â€œI would cease all issuance of Treasury securities. Instead any deficit spending would accumulate as excess reserve balances at the Fed.â€
I can see how this accomplishes certain streamlining effects with regard to the term structure of interest rates, etc.
But it forces non government net financial asset accumulation to occur entirely through the banking system. The non government, non-bank sector accumulates its position entirely in the form of claims on banks, with no apparent option to accumulate claims directly on the government, other than currency.
Is this a good thing? It seems to be an enormous restriction on non bank investment portfolio flexibility and risk management.
Or does this assume that bank credit risk is essentially eliminated under your proposal, and that the entire banking system is an extension of the government? You are putting a lot of restrictions on banks, but I donâ€™t think youâ€™re going quite that far.
“Do you think 30 investors (shares) with say $500k each ($15 mil total) could do a small bank in that environment or do you think more or less would be required?”
From what I understand this is close to the current requirement (which seems extreme -perhaps I just don’t know that many people with $500k).
I’d settle for better access to loans (require the Fed to accept a list of collateral from any citizen) rather than better access to FDIC insured deposits (most citizens would rather avoid the paperwork).
From previous posts, it appears small banks play on the same field as a large bank, but with with different rules/access which puts them at a disadvantage.
“Increased concentration is vexing for regulators. Because systemically important firms can borrow more cheaply thanks to implicit state backing, small and medium-sized banks struggle to compete. A recent Fed study put big banksâ€™ funding advantage at more than 30 basis points. ”
I would make the current zero interest rate policy permanent.
Wouldn’t that bee a wee bit inflationary? What measure would you advise the Fed to watch for inflation? And wouldn’t an inflation target make more sense than an interest rate target?
It also minimizes rentier incomes, thereby encouraging higher labor force participation and increased real output.
By rentiers I believe you mean senior citizens and retirees. Should they be encouraged to go back into the labor force? It seems like you are instituting a seinorage tax on savings, and using it to fund lending. As someone who would like to retire someday, I’m not a fan of this part of your proposal.
Monetary policy could lend sufficient quantities of variable rate money to the private sector to allow changes in short-term interest rates to actually alter aggregate demand. To get a $100 billion variation in aggregate demand through a variation in short-term interest rates of 5% would require Fed lending of $2 trillion dollars. Pretty close to what they are doing.
In other words, the Fed’s other choice is to fix the transmission mechanism. Partly seems what they’ve done, perhaps by accident, though more likely someone there knows what they are doing.
Warren and Finbar from above: Anyone who lives entirely on his interest income may otherwise need employment. Such rentiers have removed themselves from the labor force. To the extent that higher real rates increase the rentier population, potential output is reduced. Furthermore, those left working are, in real terms, supporting those living on interest income
Craz: My grandfather had 11 kids to work his farm, that was cheap slave child labor. As he got older and infeeble, most of those kids served him by bringing him food and medicine and taking him places. Today I cannot find 1 woman to bear even 1 child with me, much less 11 children. I have had to sell my grandfathers farm because I don’t have the cheap child labor he had with 11 kids and I am worried about my future as I age because I don’t have 11 kids to help me as I get old and infeeble. My grandfather lived much wealther than I do or will. 11 slaves to do his every bidding for decades, he was a king, I am a pauper with my 20 million in US green pieces of paper.
Finbar says: If you reduce real rates, you may certainly force the rentier population to go back to work. But you also will encourage the current working population to work less and alter their spending to favor short term consumption goods rather than investments.
CrAz: This mule already sat down a long time ago, I got tired of working and paying taxes to support a system that puts shopping machine princess as the pinnacle of our society. You will not FORCE me to go back to work to support this system, I will die first from starvation or sickness before I will be forced to be a MULE again for a shopping maching princess – pathetic. I am not alone in this regard either, there are million of my brothers who feel the same way – maybe tens of millions – we are tired of the status quo and have sat down and won’t plow that field no more! Already people from Icahn to Cuban to many other CEO’s on wall street say the biggest problem is short term performance, there are no long term thinkers or planners in this country anymore looking out to the future. Beating the street by a penny every quarter is killing this country for the long term. Welch says you have to eat while you plan for the future though, but we are eating all our seedcorn and none is getting planted.
Finbar says: And even if â€œoutputâ€ is increased, thatâ€™s not necessarily a good thing. Ultimately, output is about producing stuff people want. If people want leisure, why should they be forced to work?
Craz: My last few girlfriends all wanted gucci shopping bags and trips to paris care of my credit cards. They didn’t want to do anything in return for it either, why should they be forced to do anything for me or that I want when this society, loan system, credit corruption will give them whatever gucci handbags they want for NOTHING? Even forcing me to work to get money to buy thier gucci handbags did not get me what I wanted, so I sat down. What good is a society to me that does not produce the things, people, services, or entertainment I want to consume? Pathetic.
Warren lives off his investments no? Also Warren has a small bank in florida, and wants to level the playing field for himself against the big banks – challenge is REAL motives. I am like warren, I live off my investments too, and am moving to the USVI soon to be warrens neighbor and get those 4% tax rates, I may have to open a bank to also be like Warren in that regard, the best way to rob a bank is to own one according to professor black.
Warren says if it is determined seniors need a higher standard of living, social security can be increased, using his Japanese example, I have japaneses senior citizen friends who have determined they do in fact need a higher standard of living, but their social security has in fact not been increased, so what point is Warren trying to make with the japanese example? For Warren to be a BIGthinker, he sure seems to casually dismiss very real concerns, like who does the determining if mr. senior citizen needs more standard of living, and how does it get implemented? He brushes all those “devil in the details” problems away with very broad stroked, poor form! Finbar we just have to keep pointing these things out to Warren and maybe we can convert him. Anyways, the human ponzi scheme that required ever growing population levels to increase the standard of living of those at the top of the pyramid is coming to an end. Humanity will never have the growth spurt of humans it had the past 50 years, the wealth that was generated for some the past 50 years therefore will never be replicated ever again. My grandfather had 11 babies to serve him and his wife, I will not, it’s simple economics.
[...] rather than classified (as it should have been) as a Federal Reserve function. As economist Warren Mosler has argued, “This would not matter if Congress and the administrations understood the monetary system, [...]
Why is there no public purpose in US banks lending off shore?
Lending in dollars off shore creates international dollar demand (?), which make other countries want dollars and thus willingly export goods and services into the USA in exchange for dollars.
Bad for those countries, good for the US.
Of course that also create enmity towards the US… So maybe it is not worth it.
Regarding not allowing “mark to market” – what about repossessed houses? Don’t banks need to value those?
WOW, Really a great document. in particular i love the “ex-nay” on libor in u.s. and “ex-nay” on subsidiary off balance sheet stuff. If they aren’t allowed to have credit default insurance, they’ll make sure they write “good” paper!
do you think repealing glass-steagal had a big part in facilitating this mess?
and, any chance elizabeth warren is a fan of yours?
I have been working on finding some common ground between MMT & other bank reform proposals, esp. positivemoney and related plans. Curious what you would reply to one of the comments about your Huffpo version:
“Warren Mosler concludes from his brief review of monetary history “The hard lesson of banking history is that the liability side of banking is not the place for market discipline.” This is precisely the point of focus for Positive Money. Our proposals remove the “mission critical” aspect of the monetary system – people’s money – from the liability side of banking and the vagaries of the market, isolating the payments system from the questionable liquidity and ultimate solvency of banking institutions. And that is all we seek to do. We do not propose any changes to the management of banks’ assets, which is where Warren directs his proposals, because we feel that is the wrong place to start. Getting the liabilities side right will eliminate the systemic significance of current concerns – securitisation and inter-bank lending are at present primarily liquidity management practices. Only once the balance between financial stability and profitability has been realigned by this will it be apparent whether and how asset management practices should be regulated.”