From Chairman Bernanke earlier today:
The second important risk to our recovery, as I mentioned, is the domestic fiscal situation. As is well known, U.S. fiscal policies are on an unsustainable path, and the development of a credible medium-term plan for controlling deficits should be a high priority. At the same time, fiscal decisions should take into account the fragility of the recovery.
That’s what can occur when you have economic theorists who have never worked a day in their life in actual bank operations.
What we’re dealing with is divergence of theory & operations. In no other branch of science is the scientific method willfully broken. What, pray tell, is the purpose of theory if it’s not to adhere to empirically required operations?
There’s something deeply perverse about orthodox economics. My theory is that the field grew as a court phenomenon, explaining to aristocrats how best to “manage” their subjects, not to explore options & maximize output. That latter purpose can only arise as a paradigm within more open democracy.
@roger erickson,
Funny how you talk about the scientific method when you,
1) Raise a complete non sequitur about banking operations despite it not having anything to do with the public sector deficit
2) Make an extreme generalisation, without any evidence, about millions of people, under the guise of (an incredibly ill defined) ‘orthodox’ economics.
@Jason,
“1) Raise a complete non sequitur about banking operations despite it not having anything to do with the public sector deficit”
?? That was the implied point. That deficits are discussed BY PhD ECONOMISTS & FED CHIEFS as constraining fiscal policy when, operationally, they do not. Not sure what you’re riled up about.
“2) Make an extreme generalisation, without any evidence, about millions of people, under the guise of (an incredibly ill defined) ‘orthodox’ economics.”
That what theories are for, to trigger discussion. A blog comment is not the place to write an economics paper. It’s a place to briefly throw out ideas worth thinking over.
@roger erickson, Fragile recovery? Some have been doing better than others in this recovery! LOL
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2012/07/Comp%20vs%20profits.jpg
http://www.zerohedge.com/news/trade-record-corporate-profits-your-miserable-salary
@roger erickson,
I’ve often opined that Economics is worse than Protestant Christianity, with its ever splintering denominations, unfalsifiable dogma, and clique-ee cult leaders. The science of economics is in scarce supply. There isn’t a sense of community responsibility in theory vetting.
Economists suffer from a culture of excessive individualism and hero-worship. It’s easy to ignore and dismiss peers. I was pretty annoyed with Krugman when he swept Fulwiller somewhat under the rug recently, although Scott’s presentation wasn’t exactly the friendliest to begin with (not that Krugman has necessarily always been a saint). The school yard politics and bickering like children is really unbecoming of what is a field of science.
We should encourage economists to go beyond social concerns and get down to brass tacks. Who cares if you win trophies? And why be imprisoned by the fear of making a mistake because oh my god, you might not be accepted? That’s all human nonsense. Let’s focus on sifting the wheat from the chaff, the true propositions from the false.
Neil made a comment the other day at another blog which was spot on: Aim for a state of egolessness. We’re in this ballgame together, so let’s work together, appreciate each other, honor each other, be fair, honest–principled men and women whose goal is to identify the truth in an effort to create a good economy for us all.
Fewer narcissistic opportunists would be healthy.
@Robert Rice, ” Neil made a comment the other day at another blog which was spot on: Aim for a state of egolessness. We’re in this ballgame together, so let’s work together, appreciate each other, honor each other, be fair, honest–principled men and women whose goal is to identify the truth in an effort to create a good economy for us all. ”
Robert, the infighting of the researchers and departments at IBM, the infighting of the researches and departments at USF, specific scenarios I have witnessed personally over the past 20 years, I can hear some hedge fund guys now snickering at you and what a sucker you are to believe in the good of mankind!
“But Jesus didn’t trust them, because he knew human nature. No one needed to tell him what mankind is really like.” – John 2:24-25
There was a mathew modine movie about the aids discovery, and the band played on, egos ruled the day! I just watched some science and nasa channel programming about CME research, just a few decades ago some of the most established science of today was being RIDICULED by the top astrophysicists and others back then.
You have to study more neuro-pscyhology I guess! When I was in vegas, 2 elvis impersonaters were fighting over who could sing his song “hurt” better, couldn’t they just worship the king in peace and brotherly love like he would want? lol! see no one can really get along, what universe have you lived in that you haven’t become more cynical?
Robert, I post everywhere anonymously, I am not looking for any credit, why aren’t you? Of course I have accepted a life of being a bum and not worried about an academic career to feed me or my family like so many of my peers, slaves to the system.
@Save America,
I use my real name for the sake of accountability. I remember Cullen Roche catching slack years back on Seeking Alpha for referring to himself via a pseudonym, and I determined at the time it’s better just to use your real name. Although certainly the pseudonym “Save America” is a germane one given the times.
Cynics can seek greener pastures 😉 Cynics have the wisdom to cultivate such.
@Save America, Ugg you would have to bring up Cullen, I personally don’t like the guy, in private emails he was more rude and ugly than any individual I have ever encountered on the internet.
parphrasig – basically He told me to get lost because he was part of an MMT vision that would change the world and he was going to be part of it, if you are looking for someone to stick a KNIFE in thier EGO problems, cullen should be enemy number 1 for you, what a prick. He had lost all objectivity I felt.
@Save America,
Only brought up Cullen to explain the background for why I use my real name. I don’t have any interest in placing a value judgment on him. I don’t know him well enough. And I suspect the recent MMT versus MMR fiasco has certainly tempered any ego issues he may have had. I told him during the split this wasn’t likely to be good for him, and I think time is bearing that out. He’s not an academic to my knowledge, and in this world you don’t have much of a public voice without the letters after your name or someone with letters after their name backing you (as he once had). There are exceptions, but this seems to be the rule.
Anyhow, back to the topic at hand.
Cullen and I have always been on very good terms,
not that I always agree with where his logic takes him.
@roger erickson, That the economy can be managed and, indirectly, the populace it serves is still a desideratum in some quarters.
While planning and management were much decried as long as the Soviets tried it, as soon as the USSR gave up, planning in the U.S. took off big time. Whether under the guise of urban renewal, economic redevelopment, new communities, or commercial expansion, we’ve had plans and planning going nowhere for almost three decades.
I’ve about decided all the carping about central planning was just jealousy speaking.
Anyway, if one thinks of currency as a measuring tool or stick, then trying to use it to regulate exchange and trade makes about as much sense as stripping the alphabet of vowels or holding our yardsticks hostage.
@Monica Smith,
Yes, and? That’s why fiat currencies are supposed to float? So real outcomes don’t?
Here’s what I’d like to know. MMT says the government doesn’t ever really have nor doesn’t have money. They don’t spend tax dollars. It’s all just credits and debits in spread sheets. So why do you complain about bank bailouts then? They’re not spending taxpayer money. In the case of the Fed’s $29 trillion loans they just credited bank accounts temporarily and then erased them later. Even the capital injections came from nowhere. The money didn’t come from tax payers. So what’s the big deal? Under MMT we should be able to bailout everyone and still have money left over to afford full employment.
Why do you guys feel the need to contradict yourselves left and right? Could it be because your entire theory is filled with inconsistencies that render the entire thing wrong?
My question is a valid one. If you don’t want to answer it or you don’t have an answer then don’t answer it. But please don’t accuse me of trolling when all I’ve done is raise valid criticisms of MMT.
@FDO15, FDO, the reason I complain about bailouts is because people from brooksely borne, to citigroup CEO john reed, to bill black and janet tavakoli and a ton of others have pointed out the blatant fraud and corruption going back many many years, long before lieborgate and more recent corruption. Unethical players are still in charge, haven’t been arrested or fired or even demoted, but in fact have been promoted, given bigger bonuses and their companies have grown even larger and more powerful!
I am sure though if many of the suffering people of the world had a job or something to occupy thier time and a overwater house (instead of underwater) they would not be so angry at the corruption. You say the SCORE keeping shouldn’t matter, should be enough score for the bailout of the banksters and the people, but that isn’t what I see, look at the chart up above from zerohedge, joe six pack aint getting the benefits. I bet a lot more people would be far more tolerant of these bailouts if they got more of the money, (hence warrens per capita distribution) or got a gauranteed job (per warrens jobs gaurantee program) or got their house problems fixed (california about to do eminent domain on some mortgages to fix this problem perhaps)
Some people are really made about europe, saying the banksters are getting all the bailouts and benefits of more score, but everyone else is unemployed and starving.
@FDO15, PS, I have had more posts censored here at this blog than anywhere else on the internet, except business insider,
@FDO15, This should seem obvious even to a ‘banker’. Greed and fraud are at the heart of the financial crisis. These sociopathic criminals were not punished or even removed..
@SteveK9, Yes, I am personally insulted by these contradictions since I work in banking. MMT tries to have it both ways. Banks serve public purpose some days and then other days they’re evil and don’t deserve funding to stay alive. Which is it? Why is MMT inconsistent about this topic? Why does the whole theory contradict itself on this one point?
Again, your beef is with some MMT proponents, and not MMT per se.
Please adjust, thanks
@FDO15, This is what bothers me about MMT. I’m sorry if you think this is trolling, but I think it’s a fair criticism and highlights an obvious flaw in the thinking here. MMT likes to claim banks are serving public purpose as agents of the government. But when it’s convenient they also claim banks are the bad guys. So even though a bank bailout doesn’t come from tax payer funds (in MMT) the MMTers like to claim that this is bad. It’s bad for us to support the institutions that serve public purpose even though the funds that are being used to support these banks don’t come from tax payers.
It’s these kinds of inconsistencies that point out flaws in MMT. You can choose not to see them or maybe you don’t understand MMT well enough to see how this is a contradiction that disproves major parts of the theory.
Banks are chartered, regulated, and supervised by govt. to further public purpose, as stated in the charters and many of the regulations.
That does not mean it does’t always work out that way, just like the military doesn’t always act for public purpose, etc.
Govt. is always a work in progress, subject to massive corruptive influences.
And I don’t recall every having taken the approaches you criticize here?
And please stop confusing what you call ‘flaws’ in some MMT proponents with MMT itself, thanks.
@WARREN MOSLER, Maybe you have a simple answer for my original question then. If the funds to bailout banks don’t come from anywhere and banks are servants of public purpose then why does MMT have a problem bailing out banks?
First to make it clear, ‘MMT’ explains how things work.
MTT doesn’t ‘have a problem’ per se with anything.
So I assume what you are asking is why some MMT proponents have a problem with bank bailouts?
Two possible reasons- they don’t understand how banking works, or they don’t approve of govt spending to enrich people/shareholders they believe undeserving vs cutting taxes and/or spending on other things.
While nominal spending by govt is unlimited, the real goods and services it can actually buy are limited.
And while banks are meant to be servants of public purpose, it doesn’t mean they all actually act that way in practice.
@WARREN MOSLER, FDO, it doesn’t, it has no problem bailing out the banks, where have you heard warren say operationally MMT can’t bail out the banks? You are trying to assign moral arguments to an operational system devoid of anything but pure accounting.
Again so that you understand, MMT, does not have a problem bailing out the banks, some people who talk about MMT have a problem bailing out the banks, how can Mosler make this any more clear for you?
@Save America, Most MMTers despite banks. But Warren being a banker, seems to think they serve public purpose. I am also a banker. And I’ll tell you from personal experience that we aren’t all sitting around serving public purpose every day. I honestly don’t know where Warren gets that notion from. He must work for a credit union or a state sponsored bank because I can tell you that this “banks serve public purpose” line is malarkey.
@FDO15, I’m seeing why your posts are getting banned. When Warren tries to explain things to you, you just ignore them and ask the same question over and over.
Maybe Warren’s text is too technical for you, so let me dumb it down a bit:
MMT recognizes that banks as institutions have been created to serve a public purpose (i.e. providing loans for investments). It also recognizes that some of the time the people that get put in charge of those banks try to suborn that public purpose. MMT recognizes both the need for banks and the need for proper regulation of those banks. Those two things are not contradictory.
@AJ, Sorry, but this is not true:
“MMT recognizes that banks as institutions have been created to serve a public purpose ”
Banks were created to make a profit for their owners. Banks existed long before governments. And they’ve always been private entities with private owners (mostly). Maybe MMTers think they live in China (maybe some of you do). But I know that here in the UK the first banks were not chartered by the government and were not in existence to serve public purpose. So I don’t really know where MMT gets this notion that banks were created to serve public purpose. This is a myth and a lie.
It’s about today’s US banks. They are created only after there are govt. charters available.
You can’t start a US fed member bank without first getting a charter.
@FDO,
“Banks are chartered, regulated, and supervised by govt. to further public purpose, as stated in the charters and many of the regulations.”
So, YOU think the charters and regulations DON’T state that?
Perhaps he’s not talking about banks that existed “long before gov’t”? Why are YOU talking about them?
@Unforgiven, Here’s the thing. I actually work at a bank. So I know what it’s like. But I always see MMTers running around pretending to be banking experts and explaining to other people “how it works”. Mosler worked at a bank, but doesn’t seem to have a very good grasp on the actual culture. Maybe he worked at a credit union or a state bank. I don’t think so, but maybe.
The thing is, banks aren’t designed to serve public purpose. Every single employee at a bank is trying to generate revenue. My bank is publicly traded and we have only one goal – to increase EPS. We aren’t handing out loans so you can go to college. We are handing out loans so we can make money from you wanting to go to college. If you want to call modern banking “public purpose” then great. But don’t claim to actually know how banking works. Because bankers aren’t agents of the government serving public purpose.
I don’t know why MMTers feel the need to spread lies about the way this all works while contradicting themselves in their daily criticisms of the banking system.
I’m the majority shareholder of a small bank, director, began with a bank job in 1973, worked on the money desk at Banker’s Trust in the 1970’s, have banks for clients, etc.
yes, that’s what bank employees do, but in the larger sense they are there to be ‘used’ by the govt. for public purposes.
ever sat in at an exit interview by the examiners? they make it pretty clear who’s in charge.
@AJ, FDO, I owned over 200 payday lending stores at one point and worked with many banks, and saw how the banking industry in various states came in and bought off politicians to steal market share I had birthed. They originally didn’t want to go into these underserved markets, poor blacks or disabled sickly vets were not the kind of “customers” these high class bankers were looking for, but when they started seeing the money that could be made – LOL! It was work than swimming in a pool of sharks with a woman during her cycle! I hear you about banks, their greed, the lack of regulation going all the way to the top, the inability of nations to control multi-nationals who operate beyond borders – cspan had some good hearings on that last month and big problems with getting basel requirements implemented.
Let me ask you a question FDO, Warren has been a REAL banker for a long time, since he was very young, but I went to Dillon SC where your big boss Banker Number 1 Bernanke lived, he worked as a bellhop at south of the border, that is a guy that gets your luggage, and from what I can tell, went straight to college after that, so what Makes ben Bernanke qualified to run the world financial system, when he never worked at a bank at the level you or warren worked, and therefore never gained an understanding of real world issues from the ground foxhole level up to the generals suite?
What makes bernanke so qualified? He wore a sombrero hat and delivered luggage after all?
http://dailybail.com/slideshows/inside-the-world-of-ben-bernanke/8256325
I think warren has far more REAL WORLD experience about banking than Bernanke.
@AJ,
@FDO15:
Banks can best be thought of as quasi-governmental institutions. They’re given certain perquisites by the government, and they submit to special regulation and oversight.
Warren, has argued, and I agree with him mostly, that banks have expanded well beyond what is proper, and they are using their implicit government subsidies to make money in areas best left to fully private entities. Similarly for Fannie Mae and Freddie Mac. Of course, this is a failure of government, not of banking. The government subsidizes lots of activities best left to the private sector (see, e.g., “green” energy, auto companies, secondary education).
The bailouts of the banks were not true bailouts in that they did not actually give away spending power for free. I thought they were unnecessary, but it is certainly true that the entities which were bailed out were not “banks” (which I assume means employees and shareholders), but rather bondholders.
Still, most knowledgeable MMT proponents do not mind the bank bailouts. What they mind is that the government stopped there. The most effective program would have been to cut taxes or issue checks, so that consumers would be able to repay their debts and continue spending.
@Save America,
I don’t think Bernanke is qualified at all to run the central bank. The central bankers here in the UK are the same breed. They’re academics who haven’t worked in actual banks. I agree that Mosler would probably be a better central banker than Bernanke, but then again so would 100 or so of the men and women on my trading floor. What bothers me about Mosler is that he does not tell the story of banking as it is. He tells people a myth here. Banking is not for public purpose. And it never has been. I recall seeing that he’s on the board of a small community bank with a few branches. Maybe he has a skewed vision of banking since his “bank” is a small community bank. But I’ll tell you, as someone who is in charge of many people at a bank about 1000 X larger than Mosler’s that it’s a very different story at these big banks.
@ESM,
You might like to think of banks as “quasi-governmental institutions”, but this is not at all what they really are. They’re private institutions run for their shareholders with the government in their back pocket. I’ve never even heard the words “public purpose” at my bank and I’ve worked at quite a few over a relatively long career.
I apologize for coming off harsh at times, but what I read on these MMT websites is not right. I work in banking and what I read here are things written by novices, academics and one person who is on the board of a small bank. The views being spread here are not a correct version of what banking really is.
@FDO,
“The thing is, banks aren’t designed to serve public purpose. Every single employee at a bank is trying to generate revenue. My bank is publicly traded and we have only one goal – to increase EPS.”
Within the confines of and in accordance with the bank’s charter and the regulations imposed on it, nez paw?
@FDO15 ,
“I don’t think Bernanke is qualified at all to run the central bank. The central bankers here in the UK are the same breed. They’re academics who haven’t worked in actual banks.”
Now I’m really confused. That’s exactly what I implied in my opening comment.
@Unforgiven,
Yes, like all other corporations we have to abide by the laws that the government has laid out. MMT seems to think there is something unique about banks here. We have rules and regulations just like every other industry. But we don’t have government watch dogs sitting in our offices approving of everything we do and don’t do. MMT takes this “public purpose” thing and completely mangles it to the point of discrediting the theory. Anyone who works at a big bank just reads MMT and laughs their a__ off all day long. Sorry to sound harsh again, but you all sound very naive saying banks serve public purpose while complaining about bank bailouts. You have two conflicting views of the world. One where banks are serving public purpose and one where they’re the enemy of your theory. Which one is it?
@FDO,
“I’ve never even heard the words “public purpose” at my bank and I’ve worked at quite a few over a relatively long career.”
So individuals and businesses having stable access to credit serves no public purpose?
As previously discussed, regulation and supervision is a work in progress,
and govt. has also allowed bank expansion far beyond gov’s ability to regulate and supervise for the ‘intended’ public purpose.
@AJ, “The thing is, banks aren’t designed to serve public purpose. Every single employee at a bank is trying to generate revenue. My bank is publicly traded and we have only one goal – to increase EPS.”
That is true of most companies no? Certainly that was true of a lot of what I saw at IBM, technologies that could save many lives shelved so that it didn’t unsettle current status quo distribution channels and profit margins. One scientist said eff that and left to go work with hyundai which IBM had to later lease the very technology from them that it originally had helped fund the initial research! LOL! dumbfuggs!
I didn’t realize you were in the UK, but I am begging you to please do something to help your veterans and old people, whatever you can. When I visited last year, many of your veterans, war heroes from the falklands cried a river of tears to me that thier pension was considered income that could be taxed by the government, but couldn’t be used to try and secure a loan for a house. Talk about hypocrisy and double standards!!
Also I was in amazement when I tried to purchase land all around lakenheath and the all the banks told me they will not lend to a senior citizen – even when I offered to put 50% and even 80% down!!, the loan officers themselves were close to being senior citizens, I told one so what are you going to do when you need a loan in a few years? She said I am effed. I told her if a bank in the USA discriminated by age in this way they wouldn’t last a second. Please try to exert whatever influence you can to better serve your war heroes and your old people, I was disgraced by your banking system, it made me appreciate the banks in the USA, as corrupted as they are, old people and war heroes can still get loans, your UK peers should be ashamed for treating them that way.
Matt Taibbi said the lieborgate was able to break in your country because you have a political party that can challenge the banks and thier bought off political parties, I assume he was talking about the labor party. (something we dont have in the USA and hence both parties are bought off here) You should get political action behind this party to continue to claw away at the evils of your banks until they are doing right by the people, and you need to get some kind of microloan finance system established over there working with all the dentists, it is atrocious to me that the motherland UK has so many people with rotten teeth, that is disgraceful!
Also I worry for your job, you have already provided too much information working for a public company, they will find you and terminate you, then you can’t help, change up your monikers and get some proxy anonymizing software so it makes it really hard on them to find you. You can’t work for a public company and crucify them in public, you know you can’t do that right? I had so many stacks of paper signed with IBM, it took 10 years before I could open my mouth, and now am too poor to worry about being sued! LOL!
@Unforgiven ,
No more so than having access to food, water, clothing and all the other stuff that private profit seeking corporations provide in their quest for profits. According to you much of the world is serving “public purpose” just because they happen to offer necessities in exchange for profits. What kind of skewed world do you live in? Why do you defend this lie?
@FDO,
So, your bank is basically and for the most part, no different than a taco stand?
@AJ,
@FDO15:
“MMT takes this “public purpose” thing and completely mangles it to the point of discrediting the theory.”
“Public purpose” is Warren’s catch-all phrase for all of the policy details that MMT doesn’t actually address. When he writes that the banking system was set up for public purpose, he means that in the same way as he would say that the Fed was set up for public purpose or the interstate highway system or the various legal frameworks for facilitating commerce like the Uniform Commercial Code.
The banks aren’t run for public purpose, but the Federal Reserve system, of which the member banks are an integral part, was set up presumably because some people thought it was a public good. And whether or not the employees or managers of the banks think about serving the public good (of course they don’t except to the extent that it’s profitable), the role they play in aggregate does. If not, then the subsidy provided by government (in the form of unlimited lending by the Fed and deposit insurance) should be scaled back or eliminated.
or the military…
or the legal system…
@All,
Warren Mosler:
“The public purpose of banking as a public/private partnership is to allow the private sector to price risk, rather than have the public sector pricing risk through publicly owned banks.”
http://moslereconomics.com/wp-content/pdfs/Proposals.pdf
There ya go!! Just like ANY other business! (NOT)
@FDO15, “MMT likes to claim banks are serving public purpose as agents of the government. But when it’s convenient they also claim banks are the bad guys.”
Let’s see … I like to claim that a democratic government means that the government should serve the people. Then when convenient, I go and criticize the politicians as corrupt, those very politicians elected by the people..
What kind of hypocritical idiot am I?
the military is there to serve public purpose, and now and then they may have a few ‘bad guys’ as well…
first, the bank bailouts were just regulatory forbearance, as previously discussed on this website, and not ‘capital injections’ as most repeat.
second, I agree that most of that headline $29 billion was in no sense a bailout, and have said so throughout.
third, when there are actual ‘bailouts’ etc, it’s about the transfer of spending power from govt.
a given tax allows for an amount of govt. spending equal to satisfy the need to pay the tax and to net save.
giving away spending power via govt. payments uses up some of that ‘fiscal space’,
meaning for the size govt we have, our taxes could otherwise be that much lower.
Or govt could have spent on something else.
@WARREN MOSLER, That whole paragraph is incoherent. TARP provided capital injections to the 9 largest banks in the USA. As a banker I would expect you of all people to understand what TARP was. The Fed has written extensively about these “capital injections”:
http://www.federalreserve.gov/pubs/ifdp/2012/1043/ifdp1043.pdf
Yes, Wray gets the accounting entirely wrong in his rant about $29 trillion. We seem to agree there.
TARP required a vote of Congress because it was a spending bill. I guess you don’t like the idea of spending money on banks even though you think they serve public purpose (which would mean that bailing out banks is a good thing since that furthers their public purpose goals). But none of this is consistent in the MMT framework so you can see how some people might be confused.
Bernanke says it “well known” that we are on an unsustainable fiscal path. Can’t argue with that. Many people seem to think that.
But Bernanke’s unremarkable statement serves only to reinforce the illusion that he need not explain exactly what course of events will supposedly result from the well known lack of sustainability. In fact there are the best of reasons why the burden of providing such exact explanations should be upon Bernanke and others who would cause pain to so many simply because something is “well known”.
A supposed economic authority who makes or recommends vital decisions based upon perceived collective wisdom without seriously considering whether such wisdom is accurate is not much of a thinker or a leader.
sad but true
@Alan Rhodes, such wisdom is accurate is not much of a thinker or a leader.
I went and visited bernankes hometown last year, dillon SC, he worked as a bellhop at the “south of the border” complex there. I went to his highschool and talked to some of his old teachers and coworkers at south of the border.
His parents ran a small pharmacy in that town, surrounded by small churches and such, I think I posted a long essay about it here somewhere last year.
My final conclusion was that bernanke was in no way prepared or qualified to take on evil corrupt banksters, hedge fund crooks, global elite shysters, lying risk managers etc etc
His “roots” to me seemed to be a VASTLY ill equipped environment to shape the leader of the global financial system, whatever false hopes I had totally evaporated after I left Dillon. I even took a picture of all the people in the local Dillon library on the computers looking for work and a closed bank that had been turned into a chinese buffet that had closed as well 🙁
If I were a tom hickey MIC entity looking for a real naive stooge pushover to put in an important government role, bernanke would fit the bill perfectly. How sommeone with such ill-equipped “roots” got into such a position of power almost makes me want to start believing in conspiracies that I just don’t want to face 🙁
@Alan Rhodes,
And what’s that say about an electorate that chooses policy staff selecting such Central Bank chiefs?
A foolish electorate & their options are soon parted.
I now have a vague suspicion that Bernanke was purposely selected by some of the colleagues FDO15 describes.
FDO15,
Efficiency, the answer you seek is efficiency. Dollars cannot be allocated to every conceivable endeavor, they should be prioritized. Bailing out banks was an inefficient use of dollars, when those same dollars could have been handed to consumers to fund their debts which would have helped both the consumer and the bank.
Good question.
Robert
@Robert Rice,
Since currency only denominates the transaction chains that constitute exploration of group options (i.e., policy choices), what you’re saying is that options should be explored and then selections prioritized.
What did Tom Jefferson say?
“Merchants have no country. The mere spot they stand on does not constitute so strong an attachment as that from which they draw their gains.” Thomas Jefferson http://www.brainyquote.com/quotes/authors/t/thomas_jefferson_5.html
FDO15 implies the same holds true for all “real” bankers?
We’re back to the same questions. What could be done about this? And how can that goal be accomplished.
Warren’s expose of banking operations, and how they could be leveraged by policy to better serve public purpose open a door. How to direct policy to better leverage banking regulations falls largely in the realm of political, not banking operations – something Warren’s been clear about from day one.
@roger erickson,
In English Roger, in English. I’m not sure what you were trying to convey.
I don’t think my claim is a contoversial one. Government has the freedom to create money up to the point of excess inflation, and what it does with that money is a matter of choice. Choices aren’t random or arbitrary, they are targeted. And one of the criteria for government spending ought to be its efficient use. Bailing out the banks was less efficient than bailing out the consumer, given the latter would have also helped to bail out the banks too. Kill one bird with a stone, or kill two.
@Robert Rice,
Trying again. I’m agreeing with you, and extending your statement – given that fiat spending reflects public initiative.
Warren’s expose of banking operations exposes options – which are necessary but not sufficient. Options must be explored, selected & prioritized.
How could we leverage the policy options he exposes, to better serve public purpose? That’s a policy issue, not a banking issue – something Warren’s been clear about from day one.
@Roger Erickson,
Got it now, thanks Roger.
At this current juncture, the priority with primacy is consumer income enhancement without sacrificing relative price stability.
@Robert Rice,
“priority … is consumer income enhancement without sacrificing relative price stability”
I don’t understand the fixation with “price stability”.
How can any market or culture evolve, given expanding population, increasing capabilities & expanding options … and maintain price stability? A more nuanced term is required.
The point of fiat currency is to let the currency supply float, as dictated by real market changes. With growth, that dictates that some things will be entirely new (new prices), some old items will increase in price, and some old items will decrease in price.
Given the huge diversity of priced products & services, what does “price stability” mean? Different things for different people, obviously. That implies that we can’t have a discussion with an electorate comprised of multiple audiences, while trying to force a single definition of price stability.
How about “Buying Power Growth”? “Options expansion”? Those terms make more intuitive sense for me – given I’m one of the many audiences not fully versed in esoteric economics jargon.
@Roger Erickson,
Real quick:
1. Agree the quantity of money should float relative to market conditions.
2. I purposely added “relative” to “price stability” to suggest we’ll need some grease in the wheel here, not absolute rigidity. A small amount of inflation may be unavoidable, even beneficial.
3. I don’t think we would want aggregate prices to float, hence the lingo “price stability” seems appropriate.
How ironic that a budget surplus is more unsustainable than a deficit budget. The US has been sustaining itself with mostly budget deficits for how long?..150 years?
Ben wouldn’t recognize a fact if one leapt up and slapped him on the kisser.
Ben’s quote just needs a little extending:
“U.S. fiscal policies are on an unsustainable path, and the development of a credible medium-term plan for controlling private sector deficits should be a high priority.”
@pebird,
+1!!
My attempt re. “public purpose of banking”
Private banks are private enterprises just like other private companies.
They obviously seek to generate profits for their owners. The “purpose” of running a business is to generate profits.
That’s all well and good.
Now, banks play a special role in the economy. They are part of the monetary system. This is an important role in a monetary economy.
Therefore, banks get some special favors that other firms don’t get. For example, they get a “liquidity guarantee” – they can borrow “unlimited” amounts of reseves (as long as they are solvent) from a government agency. Also, some of their liabilities are protected by the government (the deposit guarantee).
This is supposed to prevent bank runs and stabilize the monetary system.
It is deemed that the banks’ function in a monetary economy is important enough to motivate all this special treatment. From the government’s point of view, the banking system serves a special “public purpose”. The banking system becomes a “private/public partnership”.
(Some argue that this special treatment motivates some carefully implemented regulations on banks. They should not become “too big to fail”, it is said. It would seem unfair that they can make profits in good times but socialize their losses, etc.)
But from the banker’s point of view, the “purpose” of the businesses is obviously to generate profits.
Is there anything here that we need to keep on quiggling about?
@Hugo Heden,
Well stated Hugo
We really need to stop treating Fido as if he is worth having a discussion with. His reputation precedes him and he is completely uninterested in shining light in any questions he asks, he just wants to TRY to discredit Mr Mosler and company.
He is exactly like the nimrods at the DIscovery Institute when they are debating evolutionary biologists like Dawkins. They arent interested in getting at facts, the facts destroy their case, they just want smokescreens and delays.
This whole public purpose thing is an absolutely ridiculous thing to get hooked on. It is not necessary to accepting MMT
@Greg,
I disagree Greg. I think it’s great that FDO15 has come here and asked interesting questions. First, whatever his reputation is on other boards, he seems to be engaging in a serious discussion here. Second, people who ask hard questions enhance our own understanding and make us better at answering those questions. Third, detractors who come here give us insight into how to break through to people who either don’t understand MMT or have misconceptions about it.
Finally, I reserve the right to change my mind about MMT (or at least certain aspects of it), and I don’t want to close myself off in a bubble to protect myself from a better paradigm. Alot of people here seem to come from Daily Kos where dissenters are quickly labeled trolls and hide rated. It might work for Daily Kos which is at least honest about being a partisan web site dedicated to furthering progressive political goals. But it is not and should not be the policy here. (Note that Warren even censored a post calling FDO15 out as a troll).
@ESM,
Agree. FDO15 is a smart guy who is well-informed. He can exhibit some quirky behavior on occasion, but he can also ask pertinent questions and make cogent observations and objections when he is not off on a rant.
@ESM,
Absolutely.
And if ESM, Tom and I agree, you KNOW it’s true! :()
Wish I had more time to discuss with FDO15.
@ESM,
I totally agree with all youve said except for the fact that you have said it about FDO15.
He’s not interested in serious discussion only in using his rhetorical skills to try and create controversy and inconsistency where there is none.
I would certainly not ban him unless he started taking over threads with 3 day rants like the lunatic “Major Freedom” or was simply resorting to unending personal attacks. But the guy has his “lines” that he recites and even after they are addressed he keeps reciting them.
It is nice to see Tom amd ESM agree for once ; ) (although they are never disagreeable when they disagree)
@Hugo Heden,
Well said. But in a sense all businesses, productive workers and entrepreneurs serve a public purpose whether they receive special government back stops and/or subsidies or not….. putting aside of course the criminal class and unproductive welfare segments.
Here in the U.S., the individual and organizational pursuit of Life, Liberty and Happiness, not to mention simply getting up every morning and going out to work to pay the monthly bills, goes a very long way toward meeting all of the special needs of individuals and special interest groups within society.
Some activities like banking, utilities, air/rail travel, securities business, medicine, gaming industry, etc. are well regulated and some are barely regulated if at all. But all legal business / work related activity serves some public purpose to one degree or another.
When it comes to financial market regulation, Sarbanes/Oxley and Dodd/Frank seem to me to be failures and simply attempts to rearrange the deck chairs on the Titanic. The undesirable abuses and practices in the financial markets which fueled the growth of the credit bubble, its subsequent collapse and consequential bailouts is I think intrinsic to the nature of a fiat currency which lends itself to excessive risk taking and gaming of the financial system in a way that aggregates wealth toward the 1% at the expense of the 99%. Some refer to this as the financialization of America.
Take derivatives for example. Over the years I have made a decent living at times in financial services, derivatives trading, hedging and speculation, all of which was made possible by a heightened level of volatility in interest rates, currencies and commodities that did not exist prior to Aug 15, 1971. I know this is a hot button issue for MMT, but speaking as someone who is not a full fledged MMTer, and is also influenced by Supply Side and Austrian schools, I have to question whether some form of hard money isn’t a better regulator of financial markets than all the conceivable Sarbanes/Oxley and Dodd/Frank attempts to correct all the abuses.
@Ed Rombach, Wow! Ed, like the tricks that are played couldn’t be done under a gold standard? Monetary history Books I have read about the 17th – 20th century and even way back in roman times, many tricks could be played even under a gold standard. It seems after the great depression a lot of institutional policies were implemented, and in the past 20 years this institutional memory was lost and policies reversed that had served us well it seems for over 50 years. Capital ratios, quality of assets, firewalls, government policy attacking labor starting probably with the carter administration.
http://www.zerohedge.com/news/trade-record-corporate-profits-your-miserable-salary
There is something unique about this last recession. The recessions before, gold standard and pure fiat all were far better for labor.
ED I just saw an anti-obama political ad on TV last night, it said we HAVE to cut spending and reign in debt to grow jobs, this was the only way! Huh? What a great ed bernays propoganda piece! Sad that so many people have thier wires crossed as to cause and effect and job growth. How does restricting credit and cutting spending grow jobs? I don’t understand.
Anyways Delong just said this about the election:
http://delong.typepad.com/sdj/2012/07/the-economic-stakes-of-november.html
Suppose that Obama’s voters had turned out in 2010 to vote for down ballot offices in as large numbers as they turned out in 2008. Where would the US economy be now?
There would have been no tea party Republican Governors’ slashing of state employment, with attendance multiplier effect putting downward pressure on there and neighboring economies. There would have been no debt ceiling crisis to add substantially to economic uncertainty and increase the flight to quality. There would have been Larry Summers infrastructure bank, which would now be pumping out $200 billion a year in badly needed infrastructure investment.
Add all those up, and you get on economy with between $300 billion and $600 billion more of annual spending, depending on the multiplier. That is an economy with unemployment rate in the low 7s or the 6 percents. That’s an economy growing at 3 to 4% per year instead of 1 to 2% per year. That some economy with a lower projected deficits and debt to GDP ratio then the economy we have today.
The failure of marginal Obama 2008 voters to turn out for down ballot candidates in 2010 was a disaster for America.
The election of Mitt Romney and a supporting congress this November would be a much bigger disaster for America. Think of the trainwreck that has been the Conservative government in Britain since 2010. And square it.
@Ed Rombach,
Ed, a more effective way to bring “hard money” into the financial system would be go back to the fiduciary model of traditional banking in which partners had full responsibility and exposure — and complete accountability. Rip off the corporate veil and see how “hard” money gets. A lot more direct that going backward toward “sound money” and limiting policy space unnecessarily.
and we’ve learned the hard way too many times that when govt guarantees funding for anyone they’d better keep a very short and tight leash on what they do with that funding.
@Ed Rombach,
Ed, EVERY activity in every organized system answers to a 2-stage optimization process.
1) keep the components alive;
….PLUS
2) grow the system;
In practice, the two processes are inseparable. It’s never either/or.
That’s true of atoms in a plasma, molecules in a solution, cells in a physiology, and individuals in any social species.
@roger erickson,
Summarized as “grow or die.” As soon as an organism or system cannot deal with mounting complexity it is nearly all over.
@Ed Rombach,
The fact that options are constrained, thereby making a market “simpler,” is not always a good thing. Situations have become more complex, and the pace of change has increased. Plodding along with staid, old practices in that instance is a good way to become extinct.
Darwin & Wallace discussed that ad nauseam 150 yrs ago, and we explored our options with hard/fiat currency stds pre/post 1933, and during the mobilization period of WWII.
Case pretty much closed.
@Ed Rombach,
Ed wrote
“Some activities like banking, utilities, air/rail travel, securities business, medicine, gaming industry, etc. are well regulated and some are barely regulated if at all. But all legal business / work related activity serves some public purpose to one degree or another.”
The degree to which enterprises are regulated and licensed is evidence of the level of expectation that a public purpose will be served.
To claim that bankers don’t have any concept of serving a public purpose is like saying an electrician doesn’t give a hoot if members of the public are electrocuted or if their house burns down due to his work. Well whether he gives a hoot about that sort of carnage or not, the licensing and code requirements do a pretty good job of compelling the prevention of those disasters.
Maybe bankers are pathologically incapable of perceiving how they serve public purpose, but the regulatory system should ensure that they do so anyway.
@jim,
Exactly. Electricians, et al have licensing requirements – even continuing education requirements. Similar requirements for bankers are sorely lacking.
How about a “Hypocritic Oath” 🙂 Heck, for politicians too!
@Hugo Heden,
This is so obvious it shouldn’t need stating. That it does says something abou the cognitive bias of those questioning it.
Unforgiven: “The public purpose of banking as a public/private partnership is to allow the private sector to price risk, rather than have the public sector pricing risk through publicly owned banks.”
Jamie Dimon’s recent defense was that he was too stupid to understand all the esoteric stuff about very complex derivatives and pricing of risk – that there are maybe only 500 people in the world smart enough, that his smarter underlings lied to him about said derivatives and pricing of risk and have now been fired. I read blogs everywhere that say the government is wholly ill equipped to regulate hedge funds that use dark pools and cspan interviews where the OCC and SEC and others say mega banks that operate beyond national borders cannot be properly regulated. That goldman sachs and others create financial products that trade against thier own clients and are intentionally obfuscated to maximize profit.
I read other articles by bill black and others saying the regulatory enforcers we did have – say the fraud enforcers and financial police had all thier budgets cut drastically in the bush administration and are still begging for more resources in money and manpower from the obama administration.
And I still read more that from brookesly borne at the CFTC being threatened by greenspan, rubin and summers to citigroup chairman reed saying the banks are no longer serving public purpose and are manipulating policy in DC. Intentionally mispricing risk in some cases!
Then I start to agree with people like Erickson and FDO15 that an unqualified bell hop who wore a sombrero hat (bernanke) was intentionally placed by the masters of the universe into a government position so that they could continue their raping and pillaging unmolested.
Then I read people like monica that say congress is totally corrupted and read kling and agree.
Then I read literally hundreds if not thousands of other smart finance people saying the firewalls that are supposed to exist in these banks (since they get government assistance that other companies don’t get) don’t exist, in fact that some goldman sachs guy had a poster in his office showing how he negotiated the repeal of glass-steagal and bragged how he tore down these firewalls was the greatest victory for corrupt banksters in the past 100 years.
Then Dr. Doom comes out and says these banks have only grown MORE powerful since 2008 crisis, as if they didn’t already have enough power.
Then I read about chinese banks that are allowed to come in and given special consideration by our government bodies, they remain open even after certain violations of rules, rules that our own banks don’t come close to breaking but the authorities shut those banks down citing those rules. They are picking winners and losers and changing the rules as they see fit, how any sensible honest businessman can work under a system where the rules are applied so selectively like that seems hopeless to me.
FDO15 may have a few hundred floor people smarter than bernanke and his own UK central bankers, but the level of complexity and sophisticated corruption I am witnessing, the massive fraud, makes FDO15 look like a silly circus con man who has no chance against the real sharks on this planet. Erickson did say more layers and complexity can be good though eh? 😉
Matt Taibbi says we only exposed lieborgate because the UK is not so thoroughlly corrupted as the USA and political parties there can pushback against evil banks.
I don’t know unforgiven, seems to me that if the private banks are given special privaledge so they can price risk and do right by the people, they have totally perverted thier power or too ignorant to wield so much power and the system needs to reset in some way.
@Save America,
That’s why I’m for Warren’s banking proposals. Seems like a good place to start.
The fiscal “problem” is about health care costs. If those keep rising at the projected pace, Americans are going to spend a a very large proportion of their national income (ie devote a large portion of the nations productive capability) on health care. For no good reason. In that sense the fiscal path is unsustainable.
what’s wrong with committing real resources to taking care of each other?
@WARREN MOSLER,
The amount spent on a given process can be, in isolation, a distraction. In this case, every less $ spent on twinkies, cheetos & coke (cheap prevention) has more impact than an additional $ spent on expensive repair.
The biggest issue with US healthcare delivery is the utilization rate, not the services themselves.
Since the obesity epidemic ballooned, our chronic disease incidence rates have outpaced population growth by a considerable margin.
@WARREN MOSLER,
Nothing, obviously. But it seems to stupid to take care of each other in an inefficient way. The US does after all pay a lot more for results that at best are similar to those of the rest of the developed world. That implies that the current set up needs changing.