After yesterday’s marathon blog, today will be easier going (and shorter). I was reading John Maynard Keynes recently – circa 1928 – that is, 8 years before the publication of the General Theory with his Treatise on Money intervening. He was railing against the principles and practice of ‘sound finance’, which he noted had deliberately caused billions of pounds in lost income for the British economy. He urged the Treasury and the Bank of England to abandon their conservative (austerity) approach to the economy and, instead, embark on wide-scale fiscal stimulus to create jobs and prosperity. He concluded that with thousands of workers idling away in mass unemployment that it was “utterly imbecile to say that we cannot afford” to stimulate employment via large-scale public works – building infrastructure etc. He considered the policy makers who opposed such options were caught up in “the delirium of mental confusion”. The stark reality is that 88 years later, he could have written exactly the same article and would have been ‘right on the money’. We are being led (euphemism) by imbeciles.…We call them "morons" aka "morans" here.
Occasionally history does repeat.
Bill Mitchell – billy blog
We are being led by imbeciles
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
Interesting that according to the NYT, the Koch brothers’ objection to Donald Trump is the following:
ReplyDeleteInside the Republican Party’s Desperate Mission to Stop Donald Trump
"At a recent presentation hosted by the billionaires Charles G. and David H. Koch, the country’s most prolific conservative donors, their political advisers characterized Mr. Trump’s record as utterly unacceptable, and highlighted his support for government-funded business subsidies and government-backed health care, according to people who attended.”
http://www.nytimes.com/2016/02/28/us/politics/donald-trump-republican-party.html
Most people have forgotten that Trump was quoted a year ago saying that There’s no reason why we can’t have a universal single-payer health care in the country like Canada’s.
MRW those guys are over the top libertarians and Trump is authoritarian... so it is never going to line up with them... have to just go to war and see who wins...
ReplyDelete"Bank lending is not reserve constrained. Rather, limits are placed on banks by their capital."
ReplyDeleteOK... then
" capital adequacy requirements on banks in a regulatory framework"
Yes the system is regulated... then
"Banking regulation (capital adequacy) is now up to the Basel III framework."
OK..
"The general approach of the Basel framework is to express a bank’s capital relative to its risk."
ok...
"Capital is divided into Tier I Capital (contributed equity plus retained earnings) and Tier II Capital (preferred shares and a proportion of subordinated debt)."
ok....
"Capital requirements place a limit on the leverage ratios that banks can run with"
Ok there is the regulatory parameter, the ratio... this ratio MUST be maintained by the people working at the bank...
"the risk-weighted ratio could be increased by increasing capital (the numerator) or reducing assets (denominator). The latter could be achieved by balance sheet restructuring "
Well the capital is part of the balance sheet too so it is not just the latter that can be achieved by balance sheet restructuring... you can restructure both the capital and assets...
And the response time of the parameter in the numerator is much longer than that of the denominator... in frequency domain (1/T), the numerator has a LOWER frequency response and the denominator has a HIGHER frequency response...
So you end up trying to maintain a ratio constant with a low frequency numerator and a high frequency denominator...
OK now we might be starting to get off track:
"Lending limits are defined as a multiple of a bank’s capital."
Its: ASSET limits are defined as a multiple of a bank's capital... and ASSETS (in the denominator) have the HIGHER frequency response characteristic...
Let's go back to our basic Calculus here: "The fundamental idea of calculus is to study change by studying "instantaneous" change, by which we mean changes over tiny intervals of time."
OK then so, as the Calculus instructs us, when we collapse deltaT, ie deltaT >>>> 0 , then we will reach the T response of the numerator (capital) WAAAAAAYYYY before we reach the T response of the denominator (ASSETS ie NOT "loans"...) iow over very short periods of time, the numerator is essentially a CONSTANT... while over very short periods of time the denominator can still vary greatly...
So as the numerator (capital) has low frequency response, the ratio HAS TO be maintained by modifying the higher frequency response denominator (ASSETS)...
This implies modifying/managing ASSET characteristics rather than CAPITAL characteristics in order to maintain the CONSTANT regulatory ratio over short time periods...
Matt, you complicate a simple point I was trying to make. ;-) They’re lying about him.
ReplyDeleteI dont think they are lying how are they lying?
ReplyDeletethey disagree on the role of the govt institution with Trump... I dont think that is lying... its a fundamental disagreement to be settled via warfare... and btw Trump supports their Keystone pipeline but even in light of that they still oppose him... iow their ideology manifestly overrules their desire to make munnie... they are true libertarian believers...
(my larger comment is in response to Bill's blog at the link on how the banking system is regulated...)
Matt, asset side discipline is anti-"free markets", didn't you know? Free market uber alles or die, what are you, a socialist? Leave the 'free markets' alone!
ReplyDelete