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History of MMT and the euro, 1996 Bretton Woods Conference

Posted by WARREN MOSLER on July 26th, 2012

Found this on the net in the PK archives.
Shows MMT was on it well before this date.
Feel free to distribute

To: PKT Academics
Re: Bretton Woods Conference

Confirmed attendance includes senior staff from Deutchebank,
Credit Suisse, J.P. Morgan, Banker’s Trust, Salomon Bros,
Lehman Bros, Harvard Management, III, Petrus, Paine Webber,
Paribas, and BZW. A keynote speaker will be Professor Charles
Goodhart from the LSE. Bernard Connolly will be the historian.
Speakers for each topic are currently being arranged.

There is currently room for two academic representatives.
Please contact me at mosler@xxxxxxxx if you have interest.

A FRAMEWORK FOR ECONOMIC ANALYSIS

An Invitational Conference

Bretton Woods, New Hampshire

June 12-15, 1996

The purpose of this conference is to bring together a selected
group of portfolio managers, analysts, researchers
traders, and academics who have a common understanding
of monetary operations.

The objective of this conference is to achieve agreement on the use
of a common conceptual framework for undertaking
contemporary macroeconomic analysis.

Portfolio managers in attendance are responsible for well over
$50 billion in assets. The economists and analysts from the
international dealer community represent some of the world?s
largest and most sophisticated fixed income trading and sales
operations.

We believe that this group has the potential to establish an international
standard for the presentation and analysis of economic data.

Several of the fundamentals are Post Keynesian…

Deposit money is endogenous
Central Banks set short term rates exogenously
Deposits exist solely as the result of loans

Extension of these fundamentals includes…


Internal sovereign debt functions as interest
rate support
Taxes create a demand for the goverment’s
currency
Fiat currency is defined exogenously

Conference Moderator……..Warren B. Mosler

Wednesday, June 12, 1996

11:30 AM Welcome and Introduction
12:00 PM Luncheon
12:30 PM History of the Awareness of Monetary Operations
Charles Goodheart

MONETARY OPERATIONS

1:00 PM Review of the Fundamentals of Monetary Operations
1:30 PM Monetary Policy Options


MACROECONOMIC FUNDAMENTALS

2:00 PM The function of Government Securities
2:30 PM Currency Definition
3:00 PM Fiscal Policy Options and Implications


EXTERNAL DEBT

3:30 PM Review of Current Conditions
4:00 PM Macro-economic Implications
4:30 PM World Bank, IMF Policy Implications
6:00 PM Hor?s d?ouvres
7:00 PM Dinner

THURSDAY, JUNE 13

ESTABLISHING THE FRAMEWORK

9:00 AM Integrating Foreign Trade, Investment, Fiscal and Monetary
Policy
10:00 AM Full Employment, Zero Inflation Model
11:30 AM Lunch

RAMIFICATIONS OF MONETARY UNION

1:00 PM Current Political Situation
Bernard Connolly
2:00 PM Maastricht Fiscal Criteria Implications
3:00 PM Post 1999 Credit Implications
3:30 PM Functionality of the Euro
4:30 PM Drafting a Consensus
6:00 PM Hor’s d’Ouvres
7:00 PM Dinner

FRIDAY, JUNE 14, 1995

Review and Discussion

Warren B. Mosler
Director of Economic Analysis
III Finance

See “Soft Currency Economics:”

32 Responses to “History of MMT and the euro, 1996 Bretton Woods Conference”

  1. Willie Lomax Says:

    Do all those people still contribute here? If so many people back then “understood”, how has the movement failed so fully? Rickards is having a heart attack that sandy weil wants to bust up the big banks and global debt levels can only be cured with “sound” money (gold). Hong Kong is bulding a gold storage facility to rival fort knox. It seems your efforts at a better world are not succeeding, what would you have done differently back in 96 to have made a more dramatic impact?

    Reply

    WARREN MOSLER Reply:

    Don’t know

    Reply

    sdvan Reply:

    @WARREN MOSLER u don’t know? The god of mmt? Then who does? Like mogambu guru told me- we are freaking doomed! Erickson u better have a long talk with warren. How can he lead and teach when he doesn’t know what failed back in 96 that limits our policy options today. Talk about being blindsided by the sdvan! Does any freaking body have an idea what could have been done to prevent this failure?,

    Reply

    roger erickson Reply:

    @sdvan,

    ? It’s obvious. We need to look further afield.

    Patience, grasshopper. If HP doesn’t know what HP knows, then HP will never learn fast enough what it should have known years ago.

    It takes a village. Distributed people are always stumbling across various truths. It’s up to them all to find out what they all know, and how to use it to explore group options.

    You can lead HP to HP, but you can’t make them all listen. At least not soon enough.

    Most people still think they simply don’t have to know this stuff. In fact, everyone is avoiding more than one important thing that they simply don’t want to have to know – including Warren. The distributed ratio of what we all need-to/don’t-want-to know constitutes our group survival control signal.

    The solution, as always, will be indirect. “For every intractable problem there is a solution, and that solution will involve another layer of indirection.”

    We need to look further afield to find unexpected solutions to your question – even if we currently think we don’t want to have to know something we’re missing. :)

  2. MamMoTh Says:

    What do you mean by “Deposits exist solely as the result of loans”?

    Reply

    WARREN MOSLER Reply:

    when a bank makes a loan the associated liability is called a deposit

    Reply

    Jose Guilherme Reply:

    @WARREN MOSLER,

    But “solely” seems to go too far.

    If I go to a bank and deposit x dollars this deposit was not created by a bank loan.

    Reply

    Neil Wilson Reply:

    @Jose Guilherme,

    Excess Dollar notes at a commercial bank get deposited at the Central Bank attracting underlying Central Bank liabilities into their ‘Central Bank Reserve’ account

    That deposit at the central bank is a ‘loan’ to the central bank?

    (If they are not a loan, why is the central bank paying interest on them?)

    Dollar notes are just receipts for liabilities at the central bank. Commercial banks never keep more than a float of dollar notes on hand.

    MamMoTh Reply:

    @Jose Guilherme,

    yes the question was obviously about the “solely”

    WARREN MOSLER Reply:

    The x dollars previously were

    MamMoTh Reply:

    @WARREN MOSLER,

    we all know government spending creates or increases deposits as well. so what do you mean by solely?

    Reply

    Jose Guilherme Reply:

    @MamMoTh,

    @ Neil Wilson,

    Then the deposit at the central bank would be the result of a “loan” made by the commercial bank, while the ” loan” itself is the result of (my) original deposit at the commercial bank.

    WARREN MOSLER Reply:

    Yes
    Net financial assets are necessarily “outside money” in this case from the gov sector.
    And even then under current institutional arrangements Tsy deposits are “created” via New Tsy secs/loans

    ESM Reply:

    @MamMoTh,

    I would say it a bit differently. A bank deposit is an IOU to the depositor from the bank, i.e. bank money. Banks will only issue such money, i.e. create a deposit, if it will be profitable. Otherwise, what’s the point? The only way for it to be profitable is if the bank can acquire an asset in exchange which earns more than the interest they are obligated to pay on the deposit. That asset is almost always in the form of somebody else’s liability, whether it be a loan to a person to buy a house, a company to buy equipment, a brokerage to buy a stock, or perhaps for the purpose of buying a Treasury bond, Federal Reserves, or making an unsecured loan to another bank (i.e. Fed Funds or LIBOR).

    Reply

    RyanVMarkov Reply:

    @ESM,

    Commercial banks don’t lend reserves to clients, right? They don’t wait for client #1 to come and make a deposit first, so that later they can lend to client #2.

    They lend to credit-worthy clients, depending on their view of creditworthiness, and following the capital requirements?

    Therefore isn’t their profit coming from the spread between the interest on the loan they negotiated with their client and the fed funds rate, or fed’s discount window rate, depending how they secured the necessary reserves when issuing the loan?

    Reply

    ESM Reply:

    @RyanVMarkov,

    Well, you’re correct except that you’re misinterpreting the word “deposit.” I think it’s a horrible, confusing word. Customers make deposits I guess in the same way that dogs do. But a bank deposit is something the bank gives you. It is an IOU from the bank. If you give the bank $100K in cash, then they will give you a deposit in the amount of $100K. Likewise, if you go to a bank and sign a loan form to borrow $100K, then they will give you a bank deposit in the amount of $100K.

    So the way I look at it, the bank gives a deposit in exchange for an asset, which in the case of a generic customer is usually cash or a loan.

    RyanVMarkov Reply:

    @ESM,

    No disagreement about loans (banks’ assets) creating deposits (banks’ liabilities).

    My question was about commercial bank’s profits – a spread between fed funds rate or fed’s discount window rate and the rate of the loan to its clients?

    Not the spread between the rate of the loan commercial banks issued and the rate commercial bank pays to depositors, like you said above to MamMoth?

    ESM Reply:

    @RyanVMarkov,

    I see what you mean. Well, of course a bank’s cost of funding depends on the current status of its liquid assets and various borrowing facilities, but I think the rate it pays on deposits is pretty important.

    Obviously, a bank doesn’t need to borrow money from customers to fund loans for other customers, but one way of looking at it is that when a customer takes out a loan, the bank funds it by borrowing from the same customer who took out the loan, in which case, there better be a healthy spread there for the bank. The bank doesn’t actually need to borrow from the Fed or from other banks until the customer draws down his account by sending a wire to another bank.

    RyanVMarkov Reply:

    @ESM,

    “…but one way of looking at it is that when a customer takes out a loan, the bank funds it by borrowing from the same customer who took out the loan, in which case, there better be a healthy spread there for the bank.”

    I can’t understand the above.
    We agree that commercial banks don’t need deposits per se, therefore they don’t need to pay any positive interest rate to their depositors.

    “The bank doesn’t actually need to borrow from the Fed or from other banks until the customer draws down his account by sending a wire to another bank.”

    I understand this – the system is still in balance. The commercial bank has $100 assets (loan issued to client) and $100 liabilities (client’s deposit in the same bank), no need for reserves here.

    ESM Reply:

    @RyanVMarkov,

    “We agree that commercial banks don’t need deposits per se, therefore they don’t need to pay any positive interest rate to their depositors.”

    I didn’t agree they don’t need deposits. They don’t need deposits to fund themselves. Big difference. Evidently, banks do need customers with deposits because they compete for them and actually do pay a positive interest rate. I imagine this has more to do with selling ancillary services and charging fees, but it could have something to do with funding (after all, if somebody draws down their account, the bank might have to borrow more money at a rate which exceeds the rate that it had been paying on the account).

    My main point, though is that it is banks which create deposits, not customers. But banks will generally only create deposits in response to demand from customers, which usually comes in the form of a loan request.

    RyanVMarkov Reply:

    @ESM,

    “…but it could have something to do with funding (after all, if somebody draws down their account, the bank might have to borrow more money at a rate which exceeds the rate that it had been paying on the account).”

    Okay, this probably can explain why a commercial bank might not like loosing deposits to another commercial bank, namely, if the interest, paid by the bank to its depositors is smaller than the fed’s fund rate? But then won’t the competion between commercial banks just equalize that rate to fed funds rate?

  3. Unforgiven Says:

    “It seems your efforts at a better world are not succeeding..”

    So, you were looking for an Economy McMuffin or something? A socioeconomic vending machine? Fer chrissake Willie, put down the remote control!

    Reply

    Save America Reply:

    @Unforgiven,

    I just don’t see the success, warren says he has been at this for 20 years or more, and many other people with him. I see a world globally that is going towards gold standard thinking in many places, not away from it. From william black talking about the out of control corruption of fiat systems, to rickards and national governments going back on gold standard ideas, even Rombach here is austrian lite. Then you have so much unemployment, in the USA we have 80 year old nukular power plants designed only for 40 years of use, rotting infrastructure everywhere, a space program succeeded to china, etc In many ways I think I am much poorer than a generation or 2 ago, this is not progress is it? Many corporations shelve technologies and hinder progress for thier short term bottom line.

    I watched this movie once, a summer place, it said the only reason to exist was to love and to be loved, but most places I go in the world, I really feel a lack of general concern and true love and caring for fellow human beings, as FDO15 points out about his hundreds of employees at his bank, their only reason to exist is to suckerpunch your fellow human and stomp your financial boot into thier face. Unforgiven, if we have so much wealth and progress, and we all should be happy, why does it feel like there is so much less tolerance everywhere I go?

    http://www.bloomberg.com/news/2012-07-25/hong-kong-s-largest-bullion-vault-signals-region-s-rising-wealth.html

    China’s gross domestic product expanded 7.6 percent in the second quarter, the least in three years, a report showed on July 13. Gold demand in the country may increase 13 percent to 870 tons this year, according to a revised forecast this month from the WGC, which abandoned a target for usage to gain as much as 30 percent to 1,000 tons. Last year, demand in the world’s second-largest economy grew 20 percent to 769.8 tons.

    Increasing Wealth

    Asia-Pacific millionaires outnumbered those in North America for the first time last year, according to Capgemini SA and Royal Bank of Canada’s wealth-management unit. The number of individuals in the region with at least $1 million in investable assets rose 1.6 percent to 3.37 million, helped by increases in China and Indonesia, according to the firms’ World Wealth Report, released last month. So-called high-net-worth individuals in North America dropped 1.1 percent to 3.35 million.

    http://www.zerohedge.com/news/us-not-japan-or-your-average-stagnation-it-much-worse

    Unforgiven, we are not even doing as well as the lost decades in Japan that Warren often references.

    http://www.businessweek.com/news/2012-07-26/china-job-market-for-graduates-shows-stress-on-slowdown

    To say nothing of the maybe 50% youth unemployment in places like spain:

    Multinational corporations may be hiring 15 percent less graduates than last year and 30 percent fewer than in 2010, estimated Feng, of 51job Inc., which she says hires for companies including Apple Inc., Samsung Electronics Co. Ltd. (005930) and Standard Chartered Plc. (2888)

    Companies have reduced recruiting events, with online and engineering companies and businesses making electronic products cutting hiring, she said, estimating that 20 percent to 30 percent of graduates may not have jobs. In March, Wen told the National People’s Congress that about 78 percent of graduates were employed in 2011.

    Reply

    roger erickson Reply:

    @Save America,

    Large changes often occur only after failure of the last, significant counterattack. This battle over understanding currency has been progressing since before 1776.

    “All the perplexities, confusion and distress in America arise, not from defects in their Constitution or Confederation, not from want of honor or virtue, so much as from the downright ignorance of the nature of coin, credit and circulation.”
    John Adams
    http://www.brainyquote.com/quotes/authors/j/john_adams.html

    Despite the banking lobby, both the absolute # and proportion of people who understand this is still growing.

    One of these times will be the last time. Then freeriders will have to move on to alternate forms of fraud. There are endless & growing options both group growth & divisive fraud.

    Reply

  4. perpetual neophyte Says:

    Maybe more people understood this than MMTers give credit for, they just decided to use the knowledge for personal/private gain rather than to get on TV and explain the reality to the masses.

    Reply

    Ed Rombach Reply:

    @perpetual neophyte,

    Your interpretation certainly rings true for me. I only wish I had traded on more of Warren’s recommendations.

    Reply

    WARREN MOSLER Reply:

    some did that

    Reply

    Jose Guilherme Reply:

    @WARREN MOSLER,

    I did, am very happy about it and only regret not having been acquainted with MMT earlier, much earlier.

    Also, for those who complain against MMT’s lack of success (sadly true, among people at large as well as “educated” leaders)I’d say exposing scientific truth about the monetary system is in itself a success, a showcase for the capabilities of the human intellect.

    If the dominant culture refuses to listen we should treat this as an indication of its lack of openness to innovative ideas, in the present times.

    But this will change, one day. Perhaps all we need is a good shot of patience.

    Reply

    PZ Reply:

    @Jose Guilherme,

    Change will not come wihtout effort. We need more people to update wikipedia. I’m tired to do all work myself.

    ESM Reply:

    @perpetual neophyte,

    Anybody who trades Treasury bonds for a living knows this stuff intuitively. Stock traders are a little slow to catch on, but they generally take their cue from the Treasury market.

    Reply

    Save America Reply:

    @ESM, ESM here is an article that seems to challenge your perceptions – he doesn’t seem to intuitively be “in paradigm” and he controls the largest privately held treasuries – we are FREAKING DOOMED!:

    http://www.bloomberg.com/news/2012-07-16/treasuries-doomsday-is-four-years-away-for-vanguard.html

    The U.S. Treasury gets a pass, in part because the liquidity in that market brings buyers in that would maybe not be there if there was a viable alternative,” Auwaerter, 56, said in a recent interview at Vanguard’s headquarters, where he oversees about $675 billion of fixed-income assets. (110 billion in treasuries)

    Congress will have to work with the winner of this year’s presidential election — Obama or presumptive Republican challenger Mitt Romney — to pass a plan within three to five years that puts the U.S. on a path toward sustainable budgets, Auwaerter said. LOL!!!

    “With health care plus the demographics of the Baby Boom generation and the pressure that’s going to put on Social Security, all those things are going to come to a head over a three-to-five year time frame,” he said. “In a three- to five- year time frame the market can start to look at us like an Italy or Spain and start to assess a credit risk premium to U.S. Treasury yields.”

    Reply

    ESM Reply:

    @Save America,

    Pathetic. Well, in my defense I’ll just say that this guy Auwaerter is not really a bond trader. He’s in the role of a marketer in this context trying to make Vanguard look like an important player in the national economy. Dick Gross at Pimco is in a similar position, and says similar things, and I’ve never been convinced that Gross doesn’t actually understand this stuff.

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