An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
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Sunday, June 5, 2022
MMT Banking Primer — Jonathan Wilson
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The Gower Initiative for Modern Money Studies MMT Banking Primer Jonathan Wilson
“ MMT’s framework argues that governments who want to encourage households to purchase consumer goods can focus on directly increasing those individuals’ deposit accounts at commercial banks—as manipulating reserve balances is inconsequential. ”
The focused point here is these Art Degree MMT morons at the Gower (who was he? Another Art degree moron with munnie?) Institute.. sounds exalted … probably a moron factory.. say and I quote “ manipulating reserve balances is inconsequential” which under current regulatory framework is …. wait for it,,, 100% FALSE ..,
I will school these morons on this any time any place.,
Lyrics I look at you all See the love there that's sleeping While my guitar gently weeps I look at the floor And I see it needs sweeping Still my guitar gently weeps
MMT Gower Institute morons to their fellow Art Degree students: “Now… his guitar IS NOT actually weeping…”
MMT's framework is not about getting households to purchase more consumer goods. MMT's framework is that government can be a source of investment, demand (and employment) when needed.
He's not going to get very far after watching what is happening in Ukraine and denies war effects domestic economic policy.
Called everyone a fool for even suggesting war effects domestic economic policy.
When the evidence is everywhere across the planet. That yes indeed war effects domestic economic policy. It is front of everybody's faces 24/7 but only the STEM guy can't see it.
I mean c'mon how can he not even recognise that. How on earth can he hold such a blinkered vision. A vision that says nope war does not effect domestic economic policy. What on earth is that all about.
" The Fed has no need to do that. It can just remove the reserve requirements and ratios like other countries have. "
He'll completely ignore that POV as it doesn't fit in with his art degree itis narrative. That everyone suffers from incompetence. That everyone is trained to do the same thing. Which yet again is very clearly not the case.
It is not just that Fed believes in the power of interest rates. It is more to do with that over the long term they just love giving free money to the banks. That's one of the instruments of choice to do it.
Or give free money to big agriculture, big pharma, big oil and gas, via subsidies to anybody willing to help them to win an election.
Trump Propped Up His Rural Vote with Massive Subsidies to Agribusiness to try and offset his tariffs on China and Europe. The largest subsidies ever given in American history to that sector.
As explained beautifully here along with one of the most undemocratic centres of democracy the senate. Oh and the filibuster and the role that plays.
https://m.youtube.com/watch?v=42GkcyVfT1E
Once the STEM guys step away from reserves and ratios and into real power and politics they are completely lost like a drunk who has lost their keys.
I read a good comment this morning suggesting that every business is really two businesses. One that does something real and a 'finance business'. Normally the finance business is getting an overdraft or interest on a credit balance, but in larger firms it becomes a full blown treasury department and after that starts to become more important than the real business the firm is known for. Think Ford financing, etc.
What we need to do is nuke those financing arms so that firms can only make serious money by doing something useful - not moving numbers around a casino.
"This trajectory is difficult to square with inflation accounts based on excessive demand. Oil demand has still not exceeded pre-pandemic levels; it is supply that has lagged. Meanwhile, far from being “too greedy”, companies seem to not be greedy enough — at least in the conventional sense of maximising profits. Instead of reinvesting their earnings in drilling new wells, even at profitable oil prices, companies have returned cash to shareholders."
"Instead of reinvesting their earnings in drilling new wells"
The point Anas Alhajji makes is not all oil producing countries are equal because of
a) The exchange rate ( linked to the $ or not) or ( free floating )
b) What their debts are denominated in.
" Consumers in countries with non-dollar appreciating currencies enjoy cheap oil, while people in dollar-pegged countries pay a higher price for the same barrel of oil. Therefore, dollar devaluation affects world oil supply and demand.
This effects the "Instead of reinvesting their earnings in drilling new wells" Where productivity goes to die.
Theoretically, dollar devaluation reduces drilling activities in areas where most of the costs are denominated in non-dollar appreciating currencies such as the North Sea. It also reduces drilling activities in the oil producing countries. Dollar depreciation reduces these countries’ purchasing power and can increase domestic inflation levels.
Dollar devaluation increases demand for oil in countries with non-dollar appreciating currencies. It also increases demand for gasoline in the US as thousands of Americans spend their vacations at home instead of traveling to Europe where the cost of the vacation is higher than three years ago. Regardless of OPEC decisions, dollar devaluation on its own may tighten supplies.
Oil prices can be at record levels in dollar terms, but not in other currencies.
The effect of the appreciation of the yuan on oil markets can increase China’s oil demand and reduce world oil supply. If oil market fundamentals stay the same, a yuan revaluation would bring oil prices to new record highs. In this case, the increase in oil prices would wipe out any benefits that the US or others may gain from the yuan appreciation.
Developing countries have no choice but to pay higher oil import bills.
If the yuan were to appericiate the currencies of other Asian countries could very easily appreciate, including the Japanese yen. This appreciation in Asian currencies would hurt oil producers, especially countries that peg their currencies to the dollar, such as the Gulf States. From the oil producers’ point of view, the appreciation of Asian currencies would be just another devaluation of the dollar.
Saudi Arabia would have to sell additional barrels just to buy the same amounts of goods and services that it bought from China previously.
Could lead to inflation, lower economic growth, higher unemployment, and lower investment in the oil sector. "
In short my take from all of that and would I found to be interesting was not everybody can reinvest their earnings in drilling new wells.
There's a lot of moving parts.
Analysts don't pay enough attention to exchange rates when the oil market is tight. That can have many knock on effects.
Why some now think ( Chris Cook) the power is with those who have the most demand and not the supply. Even more so now China has increased its storage capacity significantly by millions of barrels. Try and set the price to what it wants to pay.
China now have more than 1.2 billion barrels of oil in storage. They have been building oil refineries at a massive rate, so now they can refine far more oil products than they can actually use, and so they can export the surplus. They can dump it.
Chris Cook’s tour of the oil markets: from Nixon to Trump
" Then, the US ‘Energy Dominance’ strategy started to roll out. Now if you look at the Federal Reserve balance sheet, and a large chunk of the QE that had been used to buy treasury bills – they started selling these bills off. From the end of the first quarter, 2018, over 18 months, they were sold off, which released dollars, which enabled the repatriation of petroeuros. It was ‘come back to daddy’ time, from the petroeuro to the petrodollar.
Then is September 2019, the Iranians were supposed to have attacked the Saudi oil installations at Abqaiq. I don’t know whether they did or not, but the finger has been pointed at them. It massively disturbed the oil market – there was a huge price jump. Since then, QE has started again, but not in the same way. Before, they were selling treasury bills to the outside world, and most banks were involved, but now, it’s all internal, to 4 big banks. They call it ‘not QE’, because it’s being done internally to the system of reserves – only the Federal Reserve banks are involved in this process.
I think this means that the US are literally basing the dollar on their oil reserves. They’re funding shale, not so much with loans, which is what they did for many years, but with what’s called pre-pay – pre-payment. This is what Enron did, by the way. It’s how Enron defrauded creditors and investors for 10 years. Their strategy is for the Federal Reserve Bank to pump up the oil price, using the North Sea benchmark to do so. "
Or as you say Neil - larger US oil firms becomes a full blown treasury department.
Now nobody really knows if Chris Cooks theory is true of not.
Many oil experts agree and many disagree.
But every reason so far I've heard why experts think the $'s strength keeps getting stronger under such an inflationary period just doesn't cut the mustard for me. It flies in the face of Econ 101. That inflation kills your currency.
If Chris is right would the $ keep getting stronger as the oil price increases ? If the US have put oil on a $ standard ?
I dunno..
" But then Covid happened. 30 million barrels of oil demand disappeared. The US strategy collapsed, and the oil price collapsed with it. Now everybody believes that the oil price is controlled by the producers – that it’s the natural order of things. But it isn’t, because the buyer side can take control.
The Chinese, and the buy side are taking advantage of this demand shock. China has built oil storage on a colossal scale. They’ve taken strategic action over a number of years. For an extra dollar on the price of a barrel, China has to pay an extra $10 million dollars per day. So are the Chinese going to put up with an extra $30 per barrel? No – they’re not going to let that happen. "
They won't let that happen if it starts to effect the Chinese economy. As long as the yuan appreciates they get cheaper oil anyway.
And have now moved to rubles and Russia and that will increase even more once more pipelines are built between the two.
I'm coming around to the view after having a front row seat of the Ukraine war that turning certain sectors of the US economy into treasury departments.
Is no different to fighting Russia in Ukraine down to the last Ukrainian.
Why most western democracies are now one party nation states because foreign policy and the geopolitical map demands nothing else.
Western democracies and economies have been, and are being set up not to get along with Russia and China or even to compete with them but to destroy them.
Even though it is China that pulls the West out of every recent crises or recession.
Western foreign policy is now being built for this purpose and democracy and certain freedoms can go to hell in a handcart. As far as our leaders are concerned.
Watching what has happened during the Ukraine war was the missing jigsaw piece for me. Stuff you never heard about as it was always kept behind closed doors are now fully out in the open. What their intentions really are.
If it means destroying domestic competition and turning sectors into rent extracting monopolies and into treasury departments then so be it. They don't even try and hide it anymore. That's the scariest part of all as they all become more authoritarian.
The geopolitical map has become way more important than democracy. For at least the last 20 years.
"What we need to do is nuke those financing arms so that firms can only make serious money by doing something useful - not moving numbers around a casino"
General Motors feigns to be an automobile maker but really is nothing more than a finance business. Explains why they make lousy cars :(
(PS: Hybrid, you say? Then better make it a Toyota hybrid.)
Maybe Franko should go back to school and get an art degree. Perhaps that would lead to him constructing coherent sentences, instead of a series of tantrums separated by ellipses.
“ MMT’s framework argues that governments who want to encourage households to purchase consumer goods can focus on directly increasing those individuals’ deposit accounts at commercial banks—as manipulating reserve balances is inconsequential. ”
ReplyDeleteCOMPLETELY false statement… COMPLETELY false … 100% false …
I will debate these Art degree morons any time any place on this .., but in Scientific terms.,,
Why is Fed having 2T in RRP if wha5 these Art degree MMT morons say here is true?
Why?
https://www.wsj.com/articles/my-plan-for-fighting-inflation-joe-biden-gas-prices-economy-unemployment-jobs-covid-11653940654
ReplyDelete“ Third, we need to keep reducing the federal deficit, which will help ease price pressures.”
MMt complete FAILURE of pedagogy…, 100% fail..,
Make an adjustment..,
"Why is Fed having 2T in RRP if wha5 these Art degree MMT morons say here is true?
ReplyDeleteWhy?"
Because the Fed believes in the power of interest rates. Therefore it is giving free money to bankers - who will gladly accept it.
The Fed has no need to do that. It can just remove the reserve requirements and ratios like other countries have.
The Fed ends up having to take counter action to prop up its own silly rules.
Neil it doesn’t have anything to do with the rates it has to do with Fed liabilities/Bank assets.., the regulatory balances of those ..,
ReplyDeleteThe focused point here is these Art Degree MMT morons at the Gower (who was he? Another Art degree moron with munnie?) Institute.. sounds exalted … probably a moron factory.. say and I quote “ manipulating reserve balances is inconsequential” which under current regulatory framework is …. wait for it,,, 100% FALSE ..,
ReplyDeleteI will school these morons on this any time any place.,
“ Reserve balances are representative numbers; there is no physical object that either party needs to ship to the other when transferring reserves.”
ReplyDeleteDuh… an Art degree moron discovers abstractions…
How dumb are these people?
Just quit.. quit.,, just give it up…. your not qualified.,
This is like reading kindergartners…
https://youtu.be/VJDJs9dumZI
ReplyDeleteLyrics
I look at you all
See the love there that's sleeping
While my guitar gently weeps
I look at the floor
And I see it needs sweeping
Still my guitar gently weeps
MMT Gower Institute morons to their fellow Art Degree students: “Now… his guitar IS NOT actually weeping…”
#jokers
#unqualified
I'm an associate at Gower.
ReplyDeleteSo crack with your schooling Matt. Let's see how far you get.
MMT's framework is not about getting households to purchase more consumer goods. MMT's framework is that government can be a source of investment, demand (and employment) when needed.
ReplyDeleteHe's not going to get very far after watching what is happening in Ukraine and denies war effects domestic economic policy.
ReplyDeleteCalled everyone a fool for even suggesting war effects domestic economic policy.
When the evidence is everywhere across the planet. That yes indeed war effects domestic economic policy. It is front of everybody's faces 24/7 but only the STEM guy can't see it.
I mean c'mon how can he not even recognise that. How on earth can he hold such a blinkered vision. A vision that says nope war does not effect domestic economic policy. What on earth is that all about.
" The Fed has no need to do that. It can just remove the reserve requirements and ratios like other countries have. "
He'll completely ignore that POV as it doesn't fit in with his art degree itis narrative. That everyone suffers from incompetence. That everyone is trained to do the same thing. Which yet again is very clearly not the case.
It is not just that Fed believes in the power of interest rates. It is more to do with that over the long term they just love giving free money to the banks. That's one of the instruments of choice to do it.
Or give free money to big agriculture, big pharma, big oil and gas, via subsidies to anybody willing to help them to win an election.
Trump Propped Up His Rural Vote with Massive Subsidies to Agribusiness to try and offset his tariffs on China and Europe. The largest subsidies ever given in American history to that sector.
As explained beautifully here along with one of the most undemocratic centres of democracy the senate. Oh and the filibuster and the role that plays.
https://m.youtube.com/watch?v=42GkcyVfT1E
Once the STEM guys step away from reserves and ratios and into real power and politics they are completely lost like a drunk who has lost their keys.
"MMT's framework is that government can be a source of investment, demand (and employment) when needed."
ReplyDeleteNail on head !
Targeting effective demand more than aggregate demand and to force the private sector to compete to get rid of the rent seekers.
What's not to like about any of that ?
That's the threat we're missing.
ReplyDeleteI read a good comment this morning suggesting that every business is really two businesses. One that does something real and a 'finance business'. Normally the finance business is getting an overdraft or interest on a credit balance, but in larger firms it becomes a full blown treasury department and after that starts to become more important than the real business the firm is known for. Think Ford financing, etc.
What we need to do is nuke those financing arms so that firms can only make serious money by doing something useful - not moving numbers around a casino.
" knock" and the ball flies out of the ball park for a home run.
ReplyDeleteWhere the real theft takes place and productivity goes to die.
They have way too much pricing power.
I was reading articles by Anas Alhajji last night into the wee hours of the morning about oil markets.
https://www.anasalhajji.com/category/publications/saudi-arabia-opec-shale-and-the-oil-market
Who is considered as one of THE experts on the oil markets. Not just some random.
Got me thinking that there is so much going on in the oil markets that mirrors what economies have become and morphed into.
The Chinese Yuan and Oil Prices
https://www.anasalhajji.com/publications/oil-market-general/chinese-yuan-oil-prices
Forecasting Oil Supply And Demand: Difficulties and Challenges
https://www.anasalhajji.com/publications/oil-market-general/forecasting-oil-supply-demand-difficulties-challenges
The Impact Of Dollar Devaluation On The World Oil Industry: Do Exchange Rates Matter?
https://www.anasalhajji.com/publications/opec-and-the-oil-market/impact-dollar-devaluation-world-oil-industry-exchange-rates-matter
The Oil Market And Economics 101
https://www.anasalhajji.com/publications/the-oil-market-and-economics-101
Worth reading the links highlighted and a quick summary of the 4 links would highlight Neil's point beautifully.
fully supports the case that When competition dies and monopolies are allowed to form any drop in demand is filled by price hikes.
"This trajectory is difficult to square with inflation accounts based on excessive demand. Oil demand has still not exceeded pre-pandemic levels; it is supply that has lagged. Meanwhile, far from being “too greedy”, companies seem to not be greedy enough — at least in the conventional sense of maximising profits. Instead of reinvesting their earnings in drilling new wells, even at profitable oil prices, companies have returned cash to shareholders."
ReplyDeletehttps://unherd.com/2022/06/corporations-arent-greedy-enough/
"Instead of reinvesting their earnings in drilling new wells"
ReplyDeleteThe point Anas Alhajji makes is not all oil producing countries are equal because of
a) The exchange rate ( linked to the $ or not) or ( free floating )
b) What their debts are denominated in.
" Consumers in countries with non-dollar appreciating currencies enjoy cheap oil, while people in dollar-pegged countries pay a higher price for the same barrel of oil. Therefore, dollar devaluation affects world oil supply and demand.
This effects the "Instead of reinvesting their earnings in drilling new wells" Where productivity goes to die.
Theoretically, dollar devaluation reduces drilling activities in areas where most of the costs are denominated in non-dollar appreciating currencies such as the North Sea. It also reduces drilling activities in the oil producing countries. Dollar depreciation reduces these countries’ purchasing power and can increase domestic inflation levels.
Dollar devaluation increases demand for oil in countries with non-dollar appreciating currencies. It also increases demand for gasoline in the US as thousands of Americans spend their vacations at home instead of traveling to Europe where the cost of the vacation is higher than three years ago. Regardless of OPEC decisions, dollar devaluation on its own may tighten supplies.
Oil prices can be at record levels in dollar terms, but not in other currencies.
https://www.anasalhajji.com/publications/opec-and-the-oil-market/impact-dollar-devaluation-world-oil-industry-exchange-rates-matter
The effect of the appreciation of the yuan on oil markets can increase China’s oil demand and reduce world oil supply. If oil market fundamentals stay the same, a yuan revaluation would bring oil prices to new record highs. In this case, the increase in oil prices would wipe out any benefits that the US or others may gain from the yuan appreciation.
Developing countries have no choice but to pay higher oil import bills.
If the yuan were to appericiate the currencies of other Asian countries could very easily appreciate, including the Japanese yen. This appreciation in Asian currencies would hurt oil producers, especially countries that peg their currencies to the dollar, such as the Gulf States. From the oil producers’ point of view, the appreciation of Asian currencies would be just another devaluation of the dollar.
Saudi Arabia would have to sell additional barrels just to buy the same amounts of goods and services that it bought from China previously.
Could lead to inflation, lower economic growth, higher unemployment, and lower investment in the oil sector. "
In short my take from all of that and would I found to be interesting was not everybody can reinvest their earnings in drilling new wells.
There's a lot of moving parts.
Analysts don't pay enough attention to exchange rates when the oil market is tight. That can have many knock on effects.
Why some now think ( Chris Cook) the power is with those who have the most demand and not the supply. Even more so now China has increased its storage capacity significantly by millions of barrels. Try and set the price to what it wants to pay.
ReplyDeleteChina now have more than 1.2 billion barrels of oil in storage. They have been building oil refineries at a massive rate, so now they can refine far more oil products than they can actually use, and so they can export the surplus. They can dump it.
Chris Cook’s tour of the oil markets: from Nixon to Trump
https://www.lowimpact.org/posts/chris-cook-oil-markets-from-nixon-to-trump
" Then, the US ‘Energy Dominance’ strategy started to roll out. Now if you look at the Federal Reserve balance sheet, and a large chunk of the QE that had been used to buy treasury bills – they started selling these bills off. From the end of the first quarter, 2018, over 18 months, they were sold off, which released dollars, which enabled the repatriation of petroeuros. It was ‘come back to daddy’ time, from the petroeuro to the petrodollar.
Then is September 2019, the Iranians were supposed to have attacked the Saudi oil installations at Abqaiq. I don’t know whether they did or not, but the finger has been pointed at them. It massively disturbed the oil market – there was a huge price jump. Since then, QE has started again, but not in the same way. Before, they were selling treasury bills to the outside world, and most banks were involved, but now, it’s all internal, to 4 big banks. They call it ‘not QE’, because it’s being done internally to the system of reserves – only the Federal Reserve banks are involved in this process.
I think this means that the US are literally basing the dollar on their oil reserves. They’re funding shale, not so much with loans, which is what they did for many years, but with what’s called pre-pay – pre-payment. This is what Enron did, by the way. It’s how Enron defrauded creditors and investors for 10 years. Their strategy is for the Federal Reserve Bank to pump up the oil price, using the North Sea benchmark to do so. "
Or as you say Neil - larger US oil firms becomes a full blown treasury department.
Now nobody really knows if Chris Cooks theory is true of not.
ReplyDeleteMany oil experts agree and many disagree.
But every reason so far I've heard why experts think the $'s strength keeps getting stronger under such an inflationary period just doesn't cut the mustard for me. It flies in the face of Econ 101. That inflation kills your currency.
If Chris is right would the $ keep getting stronger as the oil price increases ? If the US have put oil on a $ standard ?
I dunno..
" But then Covid happened. 30 million barrels of oil demand disappeared. The US strategy collapsed, and the oil price collapsed with it. Now everybody believes that the oil price is controlled by the producers – that it’s the natural order of things. But it isn’t, because the buyer side can take control.
The Chinese, and the buy side are taking advantage of this demand shock. China has built oil storage on a colossal scale. They’ve taken strategic action over a number of years. For an extra dollar on the price of a barrel, China has to pay an extra $10 million dollars per day. So are the Chinese going to put up with an extra $30 per barrel? No – they’re not going to let that happen. "
They won't let that happen if it starts to effect the Chinese economy. As long as the yuan appreciates they get cheaper oil anyway.
And have now moved to rubles and Russia and that will increase even more once more pipelines are built between the two.
I'm coming around to the view after having a front row seat of the Ukraine war that turning certain sectors of the US economy into treasury departments.
ReplyDeleteIs no different to fighting Russia in Ukraine down to the last Ukrainian.
Why most western democracies are now one party nation states because foreign policy and the geopolitical map demands nothing else.
Western democracies and economies have been, and are being set up not to get along with Russia and China or even to compete with them but to destroy them.
Even though it is China that pulls the West out of every recent crises or recession.
Western foreign policy is now being built for this purpose and democracy and certain freedoms can go to hell in a handcart. As far as our leaders are concerned.
Watching what has happened during the Ukraine war was the missing jigsaw piece for me. Stuff you never heard about as it was always kept behind closed doors are now fully out in the open. What their intentions really are.
If it means destroying domestic competition and turning sectors into rent extracting monopolies and into treasury departments then so be it. They don't even try and hide it anymore. That's the scariest part of all as they all become more authoritarian.
The geopolitical map has become way more important than democracy. For at least the last 20 years.
"What we need to do is nuke those financing arms so that firms can only make serious money by doing something useful - not moving numbers around a casino"
ReplyDeleteGeneral Motors feigns to be an automobile maker but really is nothing more than a finance business. Explains why they make lousy cars :(
(PS: Hybrid, you say? Then better make it a Toyota hybrid.)
"I'm an associate at Gower."
ReplyDeleteI think Tom Jones is an alumnus.
"Alma mater" -- "nourishing mother." Never in a 100 years would i have figured out that Latin phrase.
Maybe Franko should go back to school and get an art degree. Perhaps that would lead to him constructing coherent sentences, instead of a series of tantrums separated by ellipses.
ReplyDelete