Longish but seminal. It combines economics with economics sociology to arrive at a view of political economy that incorporates the latest thinking, although the roots lie in the classical economists and Marx, institutionalizes like Veblen, and heterodox economics subsequent to the rise of neoclassical economists. Worth a close read.
Development Economics
We Need to Talk about Economics
Paulo L. dos Santos, Associate Professor of Economics at The New School, and Noé Wiener, Lecturer in Economics at the University of Massachusetts Amherst,and a Research Associate at the Political Economy Research Institute
The problem with FAIT, is that the "sweet spot", (“area or range that is most effective or beneficial “), where an injection of helicopter money is robust, is short-lived. The FED is at a juncture where the money stock is now growing too fast (is harmful). That is this current growth in the money stock presently reinforces long-term monetary flows, or unremitting inflation.
ReplyDeleteThis causes FOMC schizophrenia: Do I stop because inflation is increasing? Or do I go because R-gDp is decelerating?
In the present case it will determine whether inflation is transitory or long-lasting. I.e., as Jeffrey Snider defines it: “Inflation, properly defined, is a sustained, broad-based increase in consumer prices. Not just a couple months, but a string of them without end in sight; and not just a limited slice of the price bucket, increases for near everything or at least every class contained within it.”
Unfortunately, Jerome Powell has taken it upon himself to permanently delay the immediate release of the money stock figures (regulatory policy has become less transparent). So, it’s hard to get a grip on the inflection. And that’s more dangerous.
Based on preliminary data, stocks could peak in July.
Currency use (stimulus money) is in a downtrend:
10/1/2020 ,,,,, 0.13
11/1/2020 ,,,,, 0.14
12/1/2020 ,,,,, 0.13
01/1/2021 ,,,,, 0.11
02/1/2021 ,,,,, 0.10
03/1/2021 ,,,,, 0.09
04/1/2021 ,,,,, 0.09
05/1/2021 ,,,,, 0.08
THE SAVINGS-INVESTMENT PROCESS OF THE COMMERCIAL BANKS CONTRASTED TO THAT OF FINANCIAL INTERMEDIARIES:
ReplyDelete(A) The commercial banks create new money (in the form of demand deposits) when making loans to, or buying securities from the non-bank public; whereas lending by financial intermediaries simply activates existing money.
(B) Bank lending expands the volume of money & directly affects the velocity of money, while intermediary lending directly affects only the velocity.
(C) The lending capacity of the commercial banks is determined by monetary policy, not the savings practices of the public.
(D) The lending capacity of financial intermediaries is almost exclusively dependent on the volume of monetary savings placed at their disposal. The commercial banks, on the other hand, could continue to lend if the public should cease to save altogether.
(E) Financial intermediaries lend existing money which has been saved, and all of these savings originate outside the intermediaries; whereas the commercial banks lend no existing deposits or savings: they always, create new money in the lending & investing process.
(F) Whereas monetary savings received by financial intermediaries originate outside the intermediaries, monetary savings held in the commercial banks (time deposits & the saved portion of demand deposits) originate, with immaterial exceptions, within he commercial banking system. That is, demand deposits constitute almost the exclusive net source of item deposits.
(G) The financial intermediaries can lend no more (and in practice they lend less) than the volume of savings placed at their disposal; whereas the commercial banks, as a system, can make loans (if monetary policy permits & the opportunity is present ) which amount to several times the initial clearing balances held.
(H) Monetary savings are never transferred from the commercial banks to the intermediaries; rather are monetary savings always transferred through the intermediaries. The funds do not leave the banking system.
(I) If time deposit banking is to add to the aggregate profits of commercial l banks as a system, it is necessary to assume that the expansion of time deposits per se induces the Federal Reserve to alter monetary policy toward greater ease (or less restraint) to the extent necessary to supply the banking system with an added volume of excess reserves adequate enough to enable the banks to expand their earning assets, & thereby their net earnings, by an amount sufficient to more than offset the overall increase in costs associated with the growth of time deposits.
(J) The growth of time deposits in commercial banks denies savings to intermediaries, reduces lending opportunities for all institutions (including the commercial banks), and slows down the tempo of business activity; since in their time deposit function, the commercial banks are neither intermediaries nor creators of loan-funds but are simply custodians of stagnant money
(K) The growth of financial intermediaries has no effect per se on the aggregate assets, earnings assets, gross income, or net profits of the commercial banks as a system; but their growth does activate monetary savings and tends, therefore, to increase the lending opportunities of the commercial banks. The growth of financial intermediaries should, therefore, enhance commercial bank earnings & profits, if the Federal Reserve permits the commercial banking system to exploit their expanded lending opportunities.
L.J. Pritchard, Ph.D, economics, Chicago, 1933, MS, Statistics, Syracuse
MMT is just Marxist ideology (concealed green-backing reconstituted). See: Paying Interest on Reserve Balances: “It’s More Significant Than You Think” by Scott Fullwiler Working Paper No. 38 January 2005
ReplyDeleteThe Chicago Plan, chartalism, neo-chartalism (MMT), etc. were all devised by “&^#@!s” (Warren Mosler, L. Randall Wray, Stephanie Kelton, Bill Mitchell, Scott Fullwiler, etc.), that never learned their economic abc’s.
Carmen Reinhart and Kenneth Rogoff are dead wrong…nothing’s changed in 100 + years:
American Yale Professor Irving Fisher: Note the prerequisite: financial transactions and “animal spirits” aren’t random:
American, Yale Professor Irving Fisher – 1920 2nd edition: “The Purchasing Power of Money”:
“If the principles here advocated are correct, the purchasing power of money — or its reciprocal, the level of prices — depends exclusively on five definite factors:
(1)the volume of money in circulation;
(2) its velocity of circulation;
(3) the volume of bank deposits subject to check;
(4) its velocity; and
(5) the volume of trade.
“Each of these five magnitudes is extremely definite, and their relation to the purchasing power of money is definitely expressed by an “equation of exchange.”
“In my opinion, the branch of economics which treats of these five regulators of purchasing power ought to be recognized and ultimately will be recognized as an EXACT SCIENCE, capable of precise formulation, demonstration, and statistical verification.”
And the Fed already validated the Fisherian theory: In 1931 a commission was established on member bank reserve requirements. The commission completed their recommendations after a 7 year inquiry on Feb. 5, 1938. The study was entitled “Member Bank Reserve Requirements — Analysis of Committee Proposal”
It’s 2nd proposal: “Requirements against debits to deposits”
http://bit.ly/1A9bYH1
After a 45 year hiatus, this research paper was “declassified” on March 23, 1983. By the time this paper was “declassified”, required reserves had become a “tax” [sic].
Monetary flows, our means-of-payment money times its transactions velocity of circulation:
http://tinyurl.com/htk...
The surrogate statistic for money flows after the G.6 debit and demand deposit turnover release was discontinued in 1996 (it under-weights velocity):
1/1/2016 ,,,,, 0.068
2/1/2016 ,,,,, 0.020 stocks bottom
3/1/2016 ,,,,, 0.043
4/1/2016 ,,,,, 0.041
5/1/2016 ,,,,, 0.045
6/1/2016 ,,,,, 0.073
7/1/2016 ,,,,, 0.109
8/1/2016 ,,,,, 0.111
9/1/2016 ,,,,, 0.112
10/1/2016,,,,, 0.039
11/1/2016 ,,,,, 0.105
12/1/2016,,,,, 0.124 stocks peak
1/1/2017 ,,,,, 0.093
2/1/2016 ,,,,, 0.063
3/1/2016 ,,,,, 0.068
4/1/2016 ,,,,, 0.046
The monetary flows lag is known and never changed for 100 years. 10 months and The inflation lag 24 months.
Salmo Trutto.
Debt-to-GDP ratios are obviously contrived metrics. Unprecedented large deficits “absorb” a disproportionately large share of N-gdp (gov’t spending is a component / factor of gDp).
ReplyDeleteTo appraise the effect of the federal budget deficit on interest rates, it is necessary to compare the deficit, not to the debt to a GDP-ratio (a contrived figure), but to the volume of current net private savings made available to the credit markets. The current 2016 deficit, $552B ($432,649,652,901.12B interest expense) is absorbing c. 10 percent of net private savings ($5,384.60T).
The propaganda: "The U.S. government is estimated to collect $2.99T in tax revenues and spend a total of $3.54T in its 2016 budget, resulting in a deficit of $552B. The deficit is expected to be 3.3% of its total estimated GDP of $16.5T that year."
Wild Bill Buckley: “Professor John Kenneth Galbraith, giving an interview recently to a London journalist, volunteered that his was forced to admit it: that, whereas 15 years ago he and his colleagues at Harvard had been pretty well satisfied that there were no serious problems left unsolved in the field of economics, now he recognizes how much, in fact, there is left to discover.”
That was before stagflation. Now we have secular strangulation. The difference is that DD Vt peaked in 1981 (income velocity remained stable for the next 15 years, but DD Vt fell by 65%, until the G.6 release was discontinued because of, arguably if you're an sider, Bill Clinton’s “Paperwork Reduction Act of 1995”).
Its deceleration was exacerbated by remunerating IBDDs. The error is the Keynesian macro-economic persuasion that maintains a DFI, a money creating depository institution, is a financial intermediary, serving as a conduit between savers and borrowers.
From the system’s belvedere, the DFIs always create new money, ex-nihilo, when they lend/invest. Deposits are the result of lending, not the other way around. And all savings originate within the commercial banking system. However, savings are not activated and put back to work until their owners invest/spend directly, or indirectly - by channeling savings “through” non-bank conduits. Money flowing through the non-banks never leaves the CB system.
Never are the commercial banks intermediaries in the savings-investment process (“google” financial intermediary and you will see the scope of this pervasive economic thought). The CBs should not be engaged in maturity transformation (in the borrowing-short, to lend-long banking practice). The DFIs could continue to lend (and be more profitable), even if the public should cease to save altogether.
Bank held savings are lost to both investment and consumption. Thus the expansion of CB time (savings) accounts (> $10T) in the DFIs exerts on balance a contractive influence on the economy leading to a curtailment of bank lending opportunities and a reduction in bank loans, investments, and income and an increase in delinquencies, non-performing loans, charge-offs, and bad debt (and an increase in loan-loss reserves, synonymous with a contraction in the money stock).
Debt-to-GDP ratios are obviously contrived metrics. Unprecedented large deficits “absorb” a disproportionately large share of N-gdp (gov’t spending is a component / factor of gDp).
To appraise the effect of the federal budget deficit on interest rates, it is necessary to compare the deficit, not to the debt to a GDP-ratio (a contrived figure), but to the volume of current net private savings made available to the credit markets. The current 2016 deficit, $552B ($432,649,652,901.12B interest expense) is absorbing c. 10 percent of net private savings ($5,384.60T).
The propaganda: "The U.S. government is estimated to collect $2.99T in tax revenues and spend a total of $3.54T in its 2016 budget, resulting in a deficit of $552B. The deficit is expected to be 3.3% of its total estimated GDP of $16.5T that year."
https://seekingalpha.com/user/7143701/comments#&ticker=acwf
Yeah, but today the FED is talking about tapering purchases by the end of the year. That will reduce R-gDp relative to N-gDp (the inflation component rises). The money stock will have to accelerate from here to prevent a deceleration.
ReplyDeleteIt looks increasingly likely that there will be a downturn in equities sometime in July. At present, short-term money flows, proxy for R-gDp, falls by 5 percentage points from July to September.
https://seekingalpha.com/user/7143701/comments
Monetary flows, our means-of-payment money times its transactions velocity of circulation:
ReplyDeletehttp://monetaryflows.blogspot.com/2010/07/monetary-flows-mvt-1921-1950.html