Amending article about Swiss National Bank losing money in gold. We said it first here on MNE.

Maybe I ought to read the comments more on my own blog.

Matt Franko brought to my attention the fact that WE at MNE were FIRST to point out that the SNB lost money on gold in 2013, It was discussed in the comments section of my blog post on January 16.

Both Cullen Roche and Business Insider put out that information on January 19 and I stupidly posted it up here even though we had been the first out with this information right here on MNE.

These other guys are reading us and not giving attribution.

Anyway, here is the link to my blog post from Friday, Jan 16. You can read the discussion in the comments. Pertinent parts are posted below.

Says they "made 38B" last year.... looks like almost all of it from their USD holdings gaining on the CHF.... (this is how they "make money"???)

BUT, says they "lost" 9B in 2013.....

"After failing to receive money for 2013, cantonal budget chiefs earlier this month urged the SNB to give them more money for 2014 to offset shortfalls in revenue from other sources."

Link given in the comments: Read.

Guest Post: Ralph Musgrave — Physical cash: Cullen Roche versus Warren Mosler

Physical cash: Cullen Roche versus Warren Mosler
Ralph Musgrave

I agree with some of the criticisms Cullen makes of MMT in his article “A critique of MMT, Modern Monetary Theory." However he goes off the rails in section 5 of that article.

First he says “In MMT all money is essentially state money.” Well that’s news to me: MMTers are well aware of the fact that commercial banks create a form of money when they extend loaans, aren’t they?

Next, Cullen criticises Warren’s ideas on the source of physical cash (dollar bills, etc.). Warren says households cannot obtain physical cash unless the state has first spent state money into the private sector with the private sector then using that state money to purchase physical cash off the Fed. Cullen disagrees: he says all that’s needed is for commercial banks to create money, which occurs when a commercial bank extends a loan.

I’ll try to sort this one out, and may fall a*se over t*t in process, but nothing venture, nothing gained. For Cullen’s argument see the paragraph starting “A good example of the erroneous MMT position…”: that’s in section 5 of the article.

Warren says in effect that when a commercial bank needs $X of dollar bills, it orders them from the Fed and the Fed debits the commercial bank’s account at the Fed by $X. Correct.

Now the credit balances that commercial banks have at the Fed must have come from somewhere: they come from the state having first spent state money in to the economy.

Of course it would be POSSIBLE to have a system where the state spends no state money into the economy, and where, when a commercial bank wants physical cash worth $X it goes into debt to the Fed. But that’s not what happens in the real world: amongst other reasons because the Fed, like other central banks, charges punitive rates of interest to any commercial bank going into debt to the Fed.

So as far as the 2013 real world is concerned, Warren is in right: physical cash is in effect money which the state has created and spent into the economy.

But against that, Cullen says, “So the cash comes from the Treasury, but not through spending, but through the desire from someone who already has an inside money account to draw that account down. Again, inside money precedes outside money.” (I.e. he is saying that commercial bank created money precedes state money - physical cash in particular).

But hang on: Cullen himself admits in section 5 of his article that about 10% of money in circulation is state money. So there is plenty of state money sloshing around which the private sector can use buy physical cash off the Fed.

But Cullen likes to concentrate on the 90% of money which is commercial bank created. He says that for the most part, when the private sector gets physical cash, that comes about as a result of households and firms depositing collateral at commercial banks, and having their accounts credited, and then using a portion of that credit balance to get hold of physical cash.

Well that’s true, but it doesn’t alter the fact that when a commercial bank wants $X of physical cash from the Fed, the Fed debits $X to the commercial bank’s account at the Fed. Hopefully that’s sorted out that argument.

Alternative banking systems.

As distinct from the banking and monetary system that actually exists in 2013, various other systems are perfectly feasible, as Cullen rightly points out. For example a system under which the only money in circulation is central bank created would be feasible: it’s called full reserve banking, and that system has plenty of advocates. And certainly, under that system, it would not be possible for anyone to obtain Fed created physical cash unless the state had first created and spent money into the private sector.

Conversely, there have been systems in the past where central banks were non-existent, yet there were thriving and efficient commercial banks, which issued their own bank notes. Those banks used gold to settle up with each other, though even precious metals aren’t essential since banks can settle up using almost anything: shares, real estate, you name it.

Those types of “central bank free” system existed in Scotland, Scandinavia and Canada between very roughly a hundred and two hundred years ago. George Selgin describes these systems in his various publications, including his book “The Theory of Free Banking”.

Clint Ballinger — Post Keynesianism, MMT, & 100% Reserves Project: Question #1

[This is part of an ongoing effort to understand and explain differences and points of agreement between Modern Monetary Theory, Full Reserve Banking, Post Keynesianism, Steve Keen’s work, and related approaches in as simple of terms as possible (difficult, as the debates hinge on complex and subtle concepts at times, but I will try). The goal is to create a resource for the general public to better understand these areas of study and why neoclassical economics fails, and to foster clearer communication between MMT, FRB, and PK proponents.]

If this is of interest, check out the comments over there, too. CB clarifies in light of some off-blog responses.

Clint Ballinger — On good urbanism, sane economics, & problems in the social sciences
Post Keynesianism, MMT, & 100% Reserves Project: Question #1
Clint Ballinger
(h/t Matt Franko in the comments)

Michael Sankowski — 3 Big Reasons Monetary Realism Matters

Getting into the nitty-gritty of monetary OR fiscal policy, and monetary AND fiscal policy that highlights the differences of monetarism, MMT and MR. Definitely worth thinking about, and Mike has not a good job in setting forth the issues from the MR vantage.

Monetary Realism
3 Big Reasons Monetary Realism Matters
Michael Sankowski

Cullen Roche comment on Mike post at Pragmatic Capitalism, An Interesting Wager…

I focus on Mike's post here.

My own view is that monetarism is biased toward economic rent-seeking, hence, favors the accumulation of wealth based on economic rents, and that MR shares this bias, probably because MR contributors Mike Sanskwoski, Cullen Roche, and JHK are in the financial sector, which is largely based on rent-seeking as presently operated. At least that is the way it would seem.

For example, Mike accepts the view that "real estate collateral is fairly valued now" based on historical data wrt to the Core Logic HPI and per capita income. Notice that this is based on per capita income, which has nothing to do with income distribution. Housing experts that I read, like Dr. Housing Bubble, say that housing prices are too high in relation to income distribution. Housing prices in general need to be much lower to be generally affordable at current income levels.

What has happened is that the government — chiefly the Fed and agencies, but extending to the WH — have kept housing prices higher than they would be to prevent the banking sector from insolvency without offering relief to underwater homeowners in servicing debts. The result is housing price manipulation by keeping bank RE inventory off the market or bundling sales to large investors who will rent and then flip.

This involves a huge transfer of economic rent to the wealthy and well-connected through government picking winners and losers.

A similar argument can be made about the financial sector in general. In supporting housing, the Fed admittedly made financial assets higher in value that they would otherwise have been.

The economic issues could have been addressed equitably through fiscal policy, while applying existing law to the financial sector instead of allowing rampant crime and corruption to continue and even proliferate, as Bill Black, Janet Tavakoli, and others have documented.

On one hand, MMT economists (Wray and Mitchell) and MMT allies (UMKC profs Black and Hudson) have been in the forefront of the red flag wavers. On the other, MR is silent about this. One wonders what their stance is.

I don't want to start a big kerfuffle over this, and I regret if anyone's feathers are ruffled. I don't mean this personally in any way, and I realize that I am stepping on friends' toes here. But this issue is bigger than personal feelings. It threatens to take the whole system down, in my view.

My sense is that some career-bias at MR may be entering in here, resulting in the ability to see, let alone address, some huge issues, which if not resolved with lead to the mother of all crashes in the not-so-distant future due to persistence of crony capitalism, corruption and capture. Much of this can be traced to rent-seeking behavior replacing productive contribution abetting by government though capture, e.g., the revolving door and lobbies.

While I don't think that this all there is at issue among monetarism, MMT, and MR, it is a big one. The other big one is the issue of resolving the trifecta of growth wrt production and productivity minus economic rent, employment and price stability. This is the thrust of the MMT policy position, which claims to harmonize the trifecta at full use of available human resources. As far as I understand it, the TC rule is similar to monetarist rules in that it comes it a couple of percentage points higher in unemployment.

So I think that the bet the Brad DeLong proposes needs to be very carefully specified wrt economic criteria.

Moreover, I am not very satisfied with employment measures in terms of "jobs." The present push is toward global equalization of wages for most workers. This is also an issue that needs to be addressed head on, because it is socially and politically important as well as economically. That is to say, the push is on by the elite for a neoliberal world market with the workers of the world competing equally with each other. This is resulting in a fundamental restructuring of social and political relations in the developed world, putting the US, UK, and the EZ in social, political and economic turmoil.

Cullen Roche on Peter Schiff

I just read this at Euro Pacific Capital, Peter Schiff’s company. He says we should eliminate the debt ceiling so our creditors can cut us off:

“Such a development may be the shock therapy our creditors need to finally cut us off for good. If that occurs, interest rates in the United States could finally rise to more rational levels. A significant increase in the cost of borrowing will create the mother of all fiscal cliffs. It’s too bad that Tim Geithner can’t see that one coming.”

This is not correct. Schiff misunderstands the design of our monetary system....

Pragmatic Capitalism
Eliminating the Debt Ceiling Wouldn’t Cause Interest Rates to Surge
Cullen Roche

Cullen Roche — On Playing Politics…

Cullen Roche has a post up explaining how MMR is apolitical and simply an operational description that makes a variety of policy options possible.

I am posting it here, since it addresses relevant issues, and several regular commenters here who are no longer welcome over there may have something to add to the discussion.

Read it at Modern Monetary Theory
On Playing Politics…
by Cullen Roche

Cullen Roche — Koo, the BSR and the coming “fiscal cliff”

Read it at Pragmatic Capitalism
Koo, The Bsr And The Coming “Fiscal Cliff”
by Cullen Roche

Cullen Roche responds to MMT economists — Things We Never Said…

Read it at Modern Monetary Realism
Things We Never Said…

by Cullen Roche

MMR — Paul Krugman Does S = I + (S-I)

Read at Modern Monetary Realism
Paul Krugman Does S = I + (S-I)
by Cullen Roche

Cullen Roche — Understanding The Modern Monetary System

Read it at Pragmatic Capitalism
Understanding The Modern Monetary System

by Cullen Roche

Cullen updates his paper and provides links

Cullen Roche — Capitalism Makes Socialism Acceptable

The MMR conversation on savings and investment has now raged to over 600 comments.  It would be an understatement to say that the conversation has been illuminating.  To me, one of the more interesting facets of this discussion is the fact that we have MMTers, horizontalists (like Ramanan), MMRists and previously undecideds (like the mysterious JKH) all agreeing!  I think this speaks volumes about the merits of what MMR is building.  Our flexible, fact based and apolitical approach is proving agreeable to many and I hope we’ll continue to embrace even those who might disagree with much of what we say.

But the most illuminating point that came from the discussions was the point on S = I + (S-I), where S = Savings, I = Investment.  Now, for the layman, I will try to break this down as best I can so bear with me.  What we learn from the sectoral balances approach is that the government’s deficit is the non-government’s surplus.  If the government taxed all your assets at a rate of 100% then you’d have no dollar denominated assets.  That’s simple enough.   The sectoral balances is a powerful concept as it highlights the power of the government and helps explain why a sovereign currency issuer might run persistent budget deficits without running into a Greek problem (the USA for instance has pretty much always run deficits so the idea that deficits are inherently bad, is inherently wrong!).  But when we break this equation down we have to be very precise about what it means because improper explanation will lead one to put the cart before the horse.

Read it at Pragmatic Capitalism

Capitalism Makes Socialism Acceptable

by Cullen Roche

(h/t Kevin Fathi via email)

Cullen Roche — "What Is The True Goal Of A Modern Society?"

Cullen Roche ventures into social and political philosophy with the question, What is the true goal of a modern society? This is a worthwhile discussion to have.

Read it at Pragmatic Capitalism
What Is The True Goal Of A Modern Society?
(Crossposted at Modern Monetary Realism)
by Cullen Roche

This is a pregnant question in that it underlies stating public purpose in terms of values, norms and criteria, which is the basis of policy formulation. Economic policy is a subset of national policy, determined on the basis of the interpretation of founding documents, culture and tradition, desired direction, and a vision for the future.

Different countries will answer this question in different ways, and different faction within the countries also. Different answers to this question determine the political platforms of the various parties in a liberal democracy.

Economics, especially macroeconomics, sets forth policy options for meeting objectives determined by national policy. Different approaches to macroeconomics determine different sets of policy options. For example, New Classicalism sets maximizing growth consistent price stability as its highest priority, whereas Post Keynesianism sets full employment along with price stability as its highest priority, along with achieving distributed prosperity consistent with available resources and sustainability.

Cullen Roche on yesterday's MMT flurry

The primary four legs of the MMT chair are Knapp’s state theory of money, Lerner’s functional finance, Godley’s sectoral balances and Minsky’s Employer of Last Resort....

I find it interesting that none of the articles about MMT [listed in Cullen's post] have mentioned these core pieces as the sum of MMT....

This just goes to show that the public is still far from understanding these ideas and what MMT actually is. But hey, it’s nice to see the exposure.  The world desperately needs to better understand these operational realities and while I don’t buy into MMT 100% I know that the world will be a much better place if people understand the basics of MMT’s operational realities.

Read it at Pragmatic Capitalism
What Separates Mmt From Good Old Keynesian Economics?

by Cullen Roche

Concur. I got the impression that none of the people writing about MMT in yesterday's flurry had really come to grips with MMT and only have a superficial notion of what constitutes it.

However, I don't believe Cullen's list above is exhaustive, although these are major MMT positions. 

MMT does not import the JG as proposed by Minsky, but significantly expands upon the idea in an original way. The MMT JG is not the Minsky JG. In addition, MMT builds on Minsky's analysis in other matters, such as financial instability.

MMT is also built on the credit theory of money as articulated by Innes, for example, along with Knapp's Chartalism. Wray has stated that MMT economists are in essential agreement with Graeber's historical analysis.

MMT also builds on Warren Mosler's soft currency economics, combining the verticalness of state money with the horizontalist operational description of credit money articulated within Post Keynesianism

Most significantly, Warren Mosler has asserted that his fundamental insight is that government is the currency monopolist.

Cullen Roche — The TC Rule & The New Site

Read it at Pragmatic Capitalist
The TC Rule & The New Site
By Cullen Roche

Cullen Roche — Monetary Realism

Read it at Pragmatic Capitalism
Monetary Realism
by Cullen Roche

Cullen in the comments:

1. We side with Godley on the current account issue.

2. We view the state theory and the “taxes drive money” idea as incomplete.

3. We will focus more on productivity as a compliment to consumption as opposed to mainly looking at ways to increase aggregate demand.

4. We reject the JG as a central component of understanding the modern monetary system.

Should make for some interesting debate.

Joe Firestone — The Job Guarantee and the MMT Core: Part Eleven, Price Anchor or Price Buoy?

Read it at Daily Kos — Money and Public Purpose
The Job Guarantee and the MMT Core: Part Eleven, Price Anchor or Price Buoy?

by Joe (Letsgetitdone) Firestone

Joe Firestone — The Job Guarantee and the MMT Core: Part Ten – A 180 Mic Check?

Read it Daily Kos — Money and Public Purpose
The Job Guarantee and the MMT Core: Part Ten – A 180 Mic Check?
by
Joe (Letsgetitdone) Firestone

Joe Firestone — The Job Guarantee and the MMT Core: Part Nine, The Wrong Goal?

Joe addresses some of Cullen Roche's points.

Read it at Daily Kos — Money and Public Purpose
The Job Guarantee and the MMT Core: Part Nine, The Wrong Goal?

by Joe (Letsgetitdone) Firestone

Peter Cooper — Opposing Visions of the Future

The debate initiated by John Carney's suggestion that MMT advocates and Austrian schoolers engage in finding common ground instead of focusing on what divides them kicked off a debate that veered off into a heated debate about the MMT job guarantee. That debate in turn elicited questions about what kind of economic goals should be included in economics as an effective policy instrument in addition to being an investigation into efficiently achieve those goals.

Peter observes,  "In one of Cullen Roche’s recent posts, there is a passage that can serve as a good basis for discussion:"

Cullen: "Modern day economists seek the holy grail of macroeconomics which has come to be price stability and full employment. These two features of modern macro are held up on pedestals as if giving a person a job and a steady wage is all one needs to live a happy and prosperous life. I say these goals entirely miss the point and steal the potential lives that future generations can live. What we should seek is the way in which we maximize our living standards. In doing so we reach the true holy grail of macroeconomics – the thing that every human seeks – the fountain of youth, hence, more TIME. After all, it is only through increased productivity, innovation, creativity and ultimately higher living standards that we are able to attain this."

Peter continues, "Parts of this passage resonate quite strongly with me, although the level of generality conceals major differences in perspective...."

Read the rest a heteconomist.com
Opposing Visions of the Future

by Peter Cooper

Good comments up there, too.

Peter pretty well sums up my views, at least initially. I would expand greatly on this, and I imagine that he likely will in subsequent posts. 

Many consider the present system to be obsolescent, if not already obsolete, in view of potential opportunities and taking into account looming challenges. Present conditions call for new thinking and fresh institutional arrangements.

The debate that John suggested is getting interesting in unexpected ways. The dialectical method is at work stimulating thinking.

As I wrote in a comment recently, the dialectical method that seeded Western thought through the character of Socrates in the Dialogues of Plato has gone globally interactive, and the dialectic is now proceeding at the speed of light. Good stuff.

Cullen Roche — There’s A Difference Between Theory & Fact

Cullen has a fresh post that responds to a comment of mine here.

* This originally appeared as a comment on Mike Norman’s website regarding this silly Job Guarantee (JG) disagreement among the MMT crowd.  Unfortunately, Tom Hickey deleted it several times for reasons unbeknownst to me (I presume because he didn’t want readers to see the truth in my comments).  

Tom, you said:“If Cullen doesn’t write it up as a professional paper fleshing out his argument, no professional economist is going to take his blog comments seriously.”

Read the rest ate Pragmatic Capitalism
There’s A Difference Between Theory & Fact

by Cullen Roche

Here is a repost of my response to Cullen at Pragmatic Capitalism.

Cullen, you omitted the lead up to that quote of mine, which is an answer to LVG's absurd assertion that you had essentially demolished MMT claims. My answer was that such his assertion was ridiculous on the basis of a some blog comments that don't show that at all. As you may have noticed LVG is now trolling over at Mike's.


My point was that for LVG's assertion to be taken seriously, if there would have to be a serious debate at a professional level, which there hasn't been. And if you don't plan to undertake one, then LVG's assertion is, shall we say, premature.


BTW, I have access to post at MIke's, but I do not have acces to delete the comments of others (or if I do, I am unaware of it). I did not ask Mike to delete your posts, and I have never ask him to anything about the blog other than to check the spam filter for possibly lost comments that people had reported. iIf someone else who has access to the delete button did delete your comments, I have no way of knowing or checking. If you have a problem with this, please contact Mike. If your comments were deleted, it could not possibly been my doing in any way, directly or indirectly.


My intention is to clarify, not to confront. This is a macro debate that is over my head to contribute to, and all I am doing is repeating what I understand from the professional MMT contributors. I am simply interested in keeping the record straight about MMT, on one hand, and commenting on policy options based on my ideological views. 


Finally, there is still confusion over what MMT is. As JKH has observed, there is a monetary theory (Chartalism or state money and credit money, vertical v. horizontal money, etc) and a description of monetary operations (STF's general and specific) underling a macro theory based on analytics and empirics as a challenger in the professional debate among macroeconomists.


As a result, there is 1) a debate of monetary theory and operations (such as largely goes on here at PC), 2) a macro debate at the professional level, 3) a debate over the application of the macro theory as a policy instrument revealing a spectrum of policy options, and 4) a debate over various policy options on various blogs. I am capable of repeating what I have understood about the first two, but my background does not qualify me to enter the debate other than as a person concerned with economic policy. As citizens and people affected by economic policy choices, the debate about policy options is open to us all, I will argue about that based on my own views.


These four debates must be kept separate in the mind. I am aware of no MMT contributor claiming that the JG is in any way connected with the monetary economics that underlies the macro theory. The claim is rather that the JG as buffer stock of employed and price anchor is an essential aspect of the macro theory in achieving FE $ PS. 


This is what the macroeconomists mean when they use the acronym "MMT." Confusion arises from ambiguity, since many people use "MMT" to mean the monetary description instead of the macro theory. Further complicating the matter is that MMT is also used for application of the macro theory as a policy instrument.


When MMT as a macro theory is applied as a policy instrument, the JG is essential as a policy tool in achieving FE & PS. Hence, MMT economists recommend it as a policy tool. The MMT economists have said that they would prefer to the complete package adopted by policy-makers but they admit that this unlikely. It is far more likely that pieces will be adopted first, like the sectoral balance approach and functional finance, which would be a huge advance. But they caution, don't blame MMT as an applied macro theory, if inflation results in the absence of a JG. They also say that the JG could be chosen first, which would also be beneficial. However, it should not be judged harshly if the rest of the theory is not adopted along with it.


If I got anything wrong in representing anyone else's views, I welcome correction.


I have stated that while I think that the MMT policy option of a buffer stock of employed is likely superior to a buffer stock of unemployed as MMT economists claim, I really have no way of assessing that claim professionally since I am not a macroeconomist and this is a macro claim. I accept that they have have correctly modeled it, and until someone establishes definitively that  they haven't I'll accept that claim.


I have also stated that I am uncomfortable with the JG because it treats labor as a commodity and that is inconsistent with my views about human rights and the dignity of work. I also don't think that it is forward looking, for reasons that I have set forth recently in comments at heteconomist.com here and here. I have also stated that while I don't agree with your approach of full productivity and living standard, in particular because it ignores distributional effects and the transition through which the world is now headed, I agree with you about quality being basic.


Cullen replies here.