tag:blogger.com,1999:blog-2277215496195926573.post6754120904444814248..comments2024-01-01T07:41:51.347-08:00Comments on RALPHONOMICS: Ann Pettifor’s bizarre ideas on banking.Ralph Musgravehttp://www.blogger.com/profile/09443857766263185665noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-2277215496195926573.post-47936449191747425132017-02-18T04:40:21.351-08:002017-02-18T04:40:21.351-08:00Hi KK,
Congratulations on honing in on what I thi...Hi KK,<br /><br />Congratulations on honing in on what I think is a crucial issue, if not THE crucial issue here, namely interest rates.<br /><br />Re your first point, I agree that government COULD fiddle with interest rates in the way you suggest, but my answer to that is that government just shouldn’t, because interest rate adjustments are a poor way of adjusting demand (though I wouldn’t totally rule them out in an emergency). One reason is that GDP is presumably maximised where interest rates are at the free market level. Also the submission to Vickers by Positive Money and others, which also argued for full reserve, also argued against interest rate adjustments. See:<br />http://b.3cdn.net/nefoundation/3a4f0c195967cb202b_p2m6beqpy.pdf<br /><br />Re your second point, as I said just above, I don’t object to interest rate adjustments in an emergency. Also financial panics are much less likely under full reserve: reason is it is virtually impossible for banks to fail under full reserve.<br /><br />Re your third point, (Pareto) you don’t actually give any reasons why my employment of the Pareto argument is flawed.<br /><br />Re the zero rate advocated by some MMTers, what those MMTers (specifically Warren Mosler) argue is that the only state liability should be base money which yields no interest. Milton Friedman argued the same. But that’s not the rate that banks would charge, for example, for mortgages. The latter would be determined by market forces.<br /><br />As to whether rates would rise to the “usurious” level, strikes me it is undeniable that rates would rise by a FINITE amount, since full reserve does restrict what banks can do somewhat. As to exactly how far they would rise, possibly they’d rise to the rate of return that equity holders demand which is one or two percent more than depositors get, but no more than that. Reason is that essentially under full reserve those who fund loans are equity holders rather than depositors. On the other hand it would be perfectly possible (as explained by Lawrence Kotlikoff) under full reserve to have a variety of funds which financed different types of mortages: e.g. bog standard UK safe mortgages or risky US type NINJA mortgages. Money put into the former would clearly be safer than the average stock exchange quoted share, thus the interest would be lower.<br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-17965511464073284502017-02-17T18:48:17.528-08:002017-02-17T18:48:17.528-08:00Ralph, I applaud your sustained efforts over many ...Ralph, I applaud your sustained efforts over many years to promote full reserve banking. The following disagreements with what you say above are intended to support your valiant efforts by clarifying the argument.<br />1. You say that you agree with Pettifor that “under full reserve, interest rates are left to market forces.”<br />This is incorrect. It is true that under a full reserve banking system interest rare would no longer be set through by the discount rate for lender-of-last-resort support for banks (which would no longer be needed). Nor would interest paid on banks’ reserves at the Central Bank affect interest rates on private sector loans. However, the ability of the Central Bank to buy and sell Treasury bills and bonds in the markets would be unaffected. The government’s ability to influence the general level of interest rates would therefore be similar under full reserve banking system to that under a fractional reserve system. <br />2. You say that “there’s a very good reason for leaving interest rates …to market forces” because “GDP is maximised where prices are set by the market.” This may be true theoretically assuming perfect information, foresight etc. But, it is plainly not true when financial markets panic. For example, the financial crises in 1929 and 2008 led to substantial GDP contractions despite stabilization efforts by the authorities. So I suggest that a wise interest rate policy under full reserve would involve government interventions much as today.<br />3. You seem to accept Pettifor’s claims that full reserve banking would lead to higher interest rates. You try to defend this on the theoretical grounds that it would be “Pareto” optimal. However:<br />- Your argument regarding “Pareto optimality” is debateable. Better to steer clear of such theoretical obscurities and distractions.<br />- Your argument seems to be inconsistent with your support elsewhere for zero interest rates proposed by some MMT writers.<br />- Most importantly, there is NO REASON TO FEAR that full reserve banking would cause a shortage of finance for investment or “usurious” interest rates. <br />As mentioned in 1 above, the government would retain similar control over the general level of interest rates as today. CB purchases of bonds would increase private sector liquidity dampening any tendency to higher interest rates. Moreover, since investment funds can flow between countries and are highly elastic with respect to interest rate differentials, interest rates are generally similar in all countries. Any shortage of funds/ higher rates would be countered by capital inflows.<br />Pettifor’s fears and your own arguments regarding scarcities of finance and high interest rates are therefore unfounded.<br />KongKinghttps://www.blogger.com/profile/10992633301481631373noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-16334696620194218362017-02-17T16:27:39.028-08:002017-02-17T16:27:39.028-08:00Not in the sexual definition .....
https://en.wik...Not in the sexual definition .....<br /><br />https://en.wiktionary.org/wiki/trollop<br /> <br /> "to act in a sluggish or slovenly manner<br /> (Scotch) to dangle soggily: become bedraggled<br /> to behave like a trollop<br /> A gait performed by a horse which falls between a trot and a gallop. Also known as a canter."<br /><br />All in all not quite in a orderly fashion.<br /><br />NB not sure about that last definition?And I grew up with horsesvincehttps://www.blogger.com/profile/05690045138539663594noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-71611440509575815632017-02-17T12:38:43.757-08:002017-02-17T12:38:43.757-08:00Trollop?? What do you know about her sex life?.......Trollop?? What do you know about her sex life?....:-)<br /><br />Re not worth my time, trouble is that she does have an audience, so she needs dealing with or "educating".Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-26076746461964591212017-02-17T11:46:12.109-08:002017-02-17T11:46:12.109-08:00Well that was very funny,made me larf it did.
She...Well that was very funny,made me larf it did.<br /><br />She is nt worthy of your time to be honest,just a silly trollop.vincehttps://www.blogger.com/profile/05690045138539663594noreply@blogger.com