Monetarism

This is rather impressive: “Cash still exists in rather surprising quantity – about a trillion dollars, or more than $3,000 per capita, 77% of it in hundred-dollar bills. But you and I, corporate businesses, and financial markets use trivial amounts of cash. The legal, and especially corporate and financial economies, have moved to electronic, interest-bearing […]

John Cochrane’s “Monetary Policy with Interest on Reserves”

John Cochrane has written a very interesting paper on monetary policy under conditions of “abundant liquidity”, including substantial excess bank reserves and interest paid on those reserves (IOR). The central idea behind the paper is the fiscal theory of the price level (FTPL), which is a valuation equivalence relationship between the real values of government […]

The Full Monty on Naked Short Selling

JP Koning has written an interesting post that depicts banks as engaging in “naked short selling” when they simultaneously create new loan assets and new deposit liabilities. For example, he compares the idea of systemic deposit creation with the case of selling Microsoft stock without owning the stock (shorting the stock) and also without borrowing the […]

Market Monetarism – Monetary Base Overdrive

Martin Wolf has written (HT Cullen Roche) an excellent article on the recent Bank of England paper. Here are his key summary points from that article: First, banks are not just financial intermediaries. The act of saving does not increase deposits in banks. If your employer pays you, the deposit merely shifts from its account to yours. This […]

Thomas Palley on Steve Keen’s Model of Aggregate Demand

Thomas Palley’s paper is here: http://www.thomaspalley.com/docs/research/ad_and_debt.pdf (HT: Ramanan) Some time ago, a few of us were after Steve Keen in respect of his newly defined aggregate demand function, pointing to a time-inconsistency in its income and non-income flow of funds components. He has since corrected this, with a model whose principal defining equation is now […]