Righteous rant from Mike here:
Here are the hockey stick graphs Mike produced from his data:
I'll add the one from September 2008 that shows the SAME THING when they caused the GFC back then:
Checkmate... AGAIN.... for like the 1005th time.... except for morons.... just take the L....
I'm seeing incompetence on the part of people who are supposed to be operational monetary policy experts.
ReplyDeletewith the cancellation of the reserve requirements, this time around it shouldn't cause any crisis yes?
ReplyDeleteFrom the last graph showing the 08 increase, subsequent increases in reserves the following years did not cause a crisis. The reasons having been explained by mike due to massive fiscal stimulus. Wouldn't it be the same this time around too considering they not only got rid of the reserve requirement rule but also are much quicker with the two trillion stimulus bill.
They added $350B of bank capital via the TARP AFTER the entire credit market shit down back in Sept 2008...
ReplyDeleteThe function is about 10X capital... so that allowed another $3.5T of additional assets and it bottomed in a month or two...
THIS TIME... they just eliminated the leverage regulation at the last possible moment MAYBE.. still have to see how it goes over the next couple weeks ... instead of adding capital...
so far so good .. oil now substantially higher... market not making new lows...
fiscal response so far ZERO....
I was figuring they would cause another GFC2 and was figuring Dow 14,000 at least..
ReplyDeleteThen when Congress came back in May they would have added maybe 400B of new capital...
But they did this leverage regulatory mod after close on Weds instead...
Has the same effect it prevents the regulatory function (A-L)/A from going so low as to cause a regulatory violation and shuts down the whole credit market...
I only watched the first half of Mike’s “rant”, but I don’t see why he gets excited about central banks buying up govt debt: that operation just involves swapping two very similar assets.
ReplyDeleteWhat’s much more significant is the amounts currently being printed by central banks and spent by govts on bailouts for airlines, other firms and households. That sort of spending is NOT a swap: it equals an increase in private sector liquid assets, i.e. dollars (or “Private Sector Net Financial Assets, as some MMTers call that). That could easily lead to excess inflation come the recovery, as Olivier Blanchard suggests in this article:
https://www.piie.com/blogs/realtime-economic-issues-watch/whatever-it-takes-getting-specifics-fiscal-policy-fight-covid
Mike for president!
ReplyDelete“that operation just involves swapping two very similar assets.“
ReplyDeleteNo it doesn’t Ralph that’s what MMT says ... they are misguided...
If non govt entity saves in a UST securities account that does not effect the Depository’s regulatory position...
If the CB buys the UST then the USD saver is left with a deposit account at a Depository institution which increases both Liabilities and Assets at the depositories...
Depositories are (perhaps now since weds were?) regulated to maintain a minimum leverage ratio of Residual/Total Assets = (A-L)/A = 0.095
So you can see how the CB buying the UST securities would increase the denominator in this Depositoriy regulatory function... and if large enough would cause the entire credit system to cease operations...
So it’s not “just an asset swap” MMT is wrong .... they don’t have leverage regulation in their body of Theory... apparently neither do you...
But I hate to break the news to you and them and be the bearer of hard cold reality but that is (perhaps since weds was?) the way the system operates...