As seen in some comments on my recent articles, critics of Modern Monetary Theory (MMT) often complain about MMT's treatment of banks. I am largely mystified by these criticisms, as they obviously miss the point. Very simply, the existence of banking system, and the fact that bank deposits to be considered to be part of monetary aggregates, is well understood within the MMT literature. The only real debate is about the implications of private banking. To what extent the banking system matters, it is in reference to the business cycle. You would need to read MMT journal articles to judge how well those authors describe the business cycle. One generally notes a lack of reference to said journal articles in criticism. As such, until there are references to said literature, the criticisms should not be taken too seriously....
Bond Economics
MMT Critics And BanksBrian Romanchuk
4 comments:
As such, until there are references to said literature, the criticisms should not be taken too seriously.... Brian Romanchuk
I've read Warren Mosler's proposals for banks and they would:
1) Provide unlimited deposit guarantees to private depository institutions FOR FREE.*
2) Provide unlimited, unsecured loans to banks from the Central Bank at ZERO percent.
But this is more welfare for the banks and, by extension, for the rich, the most so-called "worthy" of what is then, in essence, the PUBLIC'S credit but for private gain.
The insights of MMT COULD instead be used to de-privilege the banks, eliminate a huge amount of private debt and greatly reduce wage and debt slavery.
*not that any payable premium can properly cover the systemic risk posed by a government privileged usury cartel.
MMT is ignorant of Leverage regulation...
This is good from Andre over there:
"Adding banks changes a lot, and one (of many) evidence is the 2008 crisis. There is no way someone would be able to predict or explain the crisis if banks were removed from the equation. And the GFC seems "much"."
Which is correct but he blames "liquidity!" for insolvency when that has nothing to do with insolvency..
"I believe that there is enough evidence to reject this kind of claim. Banks do not have access to this kind of facility, and they can go broke if they lack enough liquidity."
Its not a violation of the RRR that makes a depository bankrupt/broke its a violation of minimum Leverage Ratio regulations...
its (A-L)/A > LRmin violation...
So when CB adds Reserves the denominator increases and drives the ratio below minimum required and the bank has to shut down lending... even though "liquidity!" regulation RRR is well above minimum due to the Reserve add from the CB...
Look back at september the RRR is 10% of Deposit Liabilities and Deposits were $13T so when the Fed ran Reserves down to 1.285T mid month (violating their own RRR) all that happened is the FFR went above target but nobody was "broke" or insolvent...
MMT is ignorant of all of this...
“MMT is ignorant of all of this...“
Nope. I remember Bill mentioned that when regulation caused problems in Sweden during the GFC they consider to ignore the regulation and then call it an extra ordinary situation.
Regulation is always flexible. It’s not a law of nature.
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