Europako B planaz eta Keynes 1928an

2 Ingelesez: “Earlier this month (February 12, 2016), Eurostat told us that – Industrial production down by 1.0% in both euro area and EU28.

The report said that:

In December 2015 compared with November 2015, seasonally adjusted industrial production fell by 1.0% in both the euro area (EA19) and the EU28 … In November 2015 industrial production fell by 0.5% in both zones …

Among Member States for which data are available, the largest decreases in industrial production were registered in the Netherlands (-9.4%), Estonia (-8.8%) and Germany (-2.3%) …

Which means that the overall monetary union is back in recession if industrial production is considered.”

3 Ingelesez: “The context was the slowdown in British industry in that year and the subsequent rise in mass unemployment.

Keynes wrote:

Moreover, the more successful the efforts which are being made to restore the margin of profits by ‘rationalisation’, the greater the likelihood – at first anyhow – of increasing unemployment.

And the more successful the efforts of the Treasury, in the pursuit of so-called `Economy’, to damp down the forms of capital expansion which they control – telephones, roads, housing, etc., again the greater the certainty of increasing unemployment.

The resonance with contemporary events some 88 years later is frightening.”

4 Ingelesez: “he [Keynes] said that:

… the Chancellor of the Exchequer must remove and reverse his pressure against public spending on capital account.

Every public department and every local authority should be encouraged and helped to go forward with all good projects for capital expansion which they have ready or can prepare – roads, bridges, ports, buildings, slum clearances, electrification, telephones, etc., etc.

That is, a large-scale fiscal expansion.”

5 Ingelesez: “The other resonating fact is that Keynes wrote:

The nature of the error committed will never be exactly understood by the public”

6 Ingelesez: “Things have not changed much. We are once again in the thrall of ‘sound finance’ which Keynes so long ago demonstrated was damaging to the prosperity of the nation and only imbeciles would believe in it.

The UK Guardian article (February 29, 2016) –
China’s central bank attempts to boost economy with cash injection – reveals, yet again, how central bankers are caught up in a mindless Groupthink and do not even understand the policy instruments they are dealing with.

It also indicates that the journalists who wrote the article need to rethink their understanding of the material they write about.”

7 Ingelesez. “Part of the ‘sound finance’ dogma pertains to the superiority of monetary policy as a counter-stabilisation tool – that is, a tool to ensure spending fluctuations are minimised and growth and employment remains strong. (…)Lowering reserve requirements will do very little if anything to encourage bank lending in China or anywhere else.

I dealt with this issue in the following blogs – Lending is capital- not reserve-constrained and 100-percent reserve banking and state banks

This is the same sort of nonsense that has led central bankers to introduce negative interest rates in the hope that imposing a tax on bank reserves in the middle of a recession will mysteriously lead banks to lend more despite the fact that their are not too many borrowers knocking on their doors for funds – such is the stagnant state these policy makers have created.

Please read my blogs – The ECB could stand on its head and not have much impact and The folly of negative interest rates on bank reserves – for more discussion on this point.”

8 Ingelesez: “In the real world, bank loans create deposits and are made without reference to the reserve positions of the banks. The bank then ensures its reserve positions are legally compliant as a separate process knowing that it can always get the reserves from the central bank if it is short of reserves (requirements or not).

The only way that the central bank can influence credit creation in this setting is via the price of the reserves it provides on demand to the commercial banks.

Bank lending is not reserve constrained. Rather, limits are placed on banks by their capital. (…)

Commercial banks hold reserve accounts at the central bank for the sole purpose of facilitating the payments system (clearing house). Many countries have no reserve requirements other than the accounts must not be in the red on a sustained basis.

Reserve requirements are an artifact of the old gold standard and are irrelevant in the current monetary system. They do not reduce bank risk nor do they comprise a buffer that can be drawn on when there is a run on a bank.

To understand why reserve requirements do not constrain lending you have to understand how a bank operates. Banks seek to attract credit-worthy customers to which they can loan funds to and thereby make profit. What constitutes credit-worthiness varies over the business cycle and so lending standards become more lax at boom times as banks chase market share (this is one of Minsky’s drivers).

These loans are made independent of the banks’ reserve positions. Depending on the way the central bank accounts for commercial bank reserves, the latter will then seek funds to ensure they have the required reserves in the relevant accounting period. They can borrow from each other in the interbank market but if the system overall is short of reserves these horizontal transactions will not add the required reserves.”

9 Ingelesez: “To summarise:

1. A bank’s ability to expand its balance sheet is not constrained by the quantity of reserves it holds or any fractional reserve requirements.

2. The bank expands its balance sheet by lending. Loans create deposits which are then backed by reserves after the fact. The process of extending loans (credit) which creates new bank liabilities is unrelated to the reserve position of the bank.

3. Any balance sheet expansion which leaves a bank short of the required reserves may affect the return it can expect on the loan as a consequence of the ‘penalty’ rate the central bank might exact through the discount window. But it will never impede the bank’s capacity to effect the loan in the first place.

4. It is the Basel capital requirements that place a limit on the expansion of a commercial bank’s balance sheet at any point in time.

Please read the following blogs – Building bank reserves will not expand credit and Building bank reserves is not inflationary – for further discussion.”

10 Ingelesez: “Keynes warning was prescient at the time and remains a robust understanding of the causes of mass unemployment and the best policy cures.

He was fighting against ‘sound finance’ then and by the end of the Second World War had won the battle and the world entered a marvellous period of full employment and income growth with diminishing inequality and poverty.

But the conservative ideology is like a cockroach – hard to get rid of. And for the last three or so decades the world has been mired in its imbecilic nostrums that culminated into the GFC.

Rising poverty, mass unemployment and all the related ills are back – and we are too stupid to see these leaders for the imbeciles that they are!”