tag:blogger.com,1999:blog-6948982521501107752.post1912051512572984806..comments2023-10-21T09:03:15.270-04:00Comments on Rogue Economist Rants: What is money, and how is it created?Rogue Economisthttp://www.blogger.com/profile/03439817966760459091noreply@blogger.comBlogger46125tag:blogger.com,1999:blog-6948982521501107752.post-13895629982919544952011-10-13T18:26:41.873-04:002011-10-13T18:26:41.873-04:00No Ellen. That deposit is merely the liability sid...No Ellen. That deposit is merely the liability side of the bank's IOU, the asset being the loan, which you or whoever took the loan out has to pay back with interest. That deposit only really becomes "money" when it causes an increase in the bank's account at the Fed later on. See Dr. Wray's answer to questions #7 and #9 here:<br />http://neweconomicperspectives.blogspot.com/2011/09/government-and-private-ious-denominated.html<br />The HPM (high powered money) comes from the Gov't. All else is really just an IOU. The reason this is so is because if you took out a loan for say, $1000, and you needed it in cash, the bank can only fulfill that need with the Fed's IOU which comes from their account at the Fed.Marleyhttps://www.blogger.com/profile/05014643720411722973noreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-6462509585700034392011-10-10T20:08:00.511-04:002011-10-10T20:08:00.511-04:00As we MMTers say “loans make deposits”. Randall W...<i>As we MMTers say “loans make deposits”.</i> <a href="http://www.nakedcapitalism.com/2011/09/randy-wray-helicopter-ben-%E2%80%93-how-modern-money-theory-responds-to-hyperinflation-hyperventilators.html" rel="nofollow">Randall Wray</a><br /><br />I call demand deposits money; what do you call them.Ellen1910noreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-71004728107529535872011-10-09T00:16:12.064-04:002011-10-09T00:16:12.064-04:00Ellen, you've read my version, you've read...Ellen, you've read my version, you've read Scott Fulwiller's version, you've read Marley's version of the same concept. I guess in the end, if you're really convinced that people borrowed into existence all the money that the government then afterwards borrowed from them, you're entitled to your own view. Including accepting all its ramifications and limitations.Rogue Economisthttps://www.blogger.com/profile/03439817966760459091noreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-47757535513980379352011-10-08T23:18:47.140-04:002011-10-08T23:18:47.140-04:00Ellen, you are contradicting yourself... and perha...Ellen, you are contradicting yourself... and perhaps, prodded by yours truly (after having Rogue ask), you can tell us what do you consider to be 'money'??<br /><br />You declare in your first response: "When the Fed buys a treasury from a bank, it makes an entry in that bank's account which increases the balance. But only orthodox economists think those accounts are "money." MMTers don't..." (can you provide a link to a prominent MMT proponent who doesn't?)<br /><br />But state in your second response: "As long as bank lending was greater than the surplus (excluding the effects of export-import balances to simplify the example), the money supply would continue to grow, and the economy would have the money it needed to expand its activities.<br /><br />Why? Because bank lending creates money..."<br /><br />Well, how is your "version" of bank lending creating money, if you do not believe that the MMT version of events does?<br /><br />"those accounts are are nothing but vehicles to settle and clear transactions between banks. Again, they're not money, and changes to their balances don't increase or decrease the money supply"<br /><br />Again. Define "money supply" ...<br /><br />The ONLY ways a bank gets a non-zero tally in their account at the Fed (avoiding the 'r' word here) is when the government deficit spends or via cash deposits. And it is ONLY to/from a bank's account with the Fed that clearing occurs (unless banks have pre-determined agreements). Even if you want to say that Bank A has its reserve requirement met by Bank B on the overnight, and so there is not in that instant a net increase in the amount held in accounts at the Fed, how did Bank B get its account at the Fed populated. Loans from the discount window are also a form of deficit spending. Again, what funds that loan? Loans create demand deposits, which are convertible into the gov't IOU (cash/money).<br /><br />I don't have any more links to provide to further explain my views. Like Rogue, I look forward to hearing you expand your views on what 'money' actually is. You opened by asking the question, but it seems you have a predetermined answer that seems to escape those of us who have attempted to explain what we believe to be the MMT position.<br /><br />Cheers.Marleyhttps://www.blogger.com/profile/05014643720411722973noreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-40552104011473464702011-10-08T21:26:16.127-04:002011-10-08T21:26:16.127-04:00Damn -- I wish we had reply buttons.
We all agree...Damn -- I wish we had reply buttons.<br /><br />We all agree -- we do, don't we -- that the U.S. government should be running a much larger deficit than it currently does.<br /><br />Now, Warren Mosler thinks that's because the government needs to "create" much more money than it presently is doing. Poppycock.<br /><br />Think about it. If the private side were spending an additional $1+ trillion dollars, we wouldn't need to increase the deficit. The demand would be there.<br /><br />All the government is doing with its deficit is trading its money-good paper for all that locked up cash, pushing that cash out into the economy, and substituting its demand for the current absence of private demand.<br /><br />No money is being created by the government; it was there, already.Ellen1910noreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-58270912357785594742011-10-08T21:08:26.788-04:002011-10-08T21:08:26.788-04:00I have no idea what Scott Fullwiler thinks he'...I have no idea what Scott Fullwiler thinks he's saying.<br /><br />The government could run surpluses from now till the cows come home -- that is, it could destroy money year after year as it taxed it away. As long as bank lending was greater than the surplus (excluding the effects of export-import balances to simplify the example), the money supply would continue to grow, and the economy would have the money it needed to expand its activities.<br /><br />Why? Because bank lending creates money -- the money I'm going to buy those Jimmy Choo shoes with if I ever get off this blog.<br /><br />Note: Just so it isn't forgotten -- I agree that a sovereign government in control of its currency isn't required to fund its purchases with tax or bond receipts. My point has been that in the United States this freedom has been constrained by law . Thus, for every dollar the U.S. government spends which increases the money supply it subtracts a dollar from the money supply by taxing or borrowing it out of circulation. It's a wash.<br /><br />Government deficits don't increase the money supply.Ellen1910noreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-83810845377258839822011-10-08T20:37:59.814-04:002011-10-08T20:37:59.814-04:00Marley -- you're comments are lengthy so perm...<i>Marley</i> -- you're comments are lengthy so permit me to do some fisking.<br /><br /><i>. . . the MMT position that banks do not lend based on what is (at any given instant) sitting in their "account at the Fed" . . . .</i><br /><br />I agree; loan officers don't bother to check the balance in their bank's account with the Fed before making a loan. The compliance officers will find the money somewhere (interbank lending, discount window).<br /><br />But please note -- that agreed upon fact has nothing whatever to do with the question of how/who creates money. <br /><br />When the Fed buys a treasury from a bank, it makes an entry in that bank's account which increases the balance. But only orthodox economists think those accounts are "money." MMTers don't; those accounts are are nothing but vehicles to settle and clear transactions between banks. Again, they're not money, and changes to their balances don't increase or decrease the "money supply."<br /><br />The types of transactions you're pointing to do not create money.<br /><br />To conclude my response to your first comment --<br /><br />1. Bank lending is never "reserve" constrained -- Agree.<br />2. The Fed adding numbers to a bank's "reserve" account creates money -- Disagree.Ellen1910noreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-33466786576779354552011-10-08T14:07:52.744-04:002011-10-08T14:07:52.744-04:00So, toward the end previously outlined, I have fou...So, toward the end previously outlined, I have found a great paper by Scott Fullwiler who is widely accepted as an authority on Gov't Sector operations in the MMT Community. You will find it <a href="http://moslereconomics.com/2010/08/30/mmt-and-fedtreasury-operations/" rel="nofollow">here</a>.<br /><br />The following is a summarizing excerpt to lay the claim, but I would advise you give the article a full reading.<br /><br />" This all leads me to the often noted MMT point that “spending comes before tax revenues are received or bond sales.” If one expands this a bit to include loans from the Fed, then this statement is absolutely correct in terms of the operational realities of the monetary system. That is, according to both the tactical and accounting logics, taxes credited to the Treasury’s account and the settlement of Treasury bond auctions can only occur via bank reserve accounts, while the original source of banks’ balances in their reserve accounts can only be previous government deficits (which are net credits reserve accounts) or loans from the Fed (repos, loans, purchases of private securities, or overdrafts—note that an outright purchase of a Treasury security by the Fed to add reserve balances requires a previous government deficit). Therefore, it very much is the operational reality that for taxes to be paid or bonds to be settled, there has to have been previous government spending or loans from the Fed to the non-government sector, and this is true whether or not the Fed is legally prohibited from providing overdrafts. <br /><br /> However, the statement that “deficits or Fed lending logically precede tax payments and bond sales” should not be interpreted as “MMT’ers think there is no legal obligation that the Treasury have balances in its account before it spends or are otherwise ignoring the existing law prohibiting Fed overdrafts for the Treasury.” As I noted above, it is clear that the Fed cannot legally provide overdrafts to the Treasury, and every MMT’er does in fact understand this—the key is to understand what “deficits or Fed lending logically precede tax payments and bond sales” does and does not mean. That is, when MMT’ers say the latter, they are effectively saying “deficits or Fed loans logically precede taxation and bond sales as an operational reality of the monetary system” (the general case), and this and the statement “the Treasury must have positive balances in its account prior to spending under current law” (the specific case) are in fact not mutually exclusive. Both can be and are true—the government can and does require itself through its own self-imposed constraint to obtain credits to its own account at the Fed that were created via previous deficits or Fed lending before it spends again."Marleyhttps://www.blogger.com/profile/05014643720411722973noreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-76751176107622135332011-10-08T14:02:31.182-04:002011-10-08T14:02:31.182-04:00Ellen, I am not saying that at all. I'm trying...Ellen, I am not saying that at all. I'm trying to get you down the MMT path of "how money is created". You have said that you believed that "... 'money' (USD) is issued by banks in their capacity as lenders and not by the government". In previous posts, I've provided links to explain the MMT position that banks do not lend based on what is (at any given instant) sitting in their "account at the Fed" (not going to use the 'r' word wherever I can avoid it). What I was describing is an operation reality of the Goverment sector (Treasury & Fed) adding 'money' to bank's accounts at the Fed by buying bonds back. Where does that money come from? I've shown that it does not come from the Treasury's account at the Fed. The Fed, in its position as the Government's CB, merely creates money and holds the gov't bond as a liability. The best thing, is that the gov't is left holding its OWN IOU, the bond (like Ellen in my last Jimmy Choo example). Now, does that suffice to refute your claim that 'money' is not issued by the Government?<br /><br />If you can accept that, then we can start working on understanding why Rogue, Calgacus and myself believe that 'money' has to spent into existence by the Gov't before banks or households have it available in accounts or as cash. I need another post for that, unfortunately, as I have gone over the character limit apparently.Marleyhttps://www.blogger.com/profile/05014643720411722973noreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-59569266975568248142011-10-08T11:03:55.635-04:002011-10-08T11:03:55.635-04:00An idea -- let me run it up the flagpole.
Let'...An idea -- let me run it up the flagpole.<br /><br />Let's ban the word "reserves."<br /><br />Why not say what we mean -- a bank's <i>working balance at the Fed</i>, a bank's <i>checking account balance at the Fed</i>, the current <i>cash assets</i> a bank holds.<br /><br />And in the same way we could be talking about the UST's <i>cash balance</i>.<br /><br />After all, "bank reserves" aren't even reserves. As the Bank of England puts it, they're nothing but "rest" -- that is, an accounting entry to balance the balance sheet.<br /><br />It seems to me such a ban would have the salutary effect of making us think and write more clearly.Ellen1910noreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-52742873862701043042011-10-08T09:38:22.449-04:002011-10-08T09:38:22.449-04:00Marley; are you saying the Fed funds the UST -- by...<i>Marley</i>; are you saying the Fed funds the UST -- by buying its issuance?<br /><br />The Fed buys treasuries -- from banks and not from the UST -- to effectuate two goals:<br /><br />A. To prevent the fed funds rate from rising above its intended rate; and<br /><br />B. To lower long-term rates -- QEII and Operation Twist.<br /><br />The fact that the purchases may increase banks' balances at the Fed shouldn't have any effect on the UST's balance sheet.<br /><br />True?<br /><br />Or am I misunderstanding your point?Ellen1910noreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-28045726779758242802011-10-07T15:21:27.649-04:002011-10-07T15:21:27.649-04:00"... what happens if the obligee doesn't ..."... what happens if the obligee doesn't have sufficient funds in its account with the central bank to cover the check? Ordinarily, the FRB loans the insolvent bank fed funds. But --"<br /><br />You are pretty much exactly where I was a month ago. When the Fed buys back Treasuries from banks, it adds net private sector reserves. And my question was, how does the Fed pay for this? I asked the question <a href="http://neweconomicperspectives.blogspot.com/2011/08/mmp-post-10-keeping-track-of-stocks-and.html" rel="nofollow">here</a> on NEP #10:<br /><br />"The way I've understood it (on one hand) is that when the gov't spends, it does so in a convoluted process which sees Treasury deposits acquired through the private issue of treasuries transferred to the Treasury's account at the Fed. I may stand corrected on this, but if the Fed then turns around and buys these Treasuries from the initial purchasing institution, this results in a net add to private sector reserves. My gap in understanding is this: the initial money used to buy the bonds (say) from the Treasury is already accounted for in the money supply. It has already been "spent into existence". However, is the money that the Fed conjures up to buy the Treasuries back that of the "clicking up the score" variety?? Seems to me it must be. The Fed doesn't buy back those treasuries with money from the Treasury account at the Fed, it merely credits the necessary reserves... right? ..."<br /><br />The answer from Dr. Wray given <a href="http://neweconomicperspectives.blogspot.com/2011/08/blog-10-responses-accounting-for-money.html" rel="nofollow">here</a> was:<br /><br />"Fed credits private bank (selling the Treasuries) with Fed’s own IOU, bank reserves. Fed holds the bonds as assets, offset by reserves as liabilities. So in the end, although Fed cannot buy the bonds directly from the Treasury, it buys them from banks."<br /><br />And there you have it. In order to net add reserves, the gov't buys back its debt. This buy-back is not funded by any Treasury money, but merely creates money equivalent to the now Gov't-held liability. These buy backs are part of the Fed's OMO (Open Market Operations), and I believe that this type in particular is called a POMO - P for permanent, since it permanently adds net private sector reserves.<br /><br />The next question you will probably ask yourself is: "Wait a minute! Did the Treasury just sell a bond for $1M, spend that $1M on some stuff, and then did the Fed turn around and buy that same bond and in so doing credited reserves $1M in order to make sure that some bank had enough reserves to satisfy a liability?" The answer is yes... and this is why some in the MMT community believe that the value of that bond, which is now back in the hands of the gov't should NOT be counted as part of the deficit. Consider this: Ellen wants to buy Jimmy Choos so you sell an "Ellen Bond" to Rogue for $1500... you buy the Jimmy Choos. Later on, knowing that Rogue needs to buy a new iMac, you decide to "buy" the "Ellen Bond" back from Rogue and give him $1500. Are you in deficit??? I'll stop here... :) TGIF!Marleyhttps://www.blogger.com/profile/05014643720411722973noreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-59831442203519755192011-10-07T12:58:27.973-04:002011-10-07T12:58:27.973-04:00Ellen, what is your definition of money? How does ...Ellen, what is your definition of money? How does it differ from how I described it in the post? Your last comment did not make it any clearer. If paper we use to buy stuff is not money, what is? And why? And when you propose the government print a trillion dollars to give to households, what do you call it? If paper, why? And what is the significance of calling a trillion dollars the government gives to households paper and not money?Rogue Economisthttps://www.blogger.com/profile/03439817966760459091noreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-24719728140404117692011-10-07T11:45:41.071-04:002011-10-07T11:45:41.071-04:00Let me see if I've got this right --
The Trea...Let me see if I've got this right --<br /><br />The Treasury sends me a check which I deposit in my bank account. My bank puts it in to the FRB's collection system for payment.<br /><br />"Payment between FRB account holders (banks, foreign central banks, the <b>United States Treasury</b>)": The obligor's "balance with the FRB" is credited and the obligee's balance is debited.<br /><br />What happens if the obligee doesn't have sufficient funds in its account with the central bank to cover the check? Ordinarily, the FRB loans the insolvent bank fed funds. But --<br /><br />What happens if UST is insolvent -- that is, wouldn't have a positive balance with the FRB? The law proscribes FRB lending money to UST or honoring its NSF checks.<br /><br />The UST must obtain the funds to bring its account positive. To do that it borrows money -- that is, it sells treasuries.<br /><br />The sale merely transfers purchasers' deposits from their banks to the UST's account at the Fed. The money the government gave me is taken away from the buyer of the treasury instrument. The monetary transaction is a wash; no money -- the thing we use to purchase goods and services -- has been created.Ellen1910noreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-18447225758620844312011-10-07T11:01:24.528-04:002011-10-07T11:01:24.528-04:00Sorry, RE; you're not using money; you're ...Sorry, RE; you're not using money; you're trading assets -- paper for leather, oops, designer leather.<br /><br />P.S. Don't try that at Stop & Shop or Wawa or even, Pusatari's.Ellen1910noreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-89821461060822269632011-10-07T07:56:11.504-04:002011-10-07T07:56:11.504-04:00Calgacus, my point about Jimmy Choos and bonds was...Calgacus, my point about Jimmy Choos and bonds was not directed at your point, but at Ellen, who said you can never use bonds to pay Jimmy Choos. Of course you and I could conceivably accept bonds as payments if we like. We can always go to our bank to sell it.Rogue Economisthttps://www.blogger.com/profile/03439817966760459091noreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-79473786638603912552011-10-07T07:52:52.230-04:002011-10-07T07:52:52.230-04:00Ellen: "It seems to me that the cabal, here, ...Ellen: "It seems to me that the cabal, here, has abandoned its former claim that the government of these United States creates money, an act I've argued is currently illegal"<br /><br />perhaps it would be best that you explain to this cabal just what you mean by money, and how it is different from net financial assets, or from what i like to call income. What does the government use to pay income anyway? Isn't it money? So when they pay you money and you spend it, in my view it increases the money supply.<br /><br />Time for you to start answering questions otherwise everything you're saying is just creative ducking. In your mind, what is money?Rogue Economisthttps://www.blogger.com/profile/03439817966760459091noreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-82689486155655725402011-10-07T06:19:46.648-04:002011-10-07T06:19:46.648-04:00Rogue:Also, I can't help wondering what the lo...Rogue:<i>Also, I can't help wondering what the long debate was about Jimmy Choo not accepting your bonds. You don't use your your bonds to pay Jimmy Choo. You go to your bank and sell your bond to it. Now you have money to buy your Jimmy Choo.</i><br /><br />My point was that anybody can do banking, monetary, money-changing operations, maybe not always, but often enough, and will, if they are able and get enough vig. What you can never do is do fiscal operations on somebody else's debt. (Except for governments imposing taxes). Only the government can create reserves or any other kind of government debt, and if one doesn't think that the government's debts are more important economically than anyone else's nowadays, one is plumb loco.Calgacushttps://www.blogger.com/profile/06031818010224747000noreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-49967984782640547872011-10-07T05:54:02.135-04:002011-10-07T05:54:02.135-04:00Ellen, I strongly disagree with every statement yo...Ellen, I strongly disagree with every statement you just made. The government certainly does create money, in the strictest sense of the word, bank reserves or currency, cash, every time it deficit-spends. As I wrote earlier, you are not using the correct definition of "deficit spending", but using the phrase "deficit spending" to mean what Abba Lerner called <i>"borrowingandspending"</i>, which is two operations, not one. Deficit-spending proper creates the reserves which are what the private sector uses to buy the bonds in the act misnamed "borrowing". If the government didn't create these reserves, the private sector usually could not buy the bonds issued.<br /><br />And even taking supernarrow definitions, how can one dispute that the Fed, part of the government, a creature of Congress, creates reserves when it buys government & non-government financial assets?<br /><br />I certainly do not admit that there is no practical use of the term "money". IMHO MMT economists are right about everything, but they make a tremendous pedagogical, rhetorical, terminological and conceptual mistake -one that many of their predecessors did not make - by not using the word enough. <br /><br />Obsessing about narrow and obscure money supply aggregates - wrong and not very useful ones - is a pretty recent phenomenon - and it has passed its heyday, with the Fed no longer publishing M3 etc.Calgacushttps://www.blogger.com/profile/06031818010224747000noreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-7968423448649237522011-10-07T01:36:41.078-04:002011-10-07T01:36:41.078-04:00Thanks Rogue, I truly appreciate your work and the...Thanks Rogue, I truly appreciate your work and the efforts of all the other MMT bloggers out there. I've learned a lot and hope to learn much more. Cheers!Marleyhttps://www.blogger.com/profile/05014643720411722973noreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-88402838952570518342011-10-06T22:57:13.755-04:002011-10-06T22:57:13.755-04:00It seems to me that the cabal, here, has abandoned...It seems to me that the cabal, here, has abandoned its former claim that the government of these United States creates money, an act I've argued is currently illegal.<br /><br />You seem to have retreated to the security provided by the observation that the government creates financial assets. Indeed, it created over $1 trillion new financial assets last year alone.<br /><br />Of course if you then take the position that "money" equals the federal government's debt, you're reduced to admitting that there's no practical use to be made of the term "money" in your analysis of how the economy operates or how it is is doing at any particular time.<br /><br />What do you propose to use in its stead?Ellen1910noreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-53368878723284767602011-10-06T20:45:55.067-04:002011-10-06T20:45:55.067-04:00Marley, Calgacus...getting exposed to MMT principl...Marley, Calgacus...getting exposed to MMT principles could really change your whole framework. It sure changed mine.Rogue Economisthttps://www.blogger.com/profile/03439817966760459091noreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-71208623115156935692011-10-06T20:29:56.573-04:002011-10-06T20:29:56.573-04:00Ellen, I was wondering where you'd been. Okay,...Ellen, I was wondering where you'd been. Okay, welcome back and let's get down to business.<br /><br />Ellen: "While it is true that deficit spending can increase the stock of money, it does so by way of a multiplier effect acting in the real economy (that is, a real-world multiplier that has nothing to do with fractional banking -- that silly theory) -- an effect which is completely out of the hands of the government."<br /><br />And what happens when everyone who earned income via the multiplier effect of the fiscal spending suddenly simultaneously decide to withdraw their money from the bank? The bank gives them their money. The money comes from their deposit holdings in the bank, and not as borrowings from the bank. So where does the bank get the money/reserves to pay those people who decide to withdraw into cash? It gets it from the government/Fed.<br /><br />Because the fiscal multiplier effect gave people income, they do not have to borrow the money from the bank anymore to get cash. If you have income from selling to your service to the government, or by selling it to someone who sold his service to the government, neither one of you have to go and borrow the money from the bank to buy your Jimmy Choos. The money supply increased without further borrowing. Jimmy sold shoes without anyone going into debt.<br /><br />"The government borrows existing money which is sitting idle in the accounts of firms and households and spends it into the economy."<br /><br />Again, you have to answer my question: where did the money come from that the government was abkle to borrow? If it was already sitting idle in deposit accounts, what gave rise to that deposit? Somebody else borrowing to give that depositor his money? So how is that borrower then getting the money to be able to pay back his own loan? From a further third person borrowing it as well? And how is that 3rd person getting the money to pay back his own loan? And so on to infinity…<br /><br />Also, I can't help wondering what the long debate was about Jimmy Choo not accepting your bonds. You don't use your your bonds to pay Jimmy Choo. You go to your bank and sell your bond to it. Now you have money to buy your Jimmy Choo.Rogue Economisthttps://www.blogger.com/profile/03439817966760459091noreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-4900850519629083432011-10-06T18:11:54.589-04:002011-10-06T18:11:54.589-04:00"I want to know whether there is some 'mo..."I want to know whether there is some 'money supply' -- however defined -- which we could look to to decide whether policies had their expected outcomes. That assumes that an increase in the money supply correlates with an increase in economic activity."<br /><br />Aha! :) Please read this, Ellen:<br /><br />http://bilbo.economicoutlook.net/blog/?p=10733<br /><br />Excerpt: "You will note that in Modern Monetary Theory (MMT) there is very little spoken about the money supply. In an endogenous money world there is very little meaning in the aggregate concept of the 'money supply'."<br /><br />Let me know what you can glean from it. Basically, Bill Mitchell makes the case that mainstream economic thought, in an attempt (like you) to understand the effects of monetary policy, look toward the (idea of a) "money supply" (monetary base etc). To sum up as per Dr. Mitchell - "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." ... and ... "So 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 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."<br />Trust this helps.Marleyhttps://www.blogger.com/profile/05014643720411722973noreply@blogger.comtag:blogger.com,1999:blog-6948982521501107752.post-70038419300698283472011-10-06T17:46:31.361-04:002011-10-06T17:46:31.361-04:00Yes, there is such an aggregate. It is essentially...Yes, there is such an aggregate. It is essentially the national debt. The NFA of the non-government sector. <br /><br />Defining money abstractly in some way is a prerequisite for your endeavor. <br /><br />Here is Scott Fullwiler:<br /><br /><i>“Interestingly, MMT is also a quantity-theoretic model of changes in the price level. The differences are (1) net financial assets of the non-government sector, rather than traditional monetary aggregates, are the MMT’ers preferred measure of “money,” and (2) desired leveraging of the non-government sector is akin to the inverse of what one might call “velocity.” In MMT, the two of those together (net financial assets of the non-government sector relative to leveraging of existing income) set aggregate demand and ultimately changes in the price level, at least the changes that are demand-driven.”</i><br /><br /><a href="http://neweconomicperspectives.blogspot.com/2011/07/scott-sumner-agree-that-mmt-policy.html" rel="nofollow">Scott Sumner Agrees that MMT Policy Proposals Are Not Inflationary</a>Calgacushttps://www.blogger.com/profile/06031818010224747000noreply@blogger.com