The remarkable aspect of mainstream economists is their persistence treating values in (digital) ledgers as actual instances of banknotes (physical paper) as their mental model, then selectively dropping the model.
"The Neoclassical (and Austrian) economics vision of free market capitalism is one of an anarchist utopia. When free of non-market distortions—government intervention, unions and externalities—and bereft of monopolies, the Neoclassical model of capitalism achieve “Pareto Optimality”: a point at which no-one can be made better off without making someone else worse off. "
Of course, we've never seen anyone make others worse off for their own benefit.
And the alpha male anarcho-capitalist, Peter "technology is an alternative to politics" Thiel, rejects competition and democracy and instead seeks monopoly and his tyrannical rule.
This is peeled away when Keen picks apart how a money multiplier would even work. It only applies if banks lent actual banknotes.
In short, their reasoning insists a virtual chair has the same characteristics of a physical chair, although I can think they actually engage in double think with money multiplier, at least I think so with this definition supplied by wiki: 🧵
"In monetary economics, the money multiplier is the ratio of the money supply to the monetary base (i.e. central bank money). If the money multiplier is stable, it implies that the central bank can control the money supply by determining the monetary base."
It works if banks transferred their lent money as actual banknotes.
Since the asset and deposit are generated as a pair, I tend to want to say, it;'s true that "loans" create deposits but only in the sense that a loan-as-the-bank-asset, the liability+asset of the deposit of bank and borrower, and the borrower's liability all add up to zero.
All of it is a coin, there are no heads or tails "first".
Well, if we ignore cash, the multiplier is D/R, and D/R is what I plotted... it went from 180 to 10 overnight, basically overnight The Fed converted bonds to Reserves as if this was something that would save us all... Of course it helps avoid violating banking laws etc but if "the money multiplier" were a real thing, then M2 would have been about 17 times bigger than it was in 2010 or so.
Banks can make reserve deposits into checkable deposits via loans. Banks can make Govt bonds into checkable dep. via loans... banks can make mortgage backed securities into checkable dep. via loans... banks can make collateralized debt obligations into checkable dep. via loans...
The actual amount of "reserve dollars" is irrelevant. Either you lend against a govt bond, or you sell the bond to The Fed for reserves... make little diff
If you have a login at internet archive -- read the few pages before page 94.
The equations governing why banks want deposits. They don't lend from deposits, but deposits do govern their balance sheets. The larger share of total deposits a bank has, the lower the probability value is transferred out of its ledgers. The ability to lend grows infinitely as market share approaches 100%.
Right at one bank every loan goes on the books as an asset, no reserves are required because you never need to transfer to another bank you can just hold those loan papers, when people pay each other you're just moving money from one deposit account to another... The single central bank is just a bookeeper. This is the real "work" banks do. What they get paid for is being careful with numbers.
@dlakelan@economics@a.gup.pe There's one aspect that bugs me. Graziani's eq p 94 has denominator terms of (1-bank_deposit_market_share) governing lending capacity. This approaches infinity at 1 bank. Amount deposited is < liability of borrower and greater than bank lent and its asset. This says to my trailer trash math assets and deposits grow infinitely..!
@GhostOnTheHalfShell
It's right. Just imagine starting with a bank that has $1 reserve, and an infinite string of people each borrowing $1000. every loan they make adds the loan paper asset and the $1000 deposit. Whenever they get a check they just move deposits from say my account to your account. Their equity never goes negative because they never actually have to deliver anything to anyone, everything is ledger data. @economics@a.gup.pe
exactly, but, their asset L = P + I (principal lent + interest paid).
The bank “deposits” P, gains L while borrower get P and is liable for L. Over the lifetime of the loan, the bank now “owns” L worth of money.
Without an external source (aka the debt and deficit) bank owns all money. Because lending is ongoing though, it probably means upward spiral in bank money. Until the economy has a downturn and lending is disrupted.
Right, as people slowly pay interest to the bank, the bank slowly accumulates funds. If its paid exactly enough to pay its workers and have the owners pay for their cost of living, then the whole thing is stable and money doesn't go out of control. If the bank accumulates more than the cost of operations then slowly the bank's owner becomes the owner of all assets in the world as they use money to buy up stuff.
But here’s a thought. What is the behavior and system dynamic of 2-5 banks? The bulk of transactions are internal to each and collusion chances are high, especially if stock owners own shares in each (like Vanguard does of grocery, Albertsons and Kroger).
Here, I’d like to see modeling that could run different kinds of collusion scenarios under in goid and bad times (like a supply chain disruption).
These are really good questions that actually would be best addressed by agent-based modeling, where individual agents (banks, employees, investors, bond traders, federal govt, state govt, firms etc) each have behaviors defined by rules and you run the system adjusting the rules to see how the scenario plays out. #julialang is a great tool for this using the Agents.jl library in part because it's fast
I’ll have to look… the framework is pretty general in one sense (having played around with game engines, “agents” are natural to them). I think system dynamics could handle some kinds of modeling.
The point of Minsky that Keen developed is it has the book keeping accounting tables intrinsic to it. Keeping all the equations observing accounting rules seems to get headachy.
Minsky seems to be great based on Keen's blog posts and I like the double-entry bookkeeping part a lot. But it is primarily concerned with aggregate behavior it seems to me. It's probably possible to model say 10000 different agents but it would be unwieldly.
Yes, I would not use it for 10000 agents. But if the model is of several sectors this fits well.
Steve’s models don’t approach what Ty Keynes does with Minsky. The man is a madman.
I want to see what Ravel looks like after he pulls the cover off it. A flavor of what it does can be found in videos on his channel. Ravel is a commercial variant that adds data management to Minsky. I kind of look at it as fluidly crafting a db view.
So pick through columns of a spread sheet, say nominal and ordinal data, to organize it, then pull data from time (like gdp per country per quarter over 5 yrs, something like that).
In the back of my mind I think, wait, map-reduce.. but feeding minsky, but something like that is retrospective and not forcasting.
A model of 5 banks would be very interesting, but I think it would require having a few thousand representative citizens who each have different needs for cash etc in order to make it reasonably informative. You'd create a probability distribution for assets, liabilities, income, expenses etc, and people would need to respond to the imposed conditions (massive layoffs, or a pandemic, or a loss of confidence in banks or whatever)
It’s a different approach. Steve works macro from macro. There is good reason to do this as macro from micro has a problematic history in economics; demand curves are such an absurdity, but by intuition there are other kinds of questions to be asked, such as small scale dynamics showing themselves at scale, like the fineness of sand effecting the dynamics as a mass..
It’s different thinking from mainstream crap, fo’ sure.
Add comment