from the ECB via what’s called the ELA. What’s wrong with that?
Yes, there's nothing wrong with that - "that" is the only way to have the euro functioning as a single currency for all the member states of the EMU.
By the same token the commercial banks could create new deposits by lending to the government. And then the government could use said deposits to pay the foreign creditors. Yes, rollover external debt with internal debt, instead of raising taxes or cutting spending to satisfy irrational demands of creditors.
A pity that the Syriza government does not have the guts to proceed in this way - by using to the full the possibilities provided by membership of a currency union where ELAs and TARGET2 necessarily rule the roost.
I'm struggling to see in the rules where a commercial bank can't just create a government overdraft and then present that overdraft at the central bank for ELA support.
ReplyDeleteIn fact why not create a nationalised bank in the state and do the same?
Because the leadership is incompetent and doesn't even know what you two are talking about.
ReplyDelete