Monthly Archives: February 2017

Did US Economics Textbooks Get Fractional Reserve Banking Wrong? 2

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Real Progressive‘s YouTube channel has the video The Full Stop Shutdown on Positive Money and the AMI marketing scam.



I believe in what Steve Grumbine is saying, and I have some critiques about this particular video, but first I want to concentrate on one point that he made.  Here is an excerpt from the transcript.



1:41 the second thing that is really

1:43 important is to understand that the u.s.

1:46 textbooks got the idea of reserve

1:50 lending this whole fractional reserves

1:52 they they got a completely f***ing wrong

1:54 it is the wrong forever



From what I remember of what I was taught in my first economics course at MIT, Steve Grumbine is correct.  Ever since I started reading about the Modern Money Model, I have been troubled by the difference in their explanation of bank created money and the explanation I learned.  I thought I finally figured out how my economics text tricked me. I went back to look at the book so I could write this post.


Obviously, I cannot attest to the rightness or wrongness of all economics textbooks. Here is what I found from  my copy of “Economics”, by Paul Samuelson, Fifth Edition, 1961.  (Remember this book was published 10 years before President Nixon took us off the gold standard and fixed exchange rates, so some of this is bound to be just out-of-date and not wrong for the time it was written.  The “sleight of hand” is “wrong”.)


Paul Samuelson went into great detail in the pages of Chapter 16, “The Banking System And Deposit Creation” of keeping track of the balance sheets of banks and tracking liabilities and assets. The point is that he is very clear that for every dollar asset the banks create, there is a balancing loan liability that they created for the people who got the created money.  There was no net creation of anything.


In section B. of the Summary of the chapter he states about The Federal Reserve Bank “When a contraction of the quantity of money is in order, the Federal Reserve authorities pull the brakes. Instead of pumping new reserves into the banking system, they draw off some of the reserves. We shall see that in so doing they are able to reduce the quantity of money not 1 for 1, but (as just shown) almost 5 for 1.”


This is where you might say that the sleight of hand happened and things went wrong. If all you remember or read is this summary, you forget about all the liabilities that have to get cancelled along with the money. The change of net money (assets minus liabilities) is 1 for 1.



    





If you click on the book page thumbnail to see the whole page, you will notice in the questions for discussion the following statement:



Banks borrow from their depositors at zero or low interest rates and invest most of the proceeds in higher-yielding loans and investments. They use the difference to pay their expenses, to provide us with low-cost mediums for monetary transactions, and to reward their stockholders for taking on the risks of earning-asset values.



I read this in the book in 2017 after I made this point to Steve Grumbine in the critique you can read in the comment to this post.  I guess I learned something at MIT. Besides that, think about what would happen to the cost of bank services to you if the banks were deprived of being able to make money on their lending out of deposits.


    

    
                                    

                                
                                                            
                                                                    

                                        
    

              

          
Monetary Sovereignty: The key to understanding economics
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Myth Fighter has the article Monetary Sovereignty: The key to understanding economics.



The unlimited ability to create money is an uncontested fact for Monetarily Sovereign nations, although at any given time, economic growth, inflation, deflation, recession, depression and social factors may influence a nation’s decision to create money.



This article was published on August 13, 2010.  The facts have not changed any since then. You can try to contest this fact, but that is on the same level of contesting gravity.


If you do not understand this, then you cannot talk about economic, monetary, or fiscal policy of the United States with any hope of saying something correct. 


    

    
                                    

                                
                                                            
                                                                    

                                        
    

              

          
Let’s Talk About Bernie’s Capitulation To The Democratic Establishment
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Newslogue has the article Let’s Talk About Bernie’s Capitulation To The Democratic Establishment.  The article has many positive things to say about Bernie Sanders, but it also wants us to be aware of this critique.



… Bernie is not our leader. He isn’t. The extent to which the establishment has sunk their talons into him proves that we can’t afford to allow him to lead us. They will use him to steer us in unwholesome directions and guide us away from our desire to destroy their sick institutions. “Bernie says” should not be received with any more authoritative weight than “Noam Chomsky says,” “Julian Assange says” or “Caitlin Johnstone says”; it should always be taken as data about someone’s opinion, never as gospel truth.



There are a number of interesting quotes from authorities about the danger of just trusting to authorities.  Maybe that makes their quotes to be paradoxes, but I think they are right.


Remember Greenberg’s Law of Reverence.



Principles are not great because a revered person spoke of them. A person is revered because he or she spoke of great principles.



    

    
                                    

                                
                                                            
                                                                    

                                        
    

              

          
Greenspan: “There is nothing to prevent the government from creating as much money as it wants.”
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There is the YouTube video Greenspan: “There is nothing to prevent the government from creating as much money as it wants.”



    



You can see in the way that Paul Ryan nods at Alan Greenspan’s answer that this is going in one ear and dribbling right out of the other.  Given as Greenspan says, that the government cannot possibly run out of money to pay social security beneficiaries, and given that anything in the private sector can run out of money, then private investment accounts are obviously much less secure than federal government operated social security.


    

    
                                    

                                
                                                            
                                                                    

                                        
    

              

          
Why Not Answer The Inflation Question?
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Bloomberg has the interview Can the U.S. ‘Print Money’ to Pay Down the National Debt?



L. Randall Wray, a professor of economics at Bard College and a senior scholar at the Levy Economics Institute, discusses the U.S. national debt and inflation with Bloomberg’s Joe Weisenthal on “What’d You Miss?”




    





The trouble with this interview is that Wray never addresses what the government would and should do if inflation ever got out of hand. When he just says can’t happen or unlikely to happen, the skepticism is not allayed. He sounds like he is evading the question. Why can’t he just talk about how an inflation problem would be solved? There are good answers, why does he fight so hard to avoid giving them?


In my previous post Establishing The Validity Of The Modern Money Model I suggested that a direct answer to the questions of inflation would go a long way in quelling the doubts of the skeptics.  If you are a skeptic, please read that previous post and tell me if it helps.


    

    
                                    

                                
                                                            
                                                                    

                                        
    

              

          
Signal Encryption App
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Wkipedia has an article Signal (software).



Signal is an encrypted instant messaging and voice calling application for Android and iOS. It uses the Internet to send one-to-one and group messages, which can include images and video messages, and make one-to-one voice calls.



In one of the last two posts, I believe one of the interviewees mentioned Signal as an encryption app.  I think it was either Seymour Hersh or Glen Greenwald.  In any case, I thought it might be good to provide the link to find out more about what they were talking about.


    

    
                                    

                                
                                                            
                                                                    

                                        
    

              

          
Greenwald: Empowering the “Deep State” to Undermine Trump is Prescription for Destroying Democracy
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Democracy Now has the article and video Greenwald: Empowering the “Deep State” to Undermine Trump is Prescription for Destroying Democracy.



        
    





GLENN GREENWALD: The deep state, although there’s no precise or scientific definition, generally refers to the agencies in Washington that are permanent power factions. They stay and exercise power even as presidents who are elected come and go. They typically exercise their power in secret, in the dark, and so they’re barely subject to democratic accountability, if they’re subject to it at all. It’s agencies like the CIA, the NSA and the other intelligence agencies, that are essentially designed to disseminate disinformation and deceit and propaganda, and have a long history of doing not only that, but also have a long history of the world’s worst war crimes, atrocities and death squads. This is who not just people like Bill Kristol, but lots of Democrats are placing their faith in, are trying to empower, are cheering for as they exert power separate and apart from—in fact, in opposition to—the political officials to whom they’re supposed to be subordinate.



    

    
                                    

                                
                                                            
                                                                    

                                        
    

              

          
Seymour Hersh Blasts Media for Uncritically Promoting Russian Hacking Story
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The Intercept has the article and video clip Seymour Hersh Blasts Media for Uncritically Promoting Russian Hacking Story.



Pulitzer Prize-winning journalist Seymour Hersh said in an interview that he does not believe the U.S. intelligence community proved its case that President Vladimir Putin directed a hacking campaign aimed at securing the election of Donald Trump. He blasted news organizations for lazily broadcasting the assertions of U.S. intelligence officials as established facts.










The material above is the main point of the article, but I also wanted to give you the following excerpt which has some wisdom on what we could hope for.



While expressing fears about Trump’s agenda, Hersh also called Trump a potential “circuit breaker” of the two-party political system in the U.S. “The idea of somebody breaking things away, and raising grave doubts about the viability of the party system, particularly the Democratic Party, is not a bad idea,” Hersh said. “That’s something we could build on in the future. But we have to figure out what to do in the next few years.” He added: “I don’t think the notion of democracy is ever going to be as tested as it’s going to be now.”



    

    
                                    

                                
                                                            
                                                                    

                                        
    

              

          
Establishing The Validity Of The Modern Money Model
This entry was posted in  Greenberg's Law Of Money and Economics  SteveG's Posts  and tagged  economics  on  by  
        

        
At this time what I am calling the Modern Money Model goes by the name of Modern Money Theory as far as its other proponents are concerned.  I think that MMM or MMT is a good model of the reality of how money works.  The acceptance of the part that applies to the sovereign money of a country like the United States of America is meeting fierce resistance in some quarters.


To put it very briefly, in a country that creates its own money, uses only its own money to transact business, and has idle resources in labor and capital, then the entity that creates the money needs to put more of that money into the hands of the people who can put the idle resources to productive use.  


I think a fair amount of resistance of this idea is the fear that people have that when we run out of idle resources we will have inflation, even hyper-inflation.  We proponents tend to have a standard response, “That’s not the problem we have now.  Let’s take appropriate actions for the situation we have now.”  


I think it is only reasonable for skeptics to have their doubts if that is our only answer. MMT proponents like L. Randall Wray and Stephanie Kelton, to name a few, do have better answers to the question, but I think this topic needs to be discussed in more detail in public forums.  


My understanding of the answer is that we use taxes to take excess money out of the economy when we start to have more money than we need to employ the actual resources that we have.  We faced this situation in WW II.  Besides rationing and prices controls, there was another technique that was used.  The government sold war bonds to the people. The purpose was not to finance the war, since creating money was not problem.  The purpose was to temporarily take the money out of the hands of the people who wanted to buy things that we did not have the resources to produce.  After the war was over, and the economy could return to producing consumer goods, people would be able to redeem their war bonds to start buying this new output from our economy. 


When we start to discuss these solutions in detail, we must face up to the political and human nature resistance to the solutions that will occur when we try to implement these solutions.


Back in the 1970s we had high inflation that was exacerbated by the OPEC oil embargo.  Many people and I felt that the solution to the problem was to raise the taxes on gasoline, for one.  This would make it even more expensive to buy the product that was in short supply, and therefore reduce the demand for it even faster than was happening already.  Most people used the exact opposite logic to resist the tax increase.  They said that the price of gasoline was already too high. Why make things worse?  The resisters won out, and we had inflation until Ronald Reagan came along and put the country into a near economic depression to rein in consumer demand that was fueling the inflation.  Reagan’s solution was much more painful for more of the population that a gasoline tax hike would have been.


I think this example is a great demonstration of why MMT (MMM) proponents need to talk about these issues now, before we  are in the type of crisis we faced in the 1970s.  If people are educated when not facing the crisis as to what will have to be done should we face a crisis like that, then they will be more prepared to take the actions that need to be taken.  If we wait for the crisis to happen, and then spring it on people that taxes need to be raised, then there will be stiff opposition.


    

    
                                    

                                
                                                            
                                                                    

                                        
    

              

          
Big Oil Whistle Blower John Bolenbaugh FREE FILM
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YouTube has the video Big Oil Whistle Blower John Bolenbaugh FREE FILM


This is truly sickening.  This is the definition of cover-up literally and figuratively.  This is not conspiracy theory, this is conspiracy fact.



    





I am afraid to look into what one of my investments, Enterprise Products Partners L.P. (EPD), has been doing.  If they are involved in anything like this, I would have to sell it.  If I refuse to buy stock in tobacco companies, it is hard to justify to myself an investment in a company that could do this.