Warren Mosler bere onenean

Warren Mosler at his best

(https://twitter.com/IndiaMmt/status/1286996685206376449)

MMT India@IndiaMmt

Warren Mosler’s response to Dr Raghuram Rajan’ speech at DBS Bank conference.

Dr Rajan: the central bank has been expanding its balance sheet.

Mosler: SHIFTING PRIVATE SECTOR BALANCE SHEET ASSETS FROM WHAT WOULD HAVE BEEN GOVT SECURITIES TO OVERNIGHT RESERVE BALANCES

@wbmosler

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BloombergQuint@BloombergQuint

uzt. 23

While proponents of modern monetary theory say deficit monetisation needn’t be limited, Raghuram Rajan countered it. https://bit.ly/3hqY3c0

2020 uzt. 25·

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MMT India@IndiaMmt

uzt. 25

@IndiaMmt

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RR: and buying government debt on the back of excess liquidity

WM: THIS EXCESS LIQUIDITY IS CAUSED BY THE DEFICIT SPENDING ITSELF

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MMT India@IndiaMmt

uzt. 25

RR: amid the economic slowdown but cautioned that this comes at a cost and cannot be a lasting solution.

WM: THERE WAS NO PROBLEM IN ANY CASE SO ‘SOLUTION’ IS INAPPLICABLE

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MMT India@IndiaMmt

uzt. 25

RR: CBs in many emerging markets are resorting to such strategies and disagreed with votaries of the “modern monetary theory” who support this, making it clear that there are no free lunches.

WM: I DO NOT SUPPORT IT OR NOT SUPPORT IT, AS IT IS INCONSEQUENTIAL FOR THE ECONOMY

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MMT India@IndiaMmt

uzt. 25

RR: “RBI has been expanding its balance sheet and it has been buying Government debt. But effectively, in that process, what it is doing is borrowing from the banks at the reverse repo rate and lending on to the Government”

WM: TRUE

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MMT India@IndiaMmt

uzt. 25

RR: It can be noted that at present there is excess liquidity in the system.

WM: DUE TO THE DEFICIT SPENDING

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MMT India@IndiaMmt

uzt. 25

RR: as people get more risk-averse and save more and the demand for credit is sluggish.

WM: DEMAND FOR CREDIT DOESN’T REDUCE THESE BALANCES IN RBI ACCOUNTS

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MMT India@IndiaMmt

uzt. 25

RR: Banks are parking the money with the RBI in the reverse repo window, earning very less. It can be noted that monetisation of the fiscal deficit is one of the suggestions put forth by a slew of economists and analysts as a prescription to tackle the current environment.

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MMT India@IndiaMmt

uzt. 25

WM: THERE’S NO REASON TO RECOMMEND IT OR NOT RECOMMEND IT. IT’S INCONSEQUENTIAL

RR: Rajan said there are limits to monetisation and the process can go long only for a limited period of time. “When does this process end? When people start fearing the extent of monetisation that

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MMT India@IndiaMmt

uzt. 25

is going on when they start worrying about inflation when they start worrying about whether the debt that has been accumulated will be paid back

WM: THAT DOESN’T ‘END’ IT. THE EXCESS RESERVES CREATED BY DEFICIT SPENDING REMAIN UNTIL USED TO PAY TAXES OR SHIFTED TO TSY SECURITIES

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MMT India@IndiaMmt

uzt. 25

RR: Or, once growth starts picking up and banks find other uses for the money than passively holding on to central bank reserves,” he explained.

WM: WRONG. BANK LOANS CREATE NEW BANK DEPOSITS, WHILE RESERVE BALANCE REMAIN AS BEFORE.

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The View From Mars@PaulMeli1

uzt. 25

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@wbmosler

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Naysaying commentators continue to dig sand from under their own feet. It’s fun to watch.

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Hemant Jain@hehemantgang

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@wbmosler

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Super stuff Must read

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