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MOSLER'S LAW: There is no financial crisis so deep that a sufficiently large tax cut or spending increase cannot deal with it.

DJ Europe Mulling New Role For ECB, Lending To IMF-Greek FinMin

Posted by WARREN MOSLER on November 23rd, 2011

Hint of German support?

*DJ Europe Mulling New Role For ECB, Lending To IMF-Greek FinMin

31 Responses to “DJ Europe Mulling New Role For ECB, Lending To IMF-Greek FinMin”

  1. Shaun Hingston Says:

    Hopefully someone can answer my little question.

    When the interest rate is set to zero, what stops people borrowing money to purchase consumerables? Ultimately generating an inflation.

    Reply

    WARREN MOSLER Reply:

    debt to income ratios. and risk adjusted rates aren’t 0, just the bank’s cost of funds, etc.

    and why ‘ultimately generating inflation’ when the govt can regulate demand with fiscal adjustments?

    Reply

  2. Shaun Hingston Says:

    I meant what stops the banks from borrowing money with zero cost and using it to pay taxes, purchase goods and services etc.

    That point I was trying to make was that this plan relies upon lenders behaving appropriately. Ultimately requiring a democractically eletecd institution that lending is managed appropriately.

    0 percent ineterst loan is functionally equivalent to having an infinite amount of money.

    http://www.blogger.com/comment.g?blogID=2761684730989137546&postID=9028772110972400686

    Reply

    Matt Franko Reply:

    @Shaun Hingston, Shaun, I’m not sure that a bank can actually do what you pose as hypothetical here.

    At least “the bank” part of the bank (vice a proprietary trading division of a bank “holding” Co, which is not “a bank”) I do not believe can ‘leverage their balance sheet’ without the participation of a “borrower”.

    IOW if a bank went out and said one day: “I think I’ll go out there today and buy some soybeans” I believe they would have to book this as an asset swap of some sort (no leverage). They would have to (on their Balance Sheet) trade off some already existing Reserve Balances (asset) for the new asset of “Soybeans in Inventory”. Since this is not a leveraged transaction (asset swap), I dont see how an interest rate would come into play. Then the bank would have to cover storage costs, etc..

    IOW it may not be correct to think that a “bank” can use the policy rate to leverage anything other than true “loans to borrowers” as it is loans that create deposits…

    I could be wrong, and suggest you stay with this until it is fleshed out for you.. Resp,

    Reply

    WARREN MOSLER Reply:

    banks can only by fdic legal assets

    Reply

    WARREN MOSLER Reply:

    banks are limited by regulators.

    they only have so many taxes to pay,
    and payments reduce their equity capital/net worth

    bank only purchase goods and services for legit business expenses that support profitability.
    the regulators monitor that closely.

    yes, banks can always borrow as much as they want, and at 0 interest even more so re expenses.

    but i’m the majority shareholder of a small bank, we can borrow all we want, and do as we make loans.
    but what other reason might there be for us to borrow more than that?

    Reply

  3. Shaun Hingston Says:

    In the thread Tom makes the suggestion, along with many other MMTers that FED and Treasury should be consolidated. I said that this is an inadequate response in light of the OwS protests. I have suggested that decisions of the Central Bank must largely be determined by popular vote. Interest rate would be calculated using a popular average.

    The only aspect that is more ‘democratic’ regarding the consolidation of Treasury and FED operations is the fact that Congress has more influence. But this is still inadequate, as some make the argument that Congress is ‘tempted’ to use their influence to pursue ‘inflationary policies’, which I somewhat agree with.

    Therefore the only solution is that conflicting political decisions, for example the size of the monetary supply and spending programs must be managed by independently elected bodies.

    Everything said so far confirms this. Even if FED operations are consolidated with Treasury and interest rate set to zero, there is still a political ‘temptation’ to allow regulations that result in irresponsible lending practices.

    The regulators responsible for administering 0% interest loans must be subject to popular vote. Otherwise the system is just as corruptible as it is now.

    The only reason why you don’t borrow more than you need, is because you can not influence regulators like other banks can.

    Reply

    Unforgiven Reply:

    @Shaun Hingston,

    Take a look at Warren’s proposals regarding this to see if they cover some of your concerns:

    http://moslereconomics.com/wp-content/pdfs/Proposals.pdf

    Reply

    Shaun Hingston Reply:

    Thanks.

    It is a nice read, and Warren clearly demonstrates some simple solutions that would solve the mess we are in, but it doesn’t satisfy any of my concerns.

    The issue is not making sure there is comprehensive functionality, but guaranteeing that such functionality can not corrupted.

    Warren’s suggestions improve the efficiency, but do not guarantee democratic control. If Warren’s ideas were implemented, it could be more effective for adversaries to exploit the underclass.

    IMO the FED & Treasury should be subject to popular vote, the idea that Americans get one binary vote every four years is somehow suppose to represent the interests of the community is absurd. The fact that this is never spoken about by anyone is bewildering.

    Reply

    WARREN MOSLER Reply:

    all the tsy sec does is sign the paper money and run the secret service.
    the fed votes on interest rates, provides liquidity, and regulates the banks.

    my proposals for the fed, fdic, tsy, and banks eliminate a lot that feeds corruption.
    and i think my campaign finance proposal helps a lot as well, etc.

    doesn’t seem to me that voting on the fed staffers would be worthwhile use of real resources

    Reply

    Shaun Hingston Reply:

    @WARREN MOSLER

    Waste of resources….. You mean the resources being wasted because of the banking crisis, because no one took an interest in the functioning of their financial system? Or do you mean the unnecessary unemployment because the elites have control over the media and increase unemployment so good people battle each other for a piece of the pie. Or do you mean the massive amount of resources that people like you use in order get your message across, because for the last 20 years the masses have undergone economic indoctrination.

    And since we live in the age of the internet, there really is no excuse for not having these types of mechanisms.

    Yes, give people the power to vote for members of the Reserve Board. Then the Repeal of Glass-Steagall act is unlikely to happen. Increase the probability that MBS will not be used as a way to print money into the hands of bankers.

    Your proposals are great, but there is a chance that in 80 years time there will be two people trying to figure out how to make a better financial system. Because all of the good work implemented by Warren Mosler, was gradually repealed by an elite and went unnoticed by the masses.

    WARREN MOSLER Reply:

    waste of resources voting for fed staffers meaning a waste of the time and effort etc. spent to vote, account for the votes, campaign expenses, etc.

    the fed reserve board doesn’t make laws. just set rates at 0 permanently and they have nothing to meet and talk about.

    Matt Franko Reply:

    @Shaun, Shaun,
    ” Or do you mean the unnecessary unemployment because the elites have control over the media and increase unemployment so good people battle each other for a piece of the pie. ”

    Shaun, These morons ok “elites” dont know enough to even be sightly dangerous. Please consider that the unemployment is due to the extreme ignorance by our moron ok “ignorant policymakers” of the realities of FISCAL POLICY. From Bill Mitchell just today:

    “It clearly started out as a balance sheet crisis which means it originated from the excessive borrowing of the private sector driven by personal greed and an overzealous and often criminal financial sector. Hence the term GFC. It quickly moved into a real crisis (meaning it affected real GDP growth, employment and incomes) because governments around the world reacted too cautiously in terms of their fiscal intervention.”

    http://bilbo.economicoutlook.net/blog/?p=17083

    Please take a look. Resp,

    Shaun Hingston Reply:

    I guess this is where we differ. Most MMTers seem to think that there is nothing deliberate about this crisis. Frankly, I think they live in a bubble. They should be reminded of historical events:

    The Iraq War, the one without any WMDs, and Andrew Wilke spoke out against before the invasion.

    The Banana Republic.

    200,000 killed in Iraq since invasion began.

    Big Tobacco.

    The ongoing American interference in many areas of the World.

    etc, etc, ….

    Sure, keep believing that they just didn’t know any better.

    The basic principles of MMT are simple, why else would the non-believers invest so much energy in making sure the status-duo in economic thought continues…

    WARREN MOSLER Reply:

    how about leave the risk free interest rate at 0 and let the fed concentrate on bank regulation.

    Congress is the boss of the tsy and fed. they are ultimately responsible for their actions.

    Political ‘temptation’ is about pleasing the voters. isn’t that the point?

    The alternative to politicized lending is to have some private capital on the line, with private capital’s reps calling the lending shots.
    And we know that has it’s issues as well.

    Reply

    Shaun Hingston Reply:

    @WARREN MOSLER,

    Bank Regulation is only as good as the Regulators. Especially considering how MBS were used.

    IMO a monetary system has two conflicting objectives. The amount of money & distribution of money.

    There are situations arising where having both objectives handled by one set of democratic institutions is problematic. The obvious issue is spending in order to satisfy voters, but generating an inflation.

    Voters have to make one choice based on two factors: person who will have the appropriate monetary size, person who will have appropriate distributional system. If these two factors can not be assigned to one person, then the voter has a complex decision. Make it easy for them, especially considering that they both have an equal effect upon their welfare.

    Reply

    WARREN MOSLER Reply:

    the amount of ‘money’? seems you haven’t read the 7dif and/or the mandatory readings?

    Shaun Hingston Reply:

    @Warren,

    Whatever term MMTers use to describe the total sum of circulating financial assets. Okay?

    The substance that supports prices.

    WARREN MOSLER Reply:

    Spending power?

    beowulf Reply:

    @Shaun Hingston,
    “0 percent interst loan is functionally equivalent to having an infinite amount of money.”
    Banks have capital requirements.

    “I have suggested that decisions of the Central Bank must largely be determined by popular vote. Interest rate would be calculated using a popular average.”
    There is no referendum authority in the US Constitution. Your idea would require a constitutional amendment, which means it will never happen (there have only been 27 constitutional amendments, the last one ratified 20 years ago).

    “The only aspect that is more ‘democratic’ regarding the consolidation of Treasury and FED operations is the fact that Congress has more influence. But this is still inadequate, as some make the argument that Congress is ‘tempted’ to use their influence to pursue ‘inflationary policies’, which I somewhat agree with.”

    That’s actually 180 degrees out of phase with reality. Congress has as much legislative power over Fed activities as it does over Tsy activities, which is to say, total. It is Congress that has (wrongly, IMHO) insisted that the Fed be allowed to function independently of Tsy. To point out a simple fact for foreign readers, the Secretary of the Treasury serves at the pleasure of the elected President of the United States. By contrast, Fed governors are appointed by the President to staggered 14 year terms and can’t be removed, really, short of criminal prosecution.

    There’s no reason to merge Tsy and the Fed administratively, it’d be easier to simply take the “Secretary of the Navy approach”.
    The Fed should continue operating separately from Tsy but under “the supervision and control” of the Secretary of the Treasury, just as the Marine Corps operates separately from the Navy and yet answers to the Secretary of the Navy (in both cases, the ultimate boss is whoever the People elect as President).

    Reply

    Shaun Hingston Reply:

    @beowulf,

    Why should an idea be dismissed if it seems improbable? Science uses ideal cases all of the time, why should economics be any different?

    It is Congress that has (wrongly,IMHO) insisted…..

    This just further supports my argument. Since all MMT proposals in some way cede more power to Congress or the President, what exactly stops the same mistakes from occurring again? It seems MMTers want to ensure that in 80 years time we will commit the same mistakes…….

    Reply

    Unforgiven Reply:

    @Shaun Hingston,

    If people know how their currency works and can’t be BS’d by the media and politicians, then we approach the outcome that you’re pointing towards. Look at the power in the notions we could go bankrupt or we could become the next Greece has had upon the people. We’ve been voting for politicians that are deluded, at best!

    How can voters with the current quality of disinformation make informed decisions about what the Fed is doing when they’re running pillar to post thinking we need to “balance the budget”? We would just become even bigger toolboxes than we are right now!

    You want to hand more decision making power over to people who voted Bachmann in to office? The ones that even considered Palin? Look at the quality of information that those voters will believe and base their votes on! I think we’ve got a few more layers of the onion to peel yet.

    beowulf Reply:

    @Shaun Hingston,
    “Science uses ideal cases all of the time, why should economics be any different?”

    1. Economics isn’t a science and 2. You’re not talking about economics, you’re talking about political science (which isn’t actually a science either).

    Your amendment would convert a system of representative democracy into a direct democracy. Whether its superior or inferior to the current system is beside the point.
    Your plan would strip power from legislators but to be enacted into law, it must be approved by two-thirds of both houses of the federal legislature and three-fourths of the state legislatures.
    It. Will. Never. Happen.

    Monetary policy is an exercise of federal executive power and Article II of the Constitution is rather clear in whose hand that power should rest. “The executive power shall be vested in a president of the United States of America”.

    Shaun Hingston Reply:

    @Unforgiven

    So you propose, like everyone else around here, that we stick with the status quo with a proven ability to destroy peoples lives…. Nice!

    Don’t fall for that technocracy bul$&it.

    @Beo


    1. Economics isn’t a science and 2. You’re not talking about economics, you’re talking about political science (which isn’t actually a science either).

    ….You missed the whole point of the statement. Any body of thought is IMO validated by its adherence to scientific principles. Now we can both agree that MMT is not fiction, it is based on empirical observations of the environment, like science. There is a fine line between economics and politics, they both form the political economy. Perhaps I could have been clearer and used the word ‘political economy’. Abstractly, economics and politics are both subsets of political economy, political economy is the complete body of knowledge that explains how goods and services move through a society. Does that make sense?

    To say that problems with the economy caused by politics will somehow be fixed by changing the functioning of an economy as proposed by MMTers is inadequate, since it does not directly address the issue within politics.

    Whether its superior or inferior to the current system is beside the point.

    This statement amazes me….How is real change suppose to happen when people like yourself seem to have most of their opinions based on this belief?? Your beliefs affect the beliefs of audiences.

    All I’m trying to say is that the policy proposals need to begin with the ideal state, and then work backwards to what is possible. However, the desire and agenda of any school of thought should be to achieve what is ideal.

    Unforgiven Reply:

    @Shaun Hingston,

    No, I’m saying that our understanding of the economy shows how easily misled we are. Without changing that, what you propose just makes us bigger toolboxes that are even more easily confused (and therefore) controlled. THAT’S sticking with the status quo.

    So, no. I don’t believe your proposal will be anything but counterproductive when people don’t even know what the Fed does and doesn’t do (let alone why) in the first place. Shuan, people don’t even know what the deficit is! They think that “China owns everything now”!

  4. beowulf Says:

    “This statement amazes me….How is real change suppose to happen when people like yourself seem to have most of their opinions based on this belief?? Your beliefs affect the beliefs of audiences.”

    Fine, its inferior to the current system and I’d urge my congressman and state legislators to vote against it.

    Reply

  5. Shaun Hingston Says:

    @Warren

    the fed reserve board doesn’t make laws. just set rates at 0 permanently and they have nothing to meet and talk about.

    IMO a monetary system has two conflicting objectives. The amount of money & distribution of money.

    There are situations arising where having both objectives handled by one set of democratic institutions is problematic. The obvious issue is spending in order to satisfy voters, but generating an inflation.

    Voters have to make one choice based on two factors: person who will have the appropriate monetary size, person who will have appropriate distributional system. If these two factors can not be assigned to one person, then the voter has a complex decision. Make it easy for them, especially considering that they both have an equal effect upon their welfare.

    I think it would be better to have the FED lend loans for anything. The interest rate would be determined by popular average. This removes more risk associated with corruption than your solution.

    Reply

    Shaun Hingston Reply:

    At the same time I could nearly guarantee that any problem associated with deflation would be removed.

    Reply

    WARREN MOSLER Reply:

    Ok, but expect solyndras like issues and the politization of lending

    Reply

    Shaun Hingston Reply:

    @WARREN MOSLER,

    Imagine that, govt. lending actually becomes a political issue… and the people become active participants in the lending process..

    Reply

  6. Shaun Hingston Says:

    @Unforgiven

    So, no. I don’t believe your proposal will be anything but counterproductive when people don’t even know what the Fed does and doesn’t do (let alone why) in the first place. Shuan, people don’t even know what the deficit is! They think that “China owns everything now”!

    Sure most people are stupid when it comes to economics. But they need to learn, they way people learn about something is generally when they interact with it, not when their isolated from the system.

    Without changing that, what you propose just makes us bigger toolboxes that are even more easily confused (and therefore) controlled. THAT’S sticking with the status quo.

    Controlled? How? What I propose is more likely to make the system more random. Was democracy formed after everyone had the time to make an informed decision? Did we need to teach people about how democracy was suppose to work, otherwise if it were implemented the system would be guaranteed to collapse? No we didn’t. If we thought like that then choice is something to be feared, and we should have stayed slaves to ruling elite.

    Why is everyone here so afraid of giving people choice? Society allows people to buy whatever they want, watch whatever they want, have sex with whoever they want, say whatever they want, read & believe whatever they want, etc. The world hasn’t fallen apart, if anything we can all agree that it has made it a better place.

    Then why when it comes to our governing institutions, we all of the sudden fall for that technocracy bull%h1t……..

    Reply

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