For those that are too young to remember, the legendary English comedy show Monty Python had a famous sketch about a disgruntled customer of a pet shop, who realised he had been sold a dead Parrot. The shopkeeper steadfastly refused to admit that the Parrot was dead:
One of the disappointing things about Values by Mark Carney who was the governor of two central banks including the Bank of England -- maybe he didn’t read the paper! -- is his adherence to the idea of fractional reserve banking. I will search out the reference when I get home and share it with you.
There were some other admirable parts to the book including the notion that money is a measure of value and thus a unit of account which is accepted by most economists in their texts. His attack on gold was worth a read.
But I remain dubious about there being usefulness in the concept of a money supply that holds value given how much money is created and destroyed daily by loan and credit repayments and federal taxes. It seems foundational to loanable funds notions that leads to other problems in the economics models of the economy.
Getting a handle on the money supply in a dynamic system seems akin to finding the volume of water flowing through all the river and creek systems in the world.
From speaking with the relevant staff at the Bank of England (whom I had met before the paper was published, and who were building stock-flow consistent models back then), the Neoclassicals in the research staff (who are of course the majority) were chastened both by their total failure to anticipate the GFC--both personally and in their prized DSGE models--and by their political masters, who (as I anticipated) fronted the media to take credit for their rosy predictions, and then were rubbished by the media as the economy collapsed instead.
This gave an opening for the accurate, heterodox view of banking to be taken seriously, and of course this was a common phenomenon across the world.
Since then, from what I've picked up again from the BoE, the Neoclassicals are in the ascendancy again. But once realism is out, it's very hard to replace it with fantasy once more. So those CB papers will remain a permanent embarrassment to academic economics.
I’m spending $15k/year to do a Master of Political Economy at Sydney. Makes Steve’s course look like good value!
As part of that I rearranged Australia’s national accounts from 1959 - 2022 in line with MMT sectoral balances (there’s a fun spreadsheet). Of course this is just an accounting identity and proves nothing in itself (except that it works). But most fun was overlaying this identity, as stacked bars, with overlaid plot lines for gross fixed capital formation and household savings*. Behold, savings DO NOT equal investment! And not just a little bit different - there is no time lag that can make those two line up. Even the mainstream sleight of hand that “government savings” are savings does not help this relationship.
Different relationships are far more apparent - between investment and GDP, and between savings and govt deficit. Costello surplus = negative savings, and the relationship is an exact mirror. Every recession, savings and deficit shoot up, investment plummets. The mainstream blames the deficit for “crowding out” the investment, but then what is all that saving doing? Then, the RBA bangs on about “incentivising” savings as they jack up interest rates, but the best incentive for saving is a recession! RBA still seems to have no idea what is going on, even though all this is right there in their own data. It’s like they’re in a parallel universe, the same bullshit universe where Trump represents the working man, capitalism is freedom, climate change is fake, and smoking is good for you.
*There is one time series I could not find: data on credit creation. I searched for this because, no matter what I did, I could not make the accounting identity work from the national accounts without calculating either savings or investment from the identity rather than using the collated data. Still not sure if it is me or the national accounts that have our stocks and flows confused! Overlaying these data separately as plot lines, I saw they *did* line up sometimes, but a long steady divergence through the 80’s, 90’s and 00’s threw it all out of whack. The boom in credit seemed the obvious place to look for this gap, and I expect that would also explain the wild swings in investment that typically precede recessions, but in the RBA’s parallel universe, that’s not how banks work so they don’t bother collating it.
Reminds me of something I learned riding my motorbike in a fluoro vest: it doesn’t help if they’re not looking.
The national accounts savings is just a residual, the gap between recorded GDP and recorded consumption on the Y=C+S identity. Since C is defined to not include servicing financial commitments (interest payments on debt etc.) it wildly out of whack with credit creation, which is the actual change in actual bank debt. I just derive that as the annual change in private debt, though I think the RBA does maintain its own change in debt series (the BIS, which produces the data set I use, doesn't).
Steve, the other maddening part of banking is the total perversion of financial terminology.
What passes for a debt these days is straight-up Orwellian double-speak. I call it 'nomenclature whack-a-mole'.
When it comes to calculating bank ratios, next to nothing is a debt any more. And, if some academic -- no one has ever heard of (for pay) -- says it's not a debt, it's game on, ladies.
Financial administrators, under severe political and economic interference, are hopeless.
Let's agree: If the scheme has a forward date and is redeemable for money, it's a debt and must be included in bank ratios and leverage calculations. Deriviatives are Exhibit 1.
The president, who is the top financial administrator on the planet, can make it so tomorrow.
"If the scheme has a forward date and is redeemable for money, it's a debt" Correct.
But what about monetary gifts? Historically we all know private debts inevitably build up and destabilize economies. Why is that? Perhaps the current monetary paradigm for the creation and distribution of new money is the monopolistic concept of Debt ONLY.
Occasional debt jubilees are a good reform, but why not integrate debt jubilee directly and continuously into the economic process with a 25-50% debt jubilee at the point of loan signing?
Moral hazard, which is what we're trying to stop now. "Free-riding starts at n of 2" Aiden Vining (SFU. 1996).
How about we use national monetary authority (as originally designed) to make much needed national investments, like (equivalent to) St. Lawrence Seaway. Thus making the country more productive and able to give everybody a raise.
Neoclassical is about doing nothing, resulting in vast surplus labour.
Steve's got the best blog in the world and he does it on a dime.
Exactly, when your pocketbook and hold on power is questioned its exceedingly easy to fool yourself or just say fuck you to the masses who don't understand the problem and/or have been acculturated to believe the elite ideology anyway.
Consider this. Even if you don't see the conceptual alignments of the policies I advocate with all of the present leading reforms and the historical signatures those policies mirror with past paradigm changes then look at what happened after the Great Depression and WW II when Social Credit (a now mostly historically buried world movement whose policies I have extended and innovated to the paradigmatic level) threatened to bring the concept of monetary gifting into the public consciousness. The fall back "major" reform that distracted everyone from Social Credit's concept of Monetary Gifting became Keynesianism. In my opinion settling for a reform when a paradigm change is actually doable is out ethics, but when a ruling ideology is seriously threatened it does make reforms more likely. So if one can't see a thirdness greater oneness of a Hegelian synthesis at least go for thesis versus antithesis sub 2.
...which the powers that be will likely allow...instead of an applied concept that would end their paradighmatic power. Meanwhile keep advocating even harder for the new concept.
Moral hazard? The banks and their suck up coterie of corporate colaborators are the only ones with moral hazard for accepting/coercing gifts as in bail outs and that after THEY were the ones who caused the great financial crisis of 2008. The individual has never been given a break or a gift even though every citizen of modern economies should be entitled to a modicum of such based on an ever increasing cultural heritage of productive/technological capacity built up over the last few centuries.
I'm all for national investment. In fact Ellen Brown's National Infrastructure Bank is another very good reform that could begin to do that, but remember Keynesianism got morphed into neo-classical macro. That plus they don't have an inflation killing/inverting/paradigm changing/wildly individually beneficial set of policies like I do...that could herd the entirety of the political apparatus toward sanity...if such policies could only get a platform to communicate them. Bitching about "the authorities" and "the pols" is a good purgative, but trying to convince them when their egos are involved is futile and poor sociology/political science. Give the individual an easily perceived heavy dose of buttered monetary bread and even more importantly hope and miracles can happen. Consult Gandhi or MLK, Jr.
I hope Steve earns even bigger dollars than he's making on patreon and substack. Yes I am a troll, but I'm a troll for the new paradigm and its policies all of which conceptually and intentionally align with everything Steve, Michael Hudson, MMTers and Ellen Brown claim and want to see happen. And all of their movements could easily integrate with and be further enabled...if they'd just open themselves up to operant applied concept/paradighmatic analysis.
"Human capital matters most." Right, my motto has always been: "Systems were made for Man, not Man for systems."
officialdom and demanded the equity capital of the BoC be returned to the people of Canada. COMER even tried suing. Rest assured no one is laughing on Wellington St any more. I know David reads this blog.
Good for you. Any critique or area of agreement with what I propose? I mean, if it all aligns with what Prof Keen and others want, and actually accomplishes the hallmarks of historical paradigm changes...why not?
It all starts with the cockamamie idea that saving "flows into" deposits, creating more deposits (M2, or "money" in a narrow sense).
Saving is just spending less than income. When people save, they leave their deposits sitting in their accounts.
When they don't save but spend instead, they transfer their deposits to someone else's account. (At the same or a different bank. Whadevuh.)
Neither of those choices creates new deposits.
Nor are are spent deposits "consumed." They're just transferred. No change in the quantity of deposits. Full stop.
One of the disappointing things about Values by Mark Carney who was the governor of two central banks including the Bank of England -- maybe he didn’t read the paper! -- is his adherence to the idea of fractional reserve banking. I will search out the reference when I get home and share it with you.
There were some other admirable parts to the book including the notion that money is a measure of value and thus a unit of account which is accepted by most economists in their texts. His attack on gold was worth a read.
But I remain dubious about there being usefulness in the concept of a money supply that holds value given how much money is created and destroyed daily by loan and credit repayments and federal taxes. It seems foundational to loanable funds notions that leads to other problems in the economics models of the economy.
Getting a handle on the money supply in a dynamic system seems akin to finding the volume of water flowing through all the river and creek systems in the world.
There's also the Bank of Canada, the ECB and others explaining money creation. Handy list here https://www.economania.co.uk/various-authors/where-money-comes-from.htm
Useful link. Thanks Bill.
It's interesting to speculate on just why so many central banks all seem to have decided to 'out' the high street banks at around the same time.
From speaking with the relevant staff at the Bank of England (whom I had met before the paper was published, and who were building stock-flow consistent models back then), the Neoclassicals in the research staff (who are of course the majority) were chastened both by their total failure to anticipate the GFC--both personally and in their prized DSGE models--and by their political masters, who (as I anticipated) fronted the media to take credit for their rosy predictions, and then were rubbished by the media as the economy collapsed instead.
This gave an opening for the accurate, heterodox view of banking to be taken seriously, and of course this was a common phenomenon across the world.
Since then, from what I've picked up again from the BoE, the Neoclassicals are in the ascendancy again. But once realism is out, it's very hard to replace it with fantasy once more. So those CB papers will remain a permanent embarrassment to academic economics.
I’m spending $15k/year to do a Master of Political Economy at Sydney. Makes Steve’s course look like good value!
As part of that I rearranged Australia’s national accounts from 1959 - 2022 in line with MMT sectoral balances (there’s a fun spreadsheet). Of course this is just an accounting identity and proves nothing in itself (except that it works). But most fun was overlaying this identity, as stacked bars, with overlaid plot lines for gross fixed capital formation and household savings*. Behold, savings DO NOT equal investment! And not just a little bit different - there is no time lag that can make those two line up. Even the mainstream sleight of hand that “government savings” are savings does not help this relationship.
Different relationships are far more apparent - between investment and GDP, and between savings and govt deficit. Costello surplus = negative savings, and the relationship is an exact mirror. Every recession, savings and deficit shoot up, investment plummets. The mainstream blames the deficit for “crowding out” the investment, but then what is all that saving doing? Then, the RBA bangs on about “incentivising” savings as they jack up interest rates, but the best incentive for saving is a recession! RBA still seems to have no idea what is going on, even though all this is right there in their own data. It’s like they’re in a parallel universe, the same bullshit universe where Trump represents the working man, capitalism is freedom, climate change is fake, and smoking is good for you.
*There is one time series I could not find: data on credit creation. I searched for this because, no matter what I did, I could not make the accounting identity work from the national accounts without calculating either savings or investment from the identity rather than using the collated data. Still not sure if it is me or the national accounts that have our stocks and flows confused! Overlaying these data separately as plot lines, I saw they *did* line up sometimes, but a long steady divergence through the 80’s, 90’s and 00’s threw it all out of whack. The boom in credit seemed the obvious place to look for this gap, and I expect that would also explain the wild swings in investment that typically precede recessions, but in the RBA’s parallel universe, that’s not how banks work so they don’t bother collating it.
Reminds me of something I learned riding my motorbike in a fluoro vest: it doesn’t help if they’re not looking.
The national accounts savings is just a residual, the gap between recorded GDP and recorded consumption on the Y=C+S identity. Since C is defined to not include servicing financial commitments (interest payments on debt etc.) it wildly out of whack with credit creation, which is the actual change in actual bank debt. I just derive that as the annual change in private debt, though I think the RBA does maintain its own change in debt series (the BIS, which produces the data set I use, doesn't).
And yes, it is good value!
Despair not, surplus labour will save capitalism. The debate these days seems to be whether or not child labour will make capitalism soar.
Hard to exaggerate this stuff.
P
Steve, the other maddening part of banking is the total perversion of financial terminology.
What passes for a debt these days is straight-up Orwellian double-speak. I call it 'nomenclature whack-a-mole'.
When it comes to calculating bank ratios, next to nothing is a debt any more. And, if some academic -- no one has ever heard of (for pay) -- says it's not a debt, it's game on, ladies.
Financial administrators, under severe political and economic interference, are hopeless.
Let's agree: If the scheme has a forward date and is redeemable for money, it's a debt and must be included in bank ratios and leverage calculations. Deriviatives are Exhibit 1.
The president, who is the top financial administrator on the planet, can make it so tomorrow.
Don't hold your breath
"If the scheme has a forward date and is redeemable for money, it's a debt" Correct.
But what about monetary gifts? Historically we all know private debts inevitably build up and destabilize economies. Why is that? Perhaps the current monetary paradigm for the creation and distribution of new money is the monopolistic concept of Debt ONLY.
Occasional debt jubilees are a good reform, but why not integrate debt jubilee directly and continuously into the economic process with a 25-50% debt jubilee at the point of loan signing?
Moral hazard, which is what we're trying to stop now. "Free-riding starts at n of 2" Aiden Vining (SFU. 1996).
How about we use national monetary authority (as originally designed) to make much needed national investments, like (equivalent to) St. Lawrence Seaway. Thus making the country more productive and able to give everybody a raise.
Neoclassical is about doing nothing, resulting in vast surplus labour.
Steve's got the best blog in the world and he does it on a dime.
Human capital matters most.
Jean Boivin, deputy governor BoC and deputy MoF now at Blackrock Institutional in London;
Mark Carney came from City of London, raised rates midst a recession;
David Mullins, Federal Reserve governor left for LTCM;
Geithner, Paulson;
The list at Treasury is endless.
Exactly, when your pocketbook and hold on power is questioned its exceedingly easy to fool yourself or just say fuck you to the masses who don't understand the problem and/or have been acculturated to believe the elite ideology anyway.
Consider this. Even if you don't see the conceptual alignments of the policies I advocate with all of the present leading reforms and the historical signatures those policies mirror with past paradigm changes then look at what happened after the Great Depression and WW II when Social Credit (a now mostly historically buried world movement whose policies I have extended and innovated to the paradigmatic level) threatened to bring the concept of monetary gifting into the public consciousness. The fall back "major" reform that distracted everyone from Social Credit's concept of Monetary Gifting became Keynesianism. In my opinion settling for a reform when a paradigm change is actually doable is out ethics, but when a ruling ideology is seriously threatened it does make reforms more likely. So if one can't see a thirdness greater oneness of a Hegelian synthesis at least go for thesis versus antithesis sub 2.
...which the powers that be will likely allow...instead of an applied concept that would end their paradighmatic power. Meanwhile keep advocating even harder for the new concept.
Moral hazard? The banks and their suck up coterie of corporate colaborators are the only ones with moral hazard for accepting/coercing gifts as in bail outs and that after THEY were the ones who caused the great financial crisis of 2008. The individual has never been given a break or a gift even though every citizen of modern economies should be entitled to a modicum of such based on an ever increasing cultural heritage of productive/technological capacity built up over the last few centuries.
I'm all for national investment. In fact Ellen Brown's National Infrastructure Bank is another very good reform that could begin to do that, but remember Keynesianism got morphed into neo-classical macro. That plus they don't have an inflation killing/inverting/paradigm changing/wildly individually beneficial set of policies like I do...that could herd the entirety of the political apparatus toward sanity...if such policies could only get a platform to communicate them. Bitching about "the authorities" and "the pols" is a good purgative, but trying to convince them when their egos are involved is futile and poor sociology/political science. Give the individual an easily perceived heavy dose of buttered monetary bread and even more importantly hope and miracles can happen. Consult Gandhi or MLK, Jr.
I hope Steve earns even bigger dollars than he's making on patreon and substack. Yes I am a troll, but I'm a troll for the new paradigm and its policies all of which conceptually and intentionally align with everything Steve, Michael Hudson, MMTers and Ellen Brown claim and want to see happen. And all of their movements could easily integrate with and be further enabled...if they'd just open themselves up to operant applied concept/paradighmatic analysis.
"Human capital matters most." Right, my motto has always been: "Systems were made for Man, not Man for systems."
I've been in a room with MoF
officialdom and demanded the equity capital of the BoC be returned to the people of Canada. COMER even tried suing. Rest assured no one is laughing on Wellington St any more. I know David reads this blog.
Troll away. Not the first.
Good for you. Any critique or area of agreement with what I propose? I mean, if it all aligns with what Prof Keen and others want, and actually accomplishes the hallmarks of historical paradigm changes...why not?
100% politics. They know what needs doing.
Dysfunctional money and banking feeds the messiah complex every few years in officialdom.
Steve wants to change the ststem. I say change the people, end the escape hatch and no 'golden parachute'.
Government superanuanation only 'shiver me timbers'.