Wednesday, December 23, 2009

Two threads

It's worth looking at two threads.

First, the charming Nick Rowe takes his theories at their face and notices they do not accord with reality. His conclusion?
Either somebody up there likes us. Or there's something wrong with macroeconomic theory.
The post itself is banal, but there are good details in the comments from JKH about how post-Keynesian economics deviates from actual bank operation.
Where zanon is wrong is in his assumption that the required offsetting reserve inflow must be attracted directly from another bank. (btw, this is a common error made by PK readers.) In fact it normally isn't. The normal operation is to attract non-bank deposits where the source of the money coming in is drawn from non-bank accounts with other banks. The reserve inflow is attracted indirectly rather than directly.
Worth reading.

Another slice of reality enters in a thread over at Mencius Moldbug. It's the usual stuff about the evils of maturity transformation, perhaps true, but irrelevant to fiat monetary systems and therefore, reality today. Still, zanon (in comments) takes on Michael S, who works at a bank but perhaps has never thought about banking in a macro sense. We'll see how the conversation develops. Again, skip the post, but read the comments.


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