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I was surprised to see a reference to "loans create deposits" in this article. I thought that concept was very well accepted and wouldn't have considered it to
by mason55 8y ago
I was surprised to see a reference to "loans create deposits" in this article. I thought that concept was very well accepted and wouldn't have considered it to be part of MMT? Is the MMT part of this just that it also applies to the Treasury/Central Bank relationship and not just retail banks?
> MMT says that, contrary to appearances, banks don’t make loans out of deposits. Rather, they make loans based on the demand for borrowing, then the borrowers stash the proceeds in the bank. Anyone they write a check to simply makes a deposit in another bank. The bottom line is that loans create deposits rather than deposits creating loans. This is one aspect of MMT that even some conservative central bankers—including those at Germany’s Bundesbank—agree with.
- holymacaral 8y agoA lot of MMT is just restating things Keynesians and Austrians already know and pretending it's some brilliant idea. For instance, they think it's a big breakthrough that the government can pay down debt by issuing more currency. We already know the government can do this, and we also know why it's a bad idea.
- CPLX 8y ago> we also know why it's a bad idea Do tell.
- holymacaral 8y agoCountries can and have defaulted on debts issued in their own currencies. If you printed your way out of debt that would be a default in all but name. You would cause a collapse of credit and a collapse in confidence in the currency itself.
- CPLX 8y ago> Countries can and have defaulted on debts issued in their own currencies. Really? How? > If you printed your way out of debt that would be a default in all but name. Oh, right, actually they don't. So in fact it is actually impossible to default on debt in your own currency and you're admitting as much. > You would cause a collapse of credit and a collapse in confidence in the currency itself. Right. And a reduction of value of a currency is also called inflation. Which is pretty well accounted for within the discussion.
- mikhailfranco 8y agohttps://scholar.harvard.edu/files/rogoff/files/forgotten_history_of_domestic_debt.pdf https://scholar.harvard.edu/files/rogoff/files/forgotten_his...
- CPLX 8y agoI quickly read, digested, and mentally analyzed the 52 page whitepaper you posted, and am ready to resume the argument from the exact same point of view.
- jhundal 8y agoThis paper was discredited. It could not be replicated using publicly available data and it was eventually found that there were large scale computational errors: https://www.bbc.com/news/magazine-22223190 https://www.bbc.com/news/magazine-22223190
- mikhailfranco 8y agoSorry, posted the wrong Reinhart paper, should be this one of course: https://www.nber.org/papers/w15815.pdf https://www.nber.org/papers/w15815.pdf
- bryanlarsen 8y agoMMT supporters would agree with that statement, AFAICT. Some claim that their theories are more clearly descended from Keynes than conventional economics do. "why it's a bad idea" aka, inflation. Which MMT spends a lot of effort modelling.
- throw0101a 8y ago> Some claim that their theories are more clearly descended from Keynes than conventional economics do. The conventionals recognize this too: > With everything else going on, I really don’t want to spend time arguing with the Modern Monetary Theory people; after all, we agree on basic policy issues right now, and they are never likely to have as much destructive influence as the deficit scolds. But the MMT people think they have an argument with conventional Keynesians like me, and as long as they’re out there claiming that standard macroeconomics is all wrong, I guess we need to respond. * https://www.nytimes.com/2019/02/25/opinion/running-on-mmt-wonkish.html https://www.nytimes.com/2019/02/25/opinion/running-on-mmt-wo...