J.W. Mason wrote a review of Stephanie Kelton's The Deficit Myth. For my purposes, I am looking at various critiques of MMT, and he makes some statements about banking that are of interest....Bond Economics
Banks And MMT: J.W. Mason's Comments
Brian Romanchuk
3 comments:
Due to government privilege, the banks extend what is, in essence, the PUBLIC'S credit but for the PRIVATE gain of the banks themselves and of the so-called "credit worthy", typically the richer at the expense of the poorer, one way or another*.
Fundamentally, this is violation of equal protection under the law and no amount of regulation can fix it.
What's ironic and sad is that the current, government-privileged banking model is a relic of the obsolete Gold Standard when fiat was too expense/scarce for everyone to use directly.
So not only is MMT treatment of banks unjust, it is also obsolete for nearly a 100 years.
*e.g. so-called "sound" business loans that automate jobs away without just compensation for the displaced workers.
I think this critique misses the point.
MMT has vertical transactions and horizontal transactions. The banking system is part of the horizontal system - which is entirely in the private sector and sums to zero.
What mainstream banking economists miss is that MMT expects the banking system to operate 'naturally' without any artificial interventions that try to get it to do the job government should be doing. MMT says just do that with the vertical transactions and stop pretending.
Let banking go back to the job of discounting it was created to do
And once again we have a discussion of banking without mentioning collateral once. Banks do not hand out free money. What they do is buy partial ownership in collateral.
MMT says that lending stops when the last creditworthy borrower walks in the door prepared to pay the current price of money. "Creditworthy" means "has sufficient collateral".
What mainstream banking economists miss is that MMT expects the banking system to operate 'naturally' NeilW
Then banks should be 100% private with 100% voluntary depositors. Tell this to Warren Mosler; he would INCREASE privileges for banks with so-called "asset side regulation" to compensate.
without any artificial interventions ibid
Such as loans to or asset buying by the Central Bank from the private sector. Also without government provided deposit guarantees.
that try to get it to do the job government should be doing. ibid
The job government should properly do includes fiat creation for the general welfare - not for the private welfare of special interests such as the banks and the rich. This would include an equal Citizen's Dividend to replace all fiat creation for special interests.
MMT says just do that with the vertical transactions and stop pretending. ibid
Except currently, government vertical spending for the general welfare must compete (for real resources) with government-privileged horizontal spending for the private welfare of the banks and for the so-called "credit worthy." Even if this does not cause unnecessary price inflation*, it is unjust interference in the private sector for the benefit of the richer at the expense of the poorer.
*.e.g. Bank loans to automate jobs away might not cause price inflation, but nonetheless they are not justified by this if they are not 100% private with 100% voluntary depositors.
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