One often encounters assertions that recessions are the result of an excess demand for money (or some variant), based on various equilibrium arguments. Although one could superficially interpret recessions in such a fashion, the issue is that this interpretation does not help analyse the business cycle. In other words, it is a non-falsifiable statement that offers no useful information. In my view, discussions involving "money" or "safe assets" provide us an example regarding the limited usefulness of mainstream economic theory for business cycle analysis.Bond Economics
Money Demand Has Very Little To Do With Recessions
Brian Romanchuk
4 comments:
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Well that does it.
I was long willing to refrain from judgment, but I can no longer hold back the verdict.
Many fields are saturated with lies. History is distorted and falsified by the victors. Physics is distorted and falsified to get grants. Medicine is distorted and falsified to sell toxic drugs.
However economics is clearly the champion in terms of utterly meaningless BULLSH*T.
US hasn’t had a negative gdp year since Treasury stopped using the TTL accounts... probably never will again...
"The accounts receivable for B is a new financial asset issued by A, and can be traded for other financial assets, or easily financed."
Not easily financed if the depository lenders are capital constrained...
2 Most recent US recessions 1 at turn of century and 2 the GFC both preceded by periods of fiscal surplus where Treasury policy at those times was to deposit the surplus into TTL accounts in the depositories which create Reserve Assets at the Depositories if Treasury at the same time does not increase the rate of securities issuance (govt series) to reduce the level of Reserve Assets (MMT's "reserve drain") at the depositories... which they don't so you get temporary reductions in growth rates or even recessions as a result of the offsetting credit contraction in risk assets this procedure created...
Treasury appears to now not be using the TTL accounts and also have done something to at least the regulatory procedures related to the depository Leverage Ratio composition so this type of "business cycle!" (cue the Darwin...) or cyclical result may have been largely eliminated...
I don't see that Brian Romanchuk has dented the idea that demand for money can cause recessions.
If people hoard money rather than spend it, then demand for goods and services declines. Very obvious and very simple. That's Keynes "paradox of thrift". In fact Nick Rowe's article is nothing more than a long-winded re-statement of Keynes's paradox.
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