Modern Monetary Theory: A Debate

[Joe Leote]

This publication includes three papers that may be of interest to
William and perhaps others:

Modern Monetary Theory: A Debate (34 page pdf):
http://www.peri.umass.edu/fileadmin/pdf/working_papers/working_papers_251-300/WP279.pdf

I am still reading so my initial comment is that terminology is
confusing while clear examples of the debit and credit mechanics and
data on the historic accounting activities applied by banks, nonbanks,
Treasury, and central bank is a better way to resolve such debates and
to better define the meaning of potentially confusing terms.

Joe

[William Hummel]

Joe,

Thanks for the link on the critique of MMT. I think Fiebiger makes several
valid points, but it could have been done in far fewer words. In re-reading
Lavoie's critique at http://www.boeckler.de/pdf/v_2011_10_27_lavoie.pdf, I
find his arguments more coherent and understandable. He uses no accounting
examples, but I think the issues are too subtle to be resolved in that way
alone.

William

[John Hermann]

I agree William, that the issues are way too subtle to be resolved by accounting methods alone.  I have several criticisms of the gurus of MMT, notwithstanding that I think they have a much better grip on macroeconomic principles than do most mainstream economists.  There are many commonly believed myths and fallacies which I believe MMTers have demolished by logical argument, and in doing so they have done humanity a great service.  One of these is the basis for the austerity fetish that has overtaken many countries today, namely the crowding-out hypothesis.  One of my criticisms of some of the MMTers is their blindness to the fact that monetary reform (removal of fractional reserve banking) may be carried out within an endogenous framework.

John Hermann

[Tom Paine II]

My cents’ worth on fractional banking/reserve & capital ratios.

I guess I’m of a firm opinion that the reserve/tier-1 fractional minima is overly low.  I think 50% would be an equitable “maximum allowed degree of intoxication”, the monetary doubling providing for Darwin’s and the devil’s dues.    How could a banker manage look alive?  But a doubling that doesn’t redouble, not without double the trouble.

 

Here’s my very best suggestion, for a subtle resolution.

A banker, starting at an apprentice’s 100% reserve ratio, should only through a sufficiently stolid and sustained career path and record, earn lower personal reserve ratios.

A banker’s reserve handicap, so to speak.

 

 

From: John Hermann

Sent: Saturday, April 14, 2012 7:06 PM

To: understan...@googlegroups.com

Subject: Re: Modern Monetary Theory: A Debate

 

I agree William, that the issues are way too subtle to be resolved by accounting methods alone.  I have several criticisms of the gurus of MMT, notwithstanding that I think they have a much better grip on macroeconomic principles than do most mainstream economists.  There are many commonly believed myths and fallacies which I believe MMTers have demolished by logical argument, and in doing so they have done humanity a great service.  One of these is the basis for the austerity fetish that has overtaken many countries today, namely the crowding-out hypothesis.  One of my criticisms of some of the MMTers is their blindness to the fact that monetary reform (removal of fractional reserve banking) may be carried out within an endogenous framework.

John Hermann



On 15/04/2012 8:51 AM, William Hummel wrote:

Joe,

Thanks for the link on the critique of MMT.  I think Fiebiger makes several valid points, but it could have been done in far fewer words.  In re-reading Lavoie's critique at http://www.boeckler.de/pdf/v_2011_10_27_lavoie.pdf, I find his arguments more coherent and understandable. He uses no accounting examples, but I think the issues are too subtle to be resolved in that way alone.

William

----- Original Message ----- From: "Joe Leote" mailto:tech_a...@verizon.net
To: "Money Group" mailto:understan...@googlegroups.com

Sent: Saturday, April 14, 2012 1:17 PM
Subject: Modern Monetary Theory: A Debate

[William Hummel]

As long as central bank policy is to control the short-term interest rate, I don't think bank lending decisions or net profits are a function of the required reserve ratio. The net amount of lending is limited only by the capital adequacy requirement, and is not reserve-constrained. Net profit from loans is a function of the spread between bank interest rates and the short-term target rate set by the central bank. Neither the amount of lending nor net profit depend on the reserve ratio.

 

Regardless of the required ratio, the central bank must provide whatever reserves are required in the aggregate to defend its target interest rate. The higher the ratio, the more reserves it must create. Individual banks must own enough reserves to cover their loans, and if short will have to borrow in the open market, or from the central bank at a penalty rate. The total amount of credit created through bank lending will vary with the target interest rate and the creditworthiness of borrowers. Whether you call it credit or credit money, or simply money doesn't matter.  

[Jean Erick]

     I'm thinking a review of the Law of Accounts would be going to the horses mouth on this.

They "formalized" and "compartmentalized" financial mechanisms persuant to establishing clarity and alleviate confusion produced by

conflicting law generated from divergent lines of law.

 

James 

----- Original Message -----

From: Joe Leote

To: Money Group

Sent: Saturday, April 14, 2012 1:17 PM