We will update this analysis tomorrow once we have the full bank data, however the take home message for now is that the next time someone says that under fractional reserve banking deposits are always a consequence of loan creation - one of the core pillar of such idiotic theories as MMT - just show them the chart above.
"Loans create deposits," doesn't specify a quantifier. ZH assumes this says that all loans create all deposits, whereas it is plain that the MMT assertion is that all bank loans create some bank deposits." For example, MMT asserts that government spending creates bank deposits independently of bank lending. So the total of bank loans will not necessarily be the total of bank deposits in a period.
ZH has the MMT position wrong.
Zero Hedge
Which Came First: Loans Or Deposits? An Unexpected Answer From JPMorgan's Balance SheetTyler Durden
16 comments:
Shows the limits of trying to explain their theory via figurative language in the form of a statement of thesis... in this case “loans create deposits “... can be easily misunderstood by persons unqualified....
The person writing this just compared JPMs loan assets vs deposit liabilities at time 1 vs a later time 2... When the difference between the levels didn’t correspond the person asserts the theory is false...
It’s a form of reification error they think the accounting abstractions are real ... like a piggy bank that you put coins in the top and lend out of the bottom so loans should always equal deposits... it’s the same error as the “banks lend out the reserves!” people make (which includes the Fed people)...
So you EITHER have to point out that the person doing the analysis is unqualified OR you have to change your methodology so the person would be unable to make this mistake....
iow if you’re doing it right this:
“ ZH has the MMT position wrong.”
would not be possible....
Zero Hedge is EXTREMELY slow off the mark. Anyone with a grasp of central and commercial bank book keeping entries (e.g. me) knew perfectly well when QE first started that a result would be a rise in deposits relative to loans.
Moreover, the Bank of England and Bundesbank have both published articles confirming that MMT is basically right to say loans create deposits where commercial banks initiate money creation. As to where CENTRAL BANKS do money creation, well that's a different matter.
Government spending adds to bank deposits. Zerohedge, this piece of shit blog, totally ignores or doesn't understand this. We have had massive, unprecedented government spending increases. THAT'S what added to bank deposits. Loans are secondary under that condition. And loans DO create deposits.
“Anyone with a grasp of central and commercial bank book keeping entries “
That’s not what MMT is Ralph... MMT yes USES that when they get in trouble (like here) in their dialectic exchanges to pull their bacon out of the fire but that’s not what they are doing... MMT is not Accounting...
Accounting is its own Discipline.......MMT is Economics Discipline... ZH is Journalism Discipline ie not qualified to do this type of forensic Accounting...
“whereas it is plain that the MMT assertion is that all bank loans create some bank deposits.“
LOL if it were “plain” then the ZH people wouldn’t have written this...
Seems to me that if they have read MMT lit even superficially they would have known this. There are other serious problems with the article that I did not bother mentioning since this is the tell. Attacking a scarecrow fallacy.
“Loans create deposits” is an observation that was well-known before the MMT founders were born, which is why that was a drop-dead stupid comment by ZH.
One would think gold was lead for the damage it does to thinking.
Actually, it's the idolatry that's damaging - thinking that a shiny, scarce metal can substitute for ethics when it comes to fiat creation and use and the banking model we have.
“ thinking that a shiny, scarce metal can substitute for ethics”
The metal gold is REAL .... “ethics” is an abstraction.... you are reifying the abstraction...
They will fling their silver into the streets and their gold will become an abhorrent thing; their silver and their gold will not be able to deliver them in the day of the wrath of the Lord. They cannot satisfy their appetite nor can they fill their stomachs, for their iniquity has become an occasion of stumbling. Ezekiel 7:19
“ ‘They have Moses and the prophets;” Luke 16
They perhaps should have listened to old Zeke there .... but they didn’t....
Andrew Anderson: "One would think gold was lead for the damage it does to thinking".
I like that!!
Bank reserves are technically loans to the central bank.
Some of which are then swapped for Treasuries and other government assets.
“Loans create reserves!”
No (Neil) and no (Franko) since vault cash is also reserves.
So bank account balances at the FED + vault cash = reserves.
And it's absurd to say one lends its own fiat to a monetary sovereign or its central bank. Instead, those "loans" are risk-free fiat storage for which fees should be charged.
Post a Comment