This is a post from Michael Hudson. It will be posted later today on his site https://michael-hudson.com/, but the site admin is in Australia, and won't be up for several hours. Since this is a fast moving story, Michael wanted his info up ASAP, hence this cross post.
Michael Hudson also considers private banks to be parasites which I completely agree with because their loans are always exterior to the economic/productive process itself (because they are always either pre-production or post retail sale...commercial finance that only aggregates already created and saved money is a legitimate business model), but he like every other economic theorist I've followed never gets around to being a system's philosopher that analyses the philosophical concepts/paradigms that describe the most basic nature of the patterns they apply to and, mostly unconsciously, control our thinking regarding such system.
You have numerous times said economics needs a new paradigm, so why not investigate a new operant applied concept that REALLY changes things mentally and temporally instead of merely reforms a portion of the pattern...for a little while until its reversed like how Keynesianism got morphed into neo-liberal macro?
You once told me that I had "the worst case of verbal diarrhea you'd ever seen" which stylistically may be somewhat true (although its not my problem if people have difficulty holding several concepts in their minds simultaneously...even if they are all effective, historically verifiable and philosophically aligned) ...but that's actually just ad hominem not actually a valid economic critque.
So I challenge you to follow through with your own belief that we require a new paradigm by actually analyzing on that level and engaging me either here or via email at email@example.com. And please remember I've always agreed with yours and others work, I'm merely asking that we look at things from a higher, more comprehensively effective level of analysis.
I don't understand this:
"Treasury will become the new depository of choice for those who have the financial resources. Bank deposits will fall. And with them, bank holdings of reserves at the Fed."
If (Group A of) portfolio holders swap their M2/deposits with other (Group B) portfolio holders in exchange for bonds, the M2/deposits *don't disappear.* They just move to other accounts.
And their price doesn't, can't change. That is the defining characteristic of M2 instruments: their price is institutionally hard-pegged to the unit of account. One dollar in checking/money-market deposits is always worth $1.*
So if M2 doesn't disappear, neither do banks' offsetting MB/reserve holdings. ??
Meanwhile this round-robin of accounts swapping M2 for Ts will bid/ratchet up the prices hence total Q of (variable-priced!)Ts. So total assets/net worth increase.
The stock of M2/deposits/reserves would decrease if deposits actually disappeared in accounting writeoffs of depositors' balances. But the Fed seems unlikely to allow that to happen.
* That price-pegging is guaranteed and enforced by multiple private and public institutions, notably including but not limited to deposit insurance for bank accounts. When the $65-billion money market Reserve Fund/Primary Fund (not insured by the FDIC/FSLIC or any private bank-insurance institutions) “broke the buck” on September 15, 2008, only offering 97 cents in commercial-bank deposits for $1 in money-market deposits, the U.S. Treasury stepped in within 48 hours to guarantee and prop up the $1 share price of all money market funds. (The funds paid a fee for this temporary but mandatory insurance, dissolved in September 2009.) In practice, in normal times and even extraordinary ones, $1 in M assets always sells for $1 — by definition here, but more importantly by institutional enforcement. Fixed-price is M assets’ sine qua non — the thing that makes them what they are.