tag:blogger.com,1999:blog-2277215496195926573.post2137225572357810028..comments2024-01-01T07:41:51.347-08:00Comments on RALPHONOMICS: Why replace state issued money with privately issued money which has to be backed by the state?Ralph Musgravehttp://www.blogger.com/profile/09443857766263185665noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-2277215496195926573.post-87119055419478417582018-08-09T23:43:10.070-07:002018-08-09T23:43:10.070-07:00"But there is no good reason for the state to..."But there is no good reason for the state to give its backing to those “bonds” and turn them into genuine, 100% proof, pukka money. That just constitutes a subsidy by taxpayers of commercial banks."<br /><br />Taxpayers do not fund the Fed. The Fed's $1.8 trillion purchases of Mortgage-backed Securities needed no taxpayer money. The unlimited currency swap lines granted by the Fed to the ECB and other central banks require no taxes to fund them.Robert Mitchellhttp://subbot.orgnoreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-62924597043139074602018-08-09T15:32:39.354-07:002018-08-09T15:32:39.354-07:00Ralph, would you agree that the ability for banks ...Ralph, would you agree that the ability for banks to create money means that prior savings do not have to exist for investment to occur? I mean the created money, even if inflationary, allows resources to be diverted to productive purposes (hopefully) even if savings were not there previously. And that therefore we can understand investment as causing savings? And limiting that ability necessarily would make investment much more difficult?<br /><br /><br />Of course the government would always retain this ability anyway, but they would really have to step up their act in the investment department. And one of the major criticisms of government is that they are sometimes really bad at picking what is best to invest in and at the same time that they rarely do enough of it.Jerry Brownnoreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-24688670180019820242018-08-09T13:21:49.875-07:002018-08-09T13:21:49.875-07:00Yeah, I think the created money disappears over ti...Yeah, I think the created money disappears over time as the loan is paid off. But also maybe what the seller of that SUV who now has $40K does with it matters also. I mean if they just cashed the loan check and held onto the 40k in cash, then it is not very inflationary, but what are the chances of that? Isn't it more likely they are also spending it on something else? And your debt repayments also are an income for the bank, and they might spend it or use it to finance more loans. And then there is always the possibility they use the financial asset you created with your loan to access credit from the central bank, which we know can create money. <br /><br />In any case, at the time your loan was made there was suddenly another $40k of spending ability out there in the economy and it allowed for an increase in demand at that time.Jerry Brownnoreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-82683668771947354572018-08-09T12:22:53.634-07:002018-08-09T12:22:53.634-07:00I went to my bank and borrowed $40k to buy an SUV....I went to my bank and borrowed $40k to buy an SUV. The argument given here is that the creation of money, by increasing my purchasing power, creates inflation, which ends up affecting other people in society.<br /><br />But at the same time I got the loan, I have to pay hundreds of dollars in monthly payments to service the loan, money which can not be used to make purchases.<br /><br />Those monthly payments act as a deflationary offset. So at the same time you have a few people getting loans, you have a lot more people paying off loans.<br /><br />The inflationary/deflationary aspects of borrowed money are a wash.Ahmed Fareshttps://www.blogger.com/profile/07105255828394485657noreply@blogger.com