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18 April 2015

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different clue

Way upthread someone referenced the physics envy which beset economists and led them to introduce all kinds of mathematics and models and so forth into their efforts.
None of this ever made economics into a science. How reliable a science would we consider chemistry to be if we had different schools of chemistry . . . Keynesian chemistry, Marxist chemistry, Supply Side chemistry, Neo-Classical Chemistry, etc.?
We would realize we were dealing with a pile of secular theologies with no reality value or connection thereto. And yet we are supposed to think that economics has made itself a science when all it has really done has created the full-size cardboard replica of a science. Economics isn't scientific. Economics is science-y. Which is like saying its truthy. Science-iness is to science as truthiness is to truth.

What is all the more ironic about all this is that during the 1930s, a British Nobel-Prizewinning Nuclear Chemist named Fredrick Soddy felt so disappointed in the visible failures of applied economics all around him that he tried to think of what
a "science of economics" would look like if it were derived from and based on observed natural laws and phenomena the way physics and chemistry is. After he did all his painful thinking about this, he wrote a book called Wealth, Virtual Wealth and Debt: The Solution of the Economic Paradox. Perhaps this might be one of those books that William R Cumming has asked us to submit titles of. I think it may well be, though since I am not an economist, how would I know ( said the economists).

I don't know if it is available other than through the Evil Amazon. If so, one does what one can and what one must. Here are a couple links about Frederick Soddy himself.
http://en.wikipedia.org/wiki/Frederick_Soddy

http://www.nobelprize.org/nobel_prizes/chemistry/laureates/1921/soddy-bio.html

http://www.britannica.com/EBchecked/topic/552022/Frederick-Soddy

Here is a tiny link about the book itself. http://en.wikipedia.org/wiki/Wealth,_Virtual_Wealth_and_Debt

Ingolf


We're in danger of getting hung up on semantics, MRW. As noted earlier, I know that "loans create deposits" and that "reserves" play almost no role in modern banking. That said, it will be interesting to see how things play out with the immense excess reserves in years to come.

In formal terms, therefore, the FRB description has been emptied of much of its meaning. Nevertheless, it's commonly used as a shorthand description of the way banking works today and, as I said, "simply means banks hold only a fraction of their demand deposits in the form of cash or highly liquid securities and lend out the rest."

Don't read any more into the term than that.

Ingolf


"Pro forma", true enough, but it's been used earlier as well as a political bargaining chip (1995 for example).

As for the notion that governments need to run perennial deficits to ensure the health of the private sector, I don't agree as per this comment in a Forbes article thread(just click on expand all comments):

http://www.forbes.com/sites/karlwhelan/2012/09/05/did-bill-clintons-budgets-really-destroy-the-american-economy/

Ingolf

Thanks, I understand now. What you meant was Congress doesn't do fiscal policy as you think it should be done. I thought you were making a more technical comment.

Ingolf

As I guess you know, I don't agree with you on how governments should work.

I certainly understand (as per my reply to Sam - 5:23 AM) that governments could (providing current laws were changed) make payments without issuing debt. The question, which I also consider in that reply, is how beneficial (or otherwise) that might be.

Charles I

okay then, i have mistaken that for the current imaginary banking.

different clue

All,

When WRC called for published books I first thought he meant any good books we might recommend. Re-reading shows he means any books written and published BY commenters here. Still, I will recommend a few good books and other sites and say why and hope this may be useful.

Walrus's post is about the proximate causes for how we got here in particular. But is there a body of work about the ultimate causes for how we got here in general? And about how we were headed somewhere else for a while and could BE somewhere else NOW if different theories and knowledge had kept being applied? Yes there is. I have recreationally read about it off and on over the past some years and still only sketchily understand it. But my instinct tells me it is worth reading, understanding and thinking about.

I have already recommended Frederick Soddy up above. I would briefly recommend a few more. They lay out a whole different concept of the economic study and management of production and service-performing and consumption from any mainstream or dissident theories now widely known, except somewhat the ecological economics theories referrenced in the Soddy links as being derived from the work of Soddy himself. This concept is so different I would call it a "whole other narrative". And yet it used to be Mainstream in this country in the 1920s, 1930s, 1940s. It's proponents testified before Joint Sessions of Congress. It's adherents were State Secretaries of Agriculture in many States.It then became so forgotten that it now seems stranger than science fiction upon first re-encounter. ( "How could all that history and knowledge be erased from the mind of experts and public alike?" is a whole other question in itself).

Anyway, a very good book by Charles Walters Jr. is called Unforgiven.
http://www.goodreads.com/book/show/2445566.Unforgiven
Here is something about Charles Walters himself. http://en.wikipedia.org/wiki/Charles_Walters,_Jr. Here is another good book by Charles Walters. http://www.acresusa.com/raw-materials-economics

By the way, Walters himself referrenced Frederic Soddy as an economic thinker whose work (among that of others) allowed Walters to think his own way through to his matter-energy based economics and his understanding of economic history of America as detailed in the book Unforgiven.

There is also a tiny group with a website around which like-minded economists and economic historians huddle for warmth. It is called National Organization For Raw Materials (or NORM for short). Here is the homepage with a table of links in the upper left corner which leads to all kinds of interesting articles laying out this widely forgotten viewpoint and knowledge.
http://www.normeconomics.com/

I recommend these books and/or sites in the strongest possible way based on my authority as a mere layman who thinks about these things and tries to understand. I believe they would repay several years of off-and-on study and thought.

MRW

They loan out their own capital or profits. They're not allowed to loan out the deposits they make in loans. What happens if someone borrows from the bank and immediately pays out 90% of it to a bunch of creditors who bank at other banks, or in the case of a mortgage, the title company? The loaning bank has to move the reserves to the other bank.

You need to read Frank Newman's book on the federal debt.

MRW

Yes, it does. It's in the Preamble to the Constitution:
http://www.usconstitution.net/xconst_preamble.html

-----------------------------------
"We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America."
-----------------------------------

In the link for "general Welfare" at the site, it says the following:

-----------------------------------
Welfare
welfare n. 1. health, happiness, or prosperity; well-being. [

Welfare in today's context also means organized efforts on the part of public or private organizations to benefit the poor, or simply public assistance. This is not the meaning of the word as used in the Constitution.
-----------------------------------

MRW

Let me even clearer, Ingolf. Each new loan is a new deposit. Since banks create this new loan, this new deposit, this 'credit money' out of thin air, there is NO REASON to "loan out" their deposits. They're just bookkeeping entries.

Banks make interest profit on those loans. That's real money to THEM, which they invest for their own portfolio, whether that's in a physical project, stock, derivative, or treasury security.

Reserves are the banks' checking account at the Fed. Reserves play an absolutely important role in modern banking in the US. They just aren't loaned out to commercial, industrial, or residential clients, to anybody. Banks use them in the important interbank market. The Federal Reserve uses reserves to hit or maintain the target interest rate (Fed Funds rate).

Read: http://australianpropertyforum.com/topic/9849701/1/

MRW

I agree with the author Kurt Whelan being a great fan of Stephanie Kelton's work.

Fred

MRW,

No. The powers of the House of Representatives do not derive from the Preamble to the Constitution. Good try though.

GulfCoastPirate

This is mostly correct. It's a con game to use the excess SS funds to finance everyday expenditures today then claim no SS trust fund exists and not pay it back. That's why the politicians don't call for tax decreases when they call for payout decreases.

The easiest way to stop the con would be to split the federal budget into three parts (Gore talked about this in the 2000 campaign). Since SS and Medicare have dedicated taxes give each of them a separate budget. Everything else would be the third part of the budget. Of course, if they do this then the true nature of the deficit will be exposed. Since the deficit hawks are also those clamoring for more war and more military spending I doubt this type of proposal could ever get through the current Congress or any future Congress similarly composed.

GulfCoastPirate

MRW wrote:

'When Reagan came in, he became enamored with the thinking of economist Milton Friedman, who maintained that the economy could be controlled and managed with monetary policy. Now, I am begging off here. I am still learning about Friedman and am not clear on the exact details of his thought, meaning sufficient to reduce it to a clear sentence.'


Freidman deserves whatever place in hell he currently occupies. Check out a couple of the chapters in Naomi Klein's The Shock Doctrine. Tells you about all you need to know.

MRW

Fred, it's in Article I, Sec.8, clause 1.

"The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defense and general Welfare of the United States…"

You know as well as I that "general welfare" has been disputed for over 225 years, but it's in there, and I'm not up for that meat-grinder at the moment. People can read about the sides if they're interested. Congress absolutely has the power to grant transfer payments to the states--debt-free-- for the benefit, the prosperity of the people.

MRW

Ingolf,

"I certainly understand ... that governments could (providing current laws were changed) make payments without issuing debt. The question, which I also consider in that reply, is how beneficial (or otherwise) that might be."

You mean without issuing treasury securities (aka "government debt"), which is just a cash equivalent for your savings that earns you interest. People and businesses would scream bloody murder unless the FDIC laws were changed. Vendors getting $10 million, say, for a government contract to clean a military base would not be protected if their bank went belly-up. How would they pay their workers or buy supplies? You think the defense industry would put up with that?

In the US, it's been a law since the gold standard days that the US Treasury's General Account at the Fed must have a positive balance. That's why treasury securities were issued; now they are a monetary policy tool to help the Federal Reserve Board of Governors hit their target interest rate (Fed Funds Rate).

different clue

GulfCoastPirate,

It's easy to figure out what Obama is thinking. He is thinking of the even bigger private sector payoff he will receive from the Corporate Global Plantationists if he can get TPP/TTIP achieved. As to what the TreasonDems for TTP/TTIP are thinking, each one would have to be studied to see. If Senator Wyden of Oregon decides not to run again for Senate so as to pursue new opportunities in the private sector, we'll know he was auditioning now for future payoffs later. For example.

MRW

"Since SS and Medicare have dedicated taxes give each of them a separate budget. Everything else would be the third part of the budget."

No need for a separate budget, GCP. All "taxes" that are supposedly "paid" into SS are just extinguished. SS payments are not contingent on taxes. All SS payments are made by law. And paid out of the US Treasury's General Account.

The SSA--and I'm in a hurry and don't have time to get the link--says on their website that SS is "funded" by "special" treasury securities. I can't remember whether it's "special securities," or "special treasury securities." It's as if you and I wanted to pay for our new retirement house, and we got on the computer and gave ourselves $2.5 million for a nice house in Houston on Excel. That's essentially what they do.

And according to Frank N. Newman, they're parked in special actuarial accounts because, BECAUSE, the federal government economists need a sense of what the earning power of retirees over the coming decades will be at various junctures versus the productive capacity of the new working generations at the same junctures to produce the goods and services that retirement money will buy. The new working generations also need those dollars to buy their production, from trips, houses, services, and toys for the grandkids.

Listen to Greenspan explain it to Ryan in his garbled way, although I don't think I'm much better. ;-)
https://www.youtube.com/watch?v=DNCZHAQnfGU

MRW

This might interest some.

It's economic historian Michael Hudson discussing the history of labor and banking going back 10,000 years, and up to the present. Absolutely fascinating.

The recorded interview is here:
http://www.3cr.org.au/economists/episode-201504011730/michael-hudson-ancient-near-east

This is the transcript and some history of Hudson's three 1/2-decade project.
http://www.unz.com/mhudson/finance-capital-and-usury-through-the-ages/

MRW

Charles I, see my link to the interview with economic historian Michael Hudson at the end of this thread. I think you would enjoy it, especially the last part.

GulfCoastPirate

'Corporate Global Plantationists' - I love that.

Whatever their motives, like you, I hope they can be stopped. If it takes phones, letters, etc. then that's what we'll all need to do.

Did you see Warren on Maddow's show last night? Apparently the version of fast track they want to pass would be in effect for the next president also. Good grief ...

different clue

GulfCoastPirate,

Making that a genuine issue of dispute to run on could be a way to get such-minded people into Congress.

I believe I remember reading somewhere that up until partway into the Johnson Administration that the SocSec budget and the general budget were indeed formally separate. Johnson had the two merged so as to keep paying for the rising cost of Vietnam War expenses without requesting Congress for an overt tax hike to pay for prosecuting the war. Money coming in from FICA taxes was henceforth counted as "general budget" to analytically mask and disguise the size of the unpaid-for war costs. And
the SocSec FICA revenue stream has in a sense been "embezzled from" ever since then to benefit the general budget expenditures. And especially since the Great Reagan Rescue ( in 1983?), which was Greenspan's real goal all along.

Re-separating those separate taxation streams into their own separate budgets again would "out the lie". It is worth finding officeseeker wannabes to run on that, among other things.

different clue

GulfCoastPirate,

I read a bit about this Warren reminder to Mister President after his fact-free dismissal of her concerns. She is obviously politico-economically offended by the fraud and deceit involved. She may well be personally bitter about not having been given the Chair of the Consumer Financial Protection Bureau that she herself engineered and guided into existence. If so, she may well be serving Mister President a cold dish of revenge, hopefully the first of many.

Fred

MRW,

So that's how Congress is empowered to spend money! Yes, I've read that too. I don't define "duty" the way you do. Probably not "liberty" either. Prosperity to the people! You should run for congress on that platform, I'm sure there are plenty of votes for it.

Ingolf

MRW,

This reply is to both of your comments above (6:30 AM and 7:13 AM).

"Let me even clearer, Ingolf. Each new loan is a new deposit. Since banks create this new loan, this new deposit, this 'credit money' out of thin air, there is NO REASON to "loan out" their deposits. They're just bookkeeping entries."

Yes, they're bookkeeping entries to start with. Once the borrower draws down and spends the loan proceeds, however, that's no longer the case. Then, the lending bank's reserves will be debited by the amount of the drawdown and the reserves of the bank into which the recipient of the borrower's spending deposits the proceeds will be credited. Unless, of course, the recipient banks at the lending bank, in which case it's a wash.

This process of loan generation (and bank security purchases) continually recycling back into the banking system as fresh deposits is what has, over time, created most of the money supply (the rest being base money created by the Fed).

"Reserves are the banks' checking account at the Fed. Reserves play an absolutely important role in modern banking in the US. They just aren't loaned out to commercial, industrial, or residential clients, to anybody."

- Yes to the first sentence.

- Not really to the second. They're needed to effect interbank settlement, of course, but (as the poster at your recommended link repeatedly emphasises, they're mostly irrelevant in modern banking systems).

- As to whether they're lent out, it depends if we're talking systemically or at an individual bank level. The central bank is entirely in control of the overall level of reserves, so the system as a whole can't get rid of them. Individual banks, however, can certainly try to do so. Whether they succeed depends on where the proceeds of their loans or security purchases end up (see first point above).

"The Federal Reserve uses reserves to hit or maintain the target interest rate (Fed Funds rate)."

It used to but post crisis, with large excess reserves, this is no longer possible. Now, the Fed pays interest on excess reserves (IOER).

"They loan out their own capital or profits. They're not allowed to loan out the deposits they make in loans."

Unless you mean something I haven't understood, the only banking systems in which the lending out of deposits isn't "allowed" are 100% reserve systems. None exist as far as I know because they simply can't compete with (dare I use the phrase!) fractional reserve systems. After all, it wouldn't be much of a business if banks could only lend out their own capital and accumulated profits.

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