I think this may also touch on the conversation I had with SRW at Interfluidity.

Although deposits are bank liabilities, I think they are fundamentally different from bank bonds in that they represent a “not-spending” decision, and not an “investing” decision. SRW wants to it to become an investing decision. I think that approach is a fools errand.

:)

Oh yes, no one is taking issue with the basic MMT (or PK or whatever) principle.

I do remember our equity discussion, where I suggested that Govt carries a negative equity entry and call it “paid-out capital”. I think you did not like this formulation. It does stake out a clearer distinction between what a bank does and what the Fed does.

Personally, I’m still recovering from your revelation that ALL bank spending is generated by balance sheet expansion.

I just saw WM’s response to you as well, which I like a lot, particularly “but all the govt owes is a bank statement.”

On your point, actually, the banks just credit the account of the debt buyer. If the banks aren’t reserved constrained, which they aren’t, they won’t have a problem paying for this in the clearing. But your point more generally reinforces my notion that the deeper underlying issue has to do with the position of a monopoly issuer.

More generally, it’s only a subtle point that I’m raising. I’m not questioning the basic MMT observed fact that a currency issuer doesn’t have to worry about attracting funds in order to float debt. And maybe it shouldn’t be called borrowing or debt. I’m just trying to go a little deeper and asking the question whether there is an element of this thinking that doesn’t apply to the commercial banking system as well. The currency issuer spends its way into a net liability position that can be met by issuing reserves, currency, or debt. The commercial bank lends its way into a “matched” position that can be met by issuing deposits or debt. The mechanism by which one is converted to the other is similar. It’s the constraint and the profile of the balance sheet that are different. The currency issuer is constrained by real economy capacity and its implications for inflation. The liquidity (i.e. risk free (net) financial assets) it provides allows it to generate a net liability or negative (technically) equity position. The commercial bank is constrained by capital, whereby it must keep a positive equity position. Yin and Yang – negative equity and positive equity. (Remember our negative equity discussion?)

Likewise, WM’s scoreboard analogy applies in a reduced form way to the commercial banking system. If I were a smart ass commentator lurking in the background at CNBC, I might ask after the interview, don’t the commercial banks have their own scoreboard? That would assume of course that such a commentator knew something about the monetary system.

a tsy sec is a credit in a securities account at the fed.

the fed is ‘scorekeeper’ and simply debits one account and credits the other when tsy secs are purchased and when they mature.

the national ‘debt’ is the total funds held by ‘outsiders’ in these ‘savings accounts’ at the fed.

all the fed owes is to transfer them back to ‘checking accounts’ at the fed.

the govt functions as ‘transfer agent’

it is ‘debt’ in the broad sense in that something is owed.

but all the govt owes is a bank statement.

yes, i know this isn’t quite to the point

I think implicit in notion of “debt” and “borrowing” is the idea that eventually the money will have to be paid back. This is true for banks, but not true for the Fed. Maybe this is the distinction?