Islandia eta DTM (Bill Mitchell-en eskutik) (1)


Ikus Islandia (mon amour)

Bertan hauxe azaltzen da:

DTM eta Islandia (Bill Mitchell-en ildotik):

 Ikus Iceland’s Sovereign Money Proposal – Part 11


Iceland’s Sovereign Money Proposal – Part 22


Azter ditzagun Mitchell-en bi lan horiek.

Mitchell-en Iceland’s Sovereign Money Proposal – Part 1


(a) Krisia: funtsean bankugintza dago3

(b) Oinarrizko DTM4

(c) Diruaren atzean botere erlazioak daude tartean5

(d) Ekonomia modernoen ezaugarri batzuk6

(e) Gobernu sektorea eta ez-gobernukoa7

(f) Banku zentrala eta merkataritza bankuak8

(h) Dirua: transakzio bertikalak eta horizontalak9

(i) Bankuen jarduera: transakzio horizontalak10

(j) Gobernuaren, hots, monopolistaren aukera: kantitatea ala prezioa11

(Segituko du)

3 Ingelesez: “The crisis was caused by banks becoming non-banks and engaging in non-bank behaviour rather than their intrinsic capacity to create loans out of thin air. A properly regulated banking system does not need to abandon credit-creation. Further, I am aware that in holding this view, I and other Modern Monetary Theory (MMT) proponents are accused of being lackeys to the crooked financial cabals that hold governments to ransom and brought the world economy to its knees. Let me state my position clearly: I am against private banking per se but consider a properly regulated and managed public banking system with credit-creation capacities would be entirely reliable and would advance public purpose. I also consider a tightly regulated private banking system with credit-creation capacities would also still be workable but less desirable.

4 Ingelesez: “Basic MMT

As background, please read the following blogs – Operational design arising from modern monetary theory and Asset bubbles and the conduct of banks – …

Please also read the following introductory suite of blogs – Deficit spending 101 – Part 1Deficit spending 101 – Part 2Deficit spending 101 – Part 3 – for basic Modern Monetary Theory (MMT) concepts.”

5 Ingelesez: “… note that the term ‘money’ is quite difficult to pin down given that it is a social construct with embedded power relationships. For us to understand the history of money requires us to also be sociologists and anthropologists among other things to penetrate the broader relationships that govern the use of a ‘thing’ which might be called money.

We have a tendency to think of money in numerical terms and construct additions and subtractions when talking about it. But we should always be mindful that underlying these ‘transactions’ (or the “arithmetic problem” as Randy Wray calls it in his work The Credit Money and State Money Approaches) are complex social relationships.

Economic exchange is always embedded in a power hierarchy, which determines, among other things, how the surplus production is generated and how it is distributed.”

6 Ingelesez: “Note also that:

  • Modern monetary economies use money as the unit of account to pay for goods and services. An important notion is that money is a fiat currency, that is, it is convertible only into itself and not legally convertible by government into gold, for instance, as it was under the gold standard.

  • The sovereign government has the exclusive legal right to issue the particular fiat currency which it also demands as payment of taxes – in this sense it has a monopoly over the provision its own, fiat currency.

  • The viability of the fiat currency is ensured by the fact that it is the only unit which is acceptable for payment of taxes and other financial demands of the government.

In a modern monetary economy, the consolidated government sector (central bank and treasury) determines the extent of the net financial assets position (denominated in the unit of account) in the economy.”

7 Ingelesez: “The only way the non-government sector can increase its stocks of net financial assets is if there is a transaction with the government sector (for example, if the government spends).

As a matter of accounting between the sectors, a government fiscal deficit adds net financial assets (adding to non government savings) available to the private sector and a fiscal surplus has the opposite effect.

Treasury operations which may deliver surpluses (destruction of net financial assets) could also be countered by a deficit (of say equal magnitude) as a result of central bank operations. This particular combination would leave a neutral net financial position.

However, most central bank operations merely shift non-government financial assets between reserves and bonds, so for all practical purposes the central bank is not involved in altering net financial assets.

The exceptions include the central bank purchasing and selling foreign exchange and paying its own operating expenses.

So we are clear – the government is the only entity that can provide the non-government sector with net financial assets (net financial savings).

In general, the government deficit (treasury operation) determines the cumulative stock of net financial assets in the private sector. Central bank decisions then determine the composition of this stock in terms of notes and coins (cash), bank reserves (clearing balances) and government bonds.

A net financial asset created in this way provides the non-government sector with the capacity to spend without any offsetting liability being created.

This is not the case, however, in private credit markets, which involve the leveraging of credit activity by commercial banks, business firms, and households (including foreigners).

Many economists in the Post Keynesian tradition consider this activity to define the endogenous circuit of money.

The theory of endogenous money is central to the horizontal analysis in MMT. When we talk about endogenous money we are referring to the outcomes that are arrived at after market participants respond to their own market prospects and central bank policy settings and make decisions about the liquid assets they will hold (deposits) and new liquid assets they will seek (loans).

The essential idea is that the ‘money supply’ in an ‘entrepreneurial economy’ is demand-determined – as the demand for credit expands so does the money supply. As credit is repaid the money supply shrinks. These flows are going on all the time and the stock measure we choose to call the money supply, say M3 is just an arbitrary reflection of the credit circuit.

Please read my blog – Understanding central bank operations…”

8 Ingelesez: “The supply of money is determined endogenously by the level of GDP, which means it is a dynamic (rather than a static) concept.

Central banks clearly do not determine the volume of deposits held each day. These arise largely from decisions by commercial banks to make loans. The central bank can determine the price of ‘money’ by setting the interest rate on bank reserves.

However, the only way you can understand why all this non-government leveraging activity (borrowing, repaying etc) can take place is to consider the role of the Government initially – that is, as the centrepiece of the macroeconomic theory.

Banks clearly do expand the money supply endogenously – that is, without the ability of the central bank to control it. But all this activity is leveraging the high powered money (HPM) created by the interaction between the government and non-government sectors.”

9 Ingelesez: “HPM or the monetary base is the sum of the currency issued by the State (notes and coins) and bank reserves (which are liabilities of the central bank). HPM is an IOU of the sovereign government – it promises to pay you $A10 for every $A10 you give them! All Government spending involves the same process – the reserve accounts that the commercial banks keep with the central bank are credited in HPM (an IOU is created). This is why the “printing money” claims are so ignorant.

The reverse happens when taxes are paid – the reserves are debited in HPM and the assets are drained from the system (an IOU is destroyed).

We can think of the accumulated sum of the transactions between the government and non-government sectors as being reflected in an accounting sense in the store of wealth that the non-government sector has. When the government runs a deficit there is a build up of wealth (in $A) in the non-government sector and vice-versa. Budget surpluses force the private sector to ‘run down’ the wealth they accumulated from previous deficits.

Once we understand the ‘vertical’ transactions between the government and non-government then we can consider the non-government credit creation process [edo transakzio horizontalak].

Private capitalist firms (including banks) try to profit from taking so-called asset positions through the creation of liabilities denominated in the unit of account that defines the HPM (for example, $A). So for banks, these activities – the so-called credit creation – involve leveraging the HPM created by the vertical transactions because when a bank issues a liability it can readily be exchanged on demand for HPM.

10 Ingelesez: “When a bank makes a $A-denominated loan it simultaneously creates an equal $A-denominated deposit. So it buys an asset (the borrower’s IOU) and creates a deposit (bank liability). For the borrower, the IOU is a liability and the deposit is an asset (money).

The bank does this in the expectation that the borrower will demand HPM (withdraw the deposit) and spend it. The act of spending then shifts reserves between banks.

These bank liabilities (deposits) become ‘money’ within the non-government sector. But you can see that nothing net has been created. Only vertical transactions create/destroy assets that do not have corresponding liabilities.

The crucial distinction is that the horizontal transactions do not create net financial assets – all assets created are matched by a liability of equivalent magnitude so all transactions net to zero. This has implications for government spending impacts on liquidity in the economy and central bank operations designed to maintain a target interest rate.

The other important point is that the commercial banks do not need reserves to generate credit, contrary to the popular representation in standard textbooks.

11 Ingelesez: Quantity or price

The money account defined by the government as the unit it will accept in payment to extinguish non-government tax liabilities is issued under monopoly conditions.

The State is the monopolist in the provision of the currency. The private banks cannot issue currency. They can create credit backed by an offsetting debt but not issue the money account.

Basic theory tells us that a monopolist has a choice – it can either control the quantity or the price of the monopoly good.

It cannot do both. So it could ban private credit leveraging (as the Sovereign Monetary Proposal we discuss next advocates) and thus control the quantity of ‘money’ in the economy. But then it would lose control over monetary policy, if we define that in terms of the capacity to set the interest rate and condition the term structure of interest rates (the longer maturity rates associated with mortgages, investment loans etc).

If it then tried to control interest rates, then it would lose control over the quantity of ‘money’ in circulation. This is a point I will return to further on.”

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