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Neither a Job Guarantee nor a Green New Deal will be won without brave, strong social movements. When it comes to building these movements, we joyfully follow the leadership of more capable community organizers and politicians. But to pass and administer the policies we all desire deeply, we think the left must embrace MMT. In doing so, we’ll finally bury “sound finance” (including ‘socialist’ sound finance) and, with it, the rest of the neoliberal order.
Monthly Review
Modern Monetary Theory (MMT)—A Response to Henwood
13 comments:
“continued federal government surpluses would lead to a dearth of U.S. treasury bonds for the investor class“
Wrong, the Depositories are required to possess Treasury securities as % total assets so if there aren’t any being issued or govt is redeeming them then Depositories will soon have to cease operations...
Nobody understands leverage regulation....
Govt has to always establish Liabilities and issue Treasury securities so Depositories can take possession of increasing amounts of them them as Depository total assets are increasing...
MMT can’t say at the same time “surpluses cause recessions!” and “bonds are only for the rich!” these two theses are in conflict...
Or maybe they can under their Platonistic methodology which doesn’t work.. ... you can’t certainly do it under a science methodology...
"MMT can’t say at the same time “surpluses cause recessions!” and “bonds are only for the rich!” these two theses are in conflict..."
Of course it can.
If it wanted to, the government could run deficits without issuing a single bond, and without paying interest
Minsky understood leverage regulation.
As Randy Wray highlights in his book Why Minsky matters.
He was ahead of the game even before Matt and Mike. Points out quite clearly why leverage regulation does not work.
Oh yeah Mr. “stability creates instability!” was one sharp dude...
“leverage regulation does not work.”
It works just fine why have we had this post GFC period of relative stability?
We’ve been under leverage regulation the whole time... it’s been stable ... moderate 2-3% gdp growth with no “inflation!” the whole time... S&Ps over 3,000. Bazillions of wealth created...
When does your boy Minsky say all this stability is finally going to create some instability?...
Give me a date or financial threshold....
“the government could run deficits without issuing a single bond,”
No it couldn’t... govt has to issue guaranteed securities of some form to allow for savings of non-govt and to use in regulating the growth of credit issued by Depositories.... Tier1Assets/TotalAssets = Constant Where Tier1 are govt securities....
If govt issued no securities and eliminated leverage limitations on depositories what would prevent depositories from just going out and buying every asset in existence?
Then you leftists would all be going around complaining “the banks own everything!” it’s all a big “neoliberal conspiracy!”... when they just did what you said they should do and eliminated govt securities and leverage regulation...
The Treasury could simply spend out of thin air, without issuing bonds. It could offer reserve accounts with 0% remuneration. The central bank wouldn't need to exist.
The private sector could save in currency (bank reserves, coins and notes) or whatever it seems fit.
About leverage, you can have two scenarios: 1) let the market forces figure it out what the best leverage is (which I think would lead to disaster) or 2) the regulators keep the equity requirements through the Basel Rarios and the SLR or whatever, although I will never accept that a 100% weight on bank reserves is acceptable.
I don't see any problem there. Banks would be able to meet the requirements if they are managed right.
“h I will never accept that a 100% weight on bank reserves is acceptable”
Whoa whoa whoa there... I thought you always said they are 0 weighted?
Now you say they are 100% weighted?
Which one is it and if it’s now 100 where was your segue?
For CET1 they have a 0% weight. For SLA they have a 100%. I never said otherwise.
What I said is that the SLA is new and didn't exist in 2008. At that time, no capital or ALM manager in banks would weight bank reserves or Treasury securities with a 100% weight for equity requirement purposes.
Today it is 100% for the SLA (in most jurisdictions where the SLA was implemented), which requires that banks hold equity of at least 3% of non-risk-weighted assets. That means that for each $100 a bank has in bank reserves and treasuries, it needs to have at least $3 in equity. It isn't the end of the world, you know.
In most parts of the world the SLA isn't the binding constraint (CET1 or total capital ratios are). In the US the SLA is binding for many banks because they hold less capital for a lot of reasons.
“For SLA they have a 100%. I never said otherwise.”
Oh yes you did ....
The SLR has always existed in the US... US not guided by Basel... rather Basel guided by US....
Also you’re leaving out multiple other US regulatory functions that include leverage or effect on leverage...
"Oh yes you did ...."
I never did. Show me where, if I did.
"The SLR has always existed in the US"
SL R... my autocorrect doesn't let me write that
No, it hasn't always existed in the US. Not with 100% weight on bank reserves or treasuries. The banking industry made a lot of noise when the BCBS was creating SL R because of that (and some other things).
"Also you’re leaving out multiple other US regulatory functions that include leverage or effect on leverage..."
There are a lot of other regulations (like LCR, NSFR, reserve requirements), but that doesn't change the fact that MMT isn't incoherent and that SL R, equity requirements and liquidity/reserve requirements don't cause the apocalyptical effects you claim they do. Of course they do affect the economy though, I never claimed otherwise also
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