Winterspeak — Grexit!

Is Grexit (Greek Exit) the most wonderful sounding word since blog (web log)? Regardless, you'd expect to see more written about this from MMT circles but it seems not.…

Winterspeak

Grexit!

Winterspeak — A Bank is still not a financial intermediary: redux

Winterspeak responds to JKH's recent elaboration of a previous discussion of Paul Krugman's assertion that banks are not special based on his reading of Tobin-Brainard 1963. That reading is contested by some.It is significant in that it reveals how Krugman's idea of endogenous money compares to heterodox views that he contests. However, in the course of it a lot of information is coming out about bank operations that is of interest, especially in the discussion in the comments.


A Bank is still not a financial intermediary: redux

Winterspeak

The question hangs on the interpretation of "intermediary." In the broad sense, an intermediary is an agent that facilitates a relationship between principles, usually for a professional fee, like a matchmaker. But this is not the only use of intermediary and banks are usually considered financial intermediaries even though they do not lend out deposit but rather fund their loans with a combination of capital and borrowing from various sources only part of which includes deposits.

The difference with banks is that their primary function is risk management rather than intermediation in the sense of savings and loan institutions and credit unions, for instance, that actually lend out deposits that they take in. The argument is not so much about this kind of intermediation, since banks are clearly special cases in that they have access to borrowing in the interbank payment system not only from other banks but also from the central bank.

Banks lend against capital and fund their assets resulting from loans by borrowing from a variety of sources, other banks, depositors and the money market. In extending credit, banks don't just receive interest as a fee for matching borrower and lender. Banks actively participate in the creation of flow, not only by arranging for existing funds to be lent, but also by adding to deposits, thereby generating a flow that increases the money stock through expansion of M1. As Neil Wilson notes in a comment at Winterspeak's, this necessitates dynamic analysis of flow rather than static analysis of stock. Other intermediaries free up existing funds to generate flow while banks create flow "out of thin air" by creating deposits and only afterward obtaining matching funding in order to balance accounts.

The question is whether this makes a difference that makes the special case of banks special economically. The fact that banks lent imprudently to borrowers who were not creditworthy based on dodgy collateral would argue that banks are indeed specially economically in generating financial instability, as Minsky hypothesized. Yet, shadow banking was also heavily involved in the crisis, which would argue against banks alone being special in this sense. However, many of the shadow banking institutions were owned and controlled by banks and were used to by banks to increase leverage beyond that which regulation allowed.

Winterspeak— Intentionality and Accounting

Some weeks ago I had a good back-and-forth with the indomitable JKH in the forums about how useful Mosler's "paradigm shift" approach was vs JKHs "strictly the accounting" strategy. Mosler plays fast and loose with the language a little at time to better get his point across, and my position was (and remains) that if your goal is to knock people out of one way of thinking and into another, then sometimes you need to hit them over the head. But I don't think anyone has quite cracked that nut (no pun intended).

And yes, the term "paradigm shift" is grotesquely over and mis-used, but I think in term of MMT/PK vs standard academic economics, it is the correct term as we really are talking about taking an entire worldview, not just an isolated theory, and all of the implications that come with it; and jettisoning it for something else. This is a multiple-organ transplant procedure here, not a buttock lift, so roll up your sleeves.

Conceptualization counts when one is bucking the mainstream model.

Winterspeak
Intentionality and Accounting

Winterspeak — Koo goes cuckoo

Richard Koo became famous for his concept of a "balance sheet recession," which many confused with MMT. Now Koo makes clear how far he is from MMT.

Winterspeak.com
Koo goes cuckoo
Winterspeak

Winterspeak — Keen vs Krugman

Read it at Winterspeak.com
Keen vs Krugman

by Winterspeak

JKH on the Recent MMR/MMT Debates

Read it at Modern Monetary Realism
JKH on the Recent MMR/MMT Debates
by JKH

Important. This is actually a paper rather than a blog post and can be downloaded in PDF.

JKH's contribution here constitutes a landmark iteration for MMR as a serous attempt to engage MMT and other interested economists and financial professionals in professional debate rather than more cursorily and informally in blog posts and comment repartee.

To my knowledge, this is the first time that JKH has posted anywhere instead of commenting, even though much of his commenting would have been a series of worthy posts if he had a blog.

JKH elucidates the debate to date by quoting from previous posts and comments and moves the ball significantly forward by expressing his ideas, which he has thought out carefully and worked up as a paper. Well played.

Winterspeak — The Myth of High Powered Money

Does the government fiscal deficit flow to savings or equity? Winterspeak says equity and denotes this as NFA (e).

There is already a spirited debate raging in the comments.

Read it at Winterspeak.com
The Myth of High Powered Money
by Winterspeak

Winterspeak — Don't trust the data

Read it at Winterspeak.com
Don't trust the data

by Winterspeak

Winterspeak — Confused about MMR

Read it at Winterspeak.com
Confused about MMR

by Winterspeak

Michael Sankowski — A Reply to Winterspeak

Read it at Modern Monetary Realism
A Reply to Winterspeak
by Michael Sankowski

Winterspeak — "MMT is not Monetarism"

Interfluidity claims that monetarism shares more with MMT than we all think. 

[SRW] "I think MMTers, market monetarists, and Keynesians have almost everything in common other than tribe and affiliation." 

He then goes on to recommend a pro-cyclical inflation indexed government savings account. Crazy.

When seeing these hare-brained schemes, I always wonder just what problem SRW is trying to solve. There must be some policy reason I'm not seeing for complicated, rube-goldberg, counter-productive ideas.

Read it at Winterspeak.com
MMT is not Monetarism
by Winterspeak

Winterspeak — "S=I+(I-S)?"

Honestly, I'm having difficulty making head or tail of the discussion. I'm not sure what distinction they are making, and I don't know why the distinction I think they are making is important. It seems to be that, the usual sector de-composition is between the Government and non-Government sector, where Government is the currency issuer (consolidated Treasury and Federal Reserve function) and non-Government is everyone else (all currency users, includes foreign Governments). I think they are saying that within the non-Government sector, distinguishing the household from commercial sector is important, but I don't know why.

Anyone care to enlighten me?

Read it at Winterspeak
S=I+(I-S)?
by Winterspeak

FYI — Important discussion of MMT at Winterspeak's

To Read:

The run up is here in the comments.

Between Depression and Hyperinflation

From the comments: technical details on MMT

Winterspeak: Krugman is both right and wrong

Winterspeak agrees with Paul Krugman's column, The Unwisdom of Elites, and then explains why Krugman is one of the economic and academic elite responsible in the first place. As usual Winterspeak sums it up in his characteristically pithy way within the MMT paradigm.

Yes, the problem is the elites

Hint: It's in the sectoral balances, and the economic elite doesn't get this because they don't understand accounting.

Winterspeak responds to SRW

Comments on Interfluidity

Here is my favorite:

SRW: The internet is a fractious place. Many MMT-ers are civil and patient, and devote enormous energy to carefully and respectfully explaining their views. There’s no way to police other peoples’ manners. Still, even by the standards of the blogosphere, MMT-ers have a reputation as an unusually prickly bunch. That might not be helpful in terms of gaining broader acceptance of the ideas.

Winterspeak: What crap. It's like the Pope saying to Gallileo, "if you were only nicer about this whole earth revolving around the sun the Church would listen to you more". MMT is rejected because it is heretical.

Winterspeak's commentary is always excellent. Check out the rest.

UPDATE: Winterspeak also responds to Krugman

Kurgman [sic] says MMT again