tag:blogger.com,1999:blog-913439.post4086386808083776117..comments2024-02-26T11:30:05.072-08:00Comments on winterspeak.com: Between Depression and Hyperinflationwinterspeakhttp://www.blogger.com/profile/13611241702356475764noreply@blogger.comBlogger111125tag:blogger.com,1999:blog-913439.post-2418003074822561402011-12-05T12:42:18.089-08:002011-12-05T12:42:18.089-08:00:)
Actually, I've been thinking of asking som...:)<br /><br />Actually, I've been thinking of asking somebody for some Steve Keen links of my own, because I haven't been following him much since then!<br /><br />Not that I'm disinterested in what he's doing; just haven't done so for some reason.JKHhttps://www.blogger.com/profile/10275975730082410689noreply@blogger.comtag:blogger.com,1999:blog-913439.post-90281895675453794182011-12-05T12:15:26.381-08:002011-12-05T12:15:26.381-08:00JKH,
Is there anything more recent than that? I&...JKH, <br /><br />Is there anything more recent than that? I'm pretty certain thinking on both side has evolved since then. <br /><br />Perhaps it's time we organised a rematch :)NeilWhttps://www.blogger.com/profile/11565959939525324309noreply@blogger.comtag:blogger.com,1999:blog-913439.post-56643790070069987532011-12-05T11:42:36.100-08:002011-12-05T11:42:36.100-08:00Neil and JKH (and Tom Hickey): Thanks! Truth told,...Neil and JKH (and Tom Hickey): Thanks! Truth told, more than I want to know. But your explanation, Neil, combined with scanning through the rest, is quite satisfying for one who wants to remain a (very curious) spectator, not a practitioner.<br /><br />So my question for Steve would be: why *not* go double entry? (Before posting, btw, I sent him a note pointing to this thread.)Steve Rothhttps://www.blogger.com/profile/11895481216028771016noreply@blogger.comtag:blogger.com,1999:blog-913439.post-25812145301583751012011-12-05T10:58:50.513-08:002011-12-05T10:58:50.513-08:00Steve,
Try getting to an interpretation of the St...Steve,<br /><br />Try getting to an interpretation of the Steve Keen via this:<br /><br />http://pragcap.com/the-deteriorating-macro-picture/comment-page-1#comment-25563JKHhttps://www.blogger.com/profile/10275975730082410689noreply@blogger.comtag:blogger.com,1999:blog-913439.post-77832418969020293022011-12-05T10:33:34.892-08:002011-12-05T10:33:34.892-08:00"But: If the results are the same, why the bi..."But: If the results are the same, why the big deal about double-entry?"<br /><br />Double entry helps catch mistakes. Although the models currently produce the same output, they won't with more advanced models. I'm able to correct a couple of mild errors and simplify the model slightly conceptually due to double entry. <br /><br />By sticking with double entry there is an inbuilt check that that catches basic errors. And it allows the models to be reviewed by accountants and other people familiar with the way banks work to make sure that the model is consistent and accurate against reality. <br /><br />One feature of the double entry model I've come up with is that liabilities only move to other liabilities and assets only move to other assets once the initial money creation has happened. You may get linked transactions that change both sides at the same time, but you seem to be able to code the journals so that the liability side and asset side operate almost independently. It seems similar to an induction circuit in electronics.<br /><br />A write out is when you move a value from an asset to a liability reducing both values towards zero and causing an amount of both to disappear (destruction if you prefer). A write back is the opposite when you move a value from a liability to an asset increasing both values away from zero - which is the creation process.<br /><br />The double entry model is accrual based - one of the changes I make is that I accrue interest to the bank when it is due rather than forcing the bank to wait until it's been paid. This is in keeping with normal income recognition procedures and means it can be spent earlier by the bank, which may or may not affect the dynamics in more complex models.NeilWhttps://www.blogger.com/profile/11565959939525324309noreply@blogger.comtag:blogger.com,1999:blog-913439.post-42375141422308864212011-12-05T10:04:02.434-08:002011-12-05T10:04:02.434-08:00Ah understood, and fascinated to see what you come...Ah understood, and fascinated to see what you come up with. <br /><br />But: If the results are the same, why the big deal about double-entry?<br /><br />Why I ask: I've run multiple multimillion-dollar businesses, with awesomely good cost- and income reporting -- the kind that MBAs dream of at night -- using Quicken -- a $29 single-entry bookkeeping package. Not QuickBooks. Careful tagging and categorization of transactions delivers all the reporting functionality that's normally dependent on the fairly byzantine account structure of double entry.<br /><br />Doesn't double-entry exist basically to catch the kind of bookkeeping errors that humans make, but computers don't? <br /><br />Related: Does MMT/Keen-style accounting involve/require accruals? Or is it basically cash accounting?<br /><br />If accrual, that may provide a (partial?) answer to my question.<br /><br />Is the advantage of double entry the additional outputs you mention -- graphs of assets and liabilities? Is DE necessary to get those?<br /><br />Also, don't know what you mean by a "write out."<br /><br />Thanks for indulging my curiosity...Steve Rothhttps://www.blogger.com/profile/11895481216028771016noreply@blogger.comtag:blogger.com,1999:blog-913439.post-1119208029621109132011-12-05T09:02:33.977-08:002011-12-05T09:02:33.977-08:00Steve is a great speaker and lecturer, but an acco...Steve is a great speaker and lecturer, but an accountant he ain't.<br /><br />His models of double entry have one entry in them which mean that it just isn't a double entry bookkeeping model.<br /><br />And yet it is fairly simple to alter the model so it is consistent with double entry bookkeeping and from that you can derive the standard MMT horizontal model with a simple write out. <br /><br />I've got a post cooking about this point. I've been fighting Keen's QED tool this weekend and the double entry consistent models produce the same output as Keen's own models. <br /><br />And what's nice about it is that the updated model diagram shows the asset side and the liability side circulating in their own right and growth is controlled by extending the bank's capacity to lend via a straightforward write back.NeilWhttps://www.blogger.com/profile/11565959939525324309noreply@blogger.comtag:blogger.com,1999:blog-913439.post-75365295894371833242011-12-05T07:49:37.373-08:002011-12-05T07:49:37.373-08:00JKH: "Steve Keen, who's invented his own ...JKH: "Steve Keen, who's invented his own accounting along those lines"<br /><br />I wonder if you could elaborate a bit. Any links? I also have been trying to bring together my thinking on MMT and Keen's work. Thx.Steve Rothhttps://www.blogger.com/profile/11895481216028771016noreply@blogger.comtag:blogger.com,1999:blog-913439.post-74225283293899446542011-12-02T03:58:59.350-08:002011-12-02T03:58:59.350-08:00"Automatic for the people"
http://dixied..."Automatic for the people"<br />http://dixiedining.wordpress.com/2010/06/10/weaver-ds-is-still-automatic-for-the-people/beowulfhttps://www.blogger.com/profile/14987548132065830204noreply@blogger.comtag:blogger.com,1999:blog-913439.post-41210616627453639752011-12-01T19:30:03.279-08:002011-12-01T19:30:03.279-08:00"It calls into question the real operational ..."It calls into question the real operational ability for the 'government' to raise taxes when needed economically."<br /><br />Make it automatic for the people. :o)<br /><br />"So how can we boost demand when we need it – and cut back when we don’t need it any more?<br />The solution: Give people more money when times are tough, and cut back when times are good.<br />The best way to do this is through a payroll tax holiday. When times are tough, people get laid off. But if your buddy gets laid off, you’ll get a raise!"<br />http://traderscrucible.com/2011/11/07/4-ways-to-change-the-fed-a-users-manual/beowulfhttps://www.blogger.com/profile/14987548132065830204noreply@blogger.comtag:blogger.com,1999:blog-913439.post-58528191545029239602011-11-29T10:21:52.627-08:002011-11-29T10:21:52.627-08:00Hey all, the above commenting has been really usef...Hey all, the above commenting has been really useful for me and I'm glad this discussion is being had. But I saw most of the discussion regarding style vs. substance / factuals vs. counterfactuals only on the spending side. What is MMTs answers on the tax side? Taxation is entirely political, so if taxation was ever needed perhaps due to a past 'overheating' by the government that barrier seems to me very real and very un-ignorable. It calls into question the real operational ability for the 'government' to raise taxes when needed economically.Garth A Brazeltonhttps://www.blogger.com/profile/15769889043950844781noreply@blogger.comtag:blogger.com,1999:blog-913439.post-71502814184954929652011-11-28T11:30:42.977-08:002011-11-28T11:30:42.977-08:00JKH- this was helpful for me. Thanks!JKH- this was helpful for me. Thanks!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-913439.post-3479065036205000742011-11-28T11:21:13.800-08:002011-11-28T11:21:13.800-08:00Ramanan,
Thanks for your thoughts. I sent you a ...Ramanan,<br /><br />Thanks for your thoughts. I sent you a message at your blog to clear things up as well as to ask further question in a more organized fashion.<br /><br />Thanks!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-913439.post-69901768921447786742011-11-28T08:57:06.667-08:002011-11-28T08:57:06.667-08:00wh10,
"This is Fullwiler's 'semi-str...wh10,<br /><br />"This is Fullwiler's 'semi-strong form' deficit, wherein sufficient investors and financing with an eye towards arbitrage against current/expected FFR ensures tsy debt auctions succeed (and the interest rate on tsy debt mostly reflects FFR expectations)."<br /><br />This one. <br /><br />In the purest form, an arbitrage argument starts from a portfolio of value 0, when funds can be borrowed to make a trade and the trade pays off in some time interval 0 to T. <br /><br />Or else, one could frame it differently - say that I have funds of $x and I find I can find a risk free security or a combination which pays me a higher interest in a time period 0 to T greater than another risk-free rate with certainty. Such a trade will be arbitraged away etc. <br /><br />An institution participating in a government auction has none of these luxuries. For if it is buying a 30-year bond, there is no arbitrage really, strictly. It risks a rise in yields of bonds in the future. <br /><br />For example, expectations of markets on prices or yields can be self-fulfilling, leading to rise in yields. <br /><br />A buyer of a 30 year bond at the auctions risks that expectations of the market can go wrong. <br /><br />Of course, Neoclassical Economics has nothing much to say - it has exogenous money and higher supply of government bonds leads to rising yields in the scenario. <br /><br />The mistake is of course that it ignores that government deficits increases private sector wealth. <br /><br />Back to real world... the Treasury and the Central Bank are constantly involved in expectations management. If some segment of the market has excess supply, the Treasury can move its supply to short end of the curve and this has the effect on prices of bonds and indirectly on expectations because as prices move expectations change. <br /><br />The central bank through its communication is also affecting expectations. <br /><br />It can also enter secondary markets to change expectations from running away. <br /><br />(The ECB is doing that, preventing expectations from heading into disaster land, at least attempting to). <br /><br />So back to the 30y bond buyer, he is not making any arbitrage. He is just making more returns on an average as compared to always investing short term since the yield curve is usually positively sloped. It is misleading to call this arbitrage. For example in 10 years, yields may be very high and he won't be able to sell it with the return originally thought. <br /><br />Now, it can be argued that the Treasury can issue all its bonds as 3m bills. In my opinion, it is a disaster in liability management.Ramananhttps://www.blogger.com/profile/11123448543333785121noreply@blogger.comtag:blogger.com,1999:blog-913439.post-47006420816382937422011-11-28T08:35:30.840-08:002011-11-28T08:35:30.840-08:00wh10:
I don't think we're far apart.wh10:<br /><br />I don't think we're far apart.JKHhttps://www.blogger.com/profile/10275975730082410689noreply@blogger.comtag:blogger.com,1999:blog-913439.post-54750850537783868882011-11-28T08:19:54.798-08:002011-11-28T08:19:54.798-08:00"Nope. The ways and means account was used fu..."Nope. The ways and means account was used fully only a couple of years ago during the crisis."<br /><br />It was a relatively small operation in the context of the historical scope of ways & means operations, and lasted for only a few weeks. And it doesn't change the fact that the ways & means facility has been effectively neutered relative to what it once was, and that the Treasury has been signaling its intention to reduce its dependence on such advances for over a decade. <br /><br />Did you know that ways and means advances once accounted for 20-30% of BoE assets? The current balance is some 300mm pounds, a miniscule 0.001% of assets. So the modern day UK Treasury is surely not spending via its ways & means account.<br /><br />There are no definite poles here, just shades of grey. Pure black is a banking structure that allows for the fully consolidated MMT way of thinking, pure white is a completely independent central bank. In general, most central banks lie nearer to the white pole, and they're getting whiter by the decade, as is certainly the case with the BoE. <br /><br />"The UK could go MMT tomorrow without requiring a single act of parliament."<br /><br />Sure, the BoE could start to move back to the black pole. But that's not happening. The BoE is already a medium grey and is only getting whiter. <br /> <br />Anyways, no more comments on ways & means from me.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-913439.post-26397126845778206162011-11-28T08:12:50.805-08:002011-11-28T08:12:50.805-08:00JKH, if I interpet you correctly, it seems you are...JKH, if I interpet you correctly, it seems you are essentially saying this. But I guess I am talking more about what tools the CB has to ensure payments settle, and crucial to this is managing reserves adequately, which includes OMO. The intent of QE in the US currently seems different, but it is effectively what is done day to day to manage reserves, make sure payments settle, and defend the FFR.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-913439.post-49991149598241645742011-11-28T07:55:17.269-08:002011-11-28T07:55:17.269-08:00JKH
I agree, and you are right- you did qualify t...JKH<br /><br />I agree, and you are right- you did qualify this. Do you agree, though, that it is not just the need for QE during abnormal times, but also the need for the CB to swap reserves for sovereign govt bonds on a day to day basis, that will prevent escalation to crises such as these? Again, I am trying to validate Lavoie's point.<br /><br />Ramanan,<br /><br />I am aware of what you said but do need to learn more of the technical details. It would be helpful if you could point out where my use of it was quesstionable. I am trying to use it as Fullwiler does. Does he use it improperly?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-913439.post-54082129244883399762011-11-28T05:36:21.933-08:002011-11-28T05:36:21.933-08:00P.S.
I meant it’s the same general interpretation...P.S.<br /><br />I meant it’s the same general interpretation regarding the interest rate effect.<br /><br />The Fed is swapping reserves for bonds to set interest rate sensitivity shorter, and interest rate cost cheaper.<br /><br />The ECB is at a different stage, which includes fiscal crisis. But it could do the same things as the Fed, in order to set interest rates shorter and cheaper, thereby alleviate debt servicing cost pressures. That would provide “reflexive reassurance” to EZ markets.JKHhttps://www.blogger.com/profile/10275975730082410689noreply@blogger.comtag:blogger.com,1999:blog-913439.post-76068116207635398972011-11-28T05:24:03.880-08:002011-11-28T05:24:03.880-08:00wh10,
See my previous comments. I took pains to q...wh10,<br /><br />See my previous comments. I took pains to qualify my use of the term "architecture" to include operations that deliberately depart from the norm, without necessarily changing the institutional configuration, but including that possibility as a final option. I've been consistent there.<br /><br />(Granted "architecture" may not have been the ideal word to capture this, but I qualified it.)<br /><br />QE is such an operation. That's why its a big deal since the crisis.<br /><br />See my various earlier comments. QE is the first such operation on the list. The actual, comprehensive institutional change that I defined as the "base case" is the last. It's a continuum of potential change, starting with QE and ending with actual TR/CB institutional combination.<br /><br />And the interpretation of QE as an abnormal operation in the context of the Fed is the same as it is with the ECB. It's a subject of debate on both sides of the Atlantic. The Fed has made its operational change, which everybody acknowledges is an unconventional policy, but the Fed still exercises a degree of "self-imposed constraint" by iterively limiting the size of its program. The ECB can become more like the Fed simply by lifting what amounts to a more severe policy restriction on using this unconventional policy. And interestingly that's something that the MMT'ers have recommended it should do as a minimal adjustment.JKHhttps://www.blogger.com/profile/10275975730082410689noreply@blogger.comtag:blogger.com,1999:blog-913439.post-17247406000847435342011-11-28T05:21:22.297-08:002011-11-28T05:21:22.297-08:00wh10,
When financial analysts and traders talk of...wh10,<br /><br />When financial analysts and traders talk of "arbitrage" they are essentially talking of trades which tries to exploit price differences between bonds and various fixed income securities and contracts. <br /><br />One example is exploiting the difference in the the interest rate swap rate and government bond yields. <br /><br />These trades are far from being arbitrage trades and there are zillions of risks around them. <br /><br />For example the institution doing this will profit if there is no default in the end (in the swap) and during the lifetime of the trade, the swap spread doesn't widen. i.e., it - the institution has the capacity to hold the trade till maturity. <br /><br />Also, more importantly these trades are about different rates on the same point in the maturity space. So you could try to make money in Treasury Futures if the price of the Treasury Futures and underlying bonds is out of whack. <br /><br />There are other trades which try to take a view on the shape of the yield curve - such as steepeners and flatteners. The idea behind them is that the yield difference between two points in the yield curve is either large or small and should change. These are nowhere close to being arbitrage trades and are simply directional bets. <br /><br />Hence I cribbed about the usage of the word "arbitrage". <br /><br />The sense you started off it something different. <br /><br />But its good to not mix the various situations and contexts in which the word is used.Ramananhttps://www.blogger.com/profile/11123448543333785121noreply@blogger.comtag:blogger.com,1999:blog-913439.post-73860374534479621562011-11-28T04:50:48.369-08:002011-11-28T04:50:48.369-08:00Ramanan,
Perhaps I am using it too loosely, but w...Ramanan,<br /><br />Perhaps I am using it too loosely, but what I meant is along the lines of what JKH said - the current/expected path of FFRs. Fullwiler could explain in more detail the various kinds of arbitrage trades (e.g., futures, swaps) that ensure that the LT rate won't vary much from future expected ST rates. I don't know what you mean by your cash mgmt example.<br /><br />JKH,<br /><br />I am glad you went there, as I wanted to ask how my logic (which excludes market expectations of a changed architecture) would apply to say US states or Greece.<br /><br />I think Lavoie made an attempt at explaining why in his critique, though I need to finish reading it. What I think he said was that the ECB is not supposed to buy govt bonds in the secondary markets, which places a systemic tension in the European banking system. That tension doesn't exist for the US banking system as it pertains to federal govt debt, since the Fed does buy in secondary markets and can act as a lender of last resort. But that tension does exist for US state debt, which may explain why US states are like Greece.<br /><br />If this an adequate explanation, then you still don't need market expectations of architectural change to explain why markets won't behave as they are in Greece with respect to the US. The US architecture is fine as it is. The US should never become Greece, even in your hypothetical situation with similar financials, because the Fed is a buyer in secondary markets and is allowed to be a lender of last resort.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-913439.post-76069383477417455182011-11-28T04:20:33.063-08:002011-11-28T04:20:33.063-08:00JKH,
Yes I agree.
My only point was about the p...JKH,<br /><br />Yes I agree. <br /><br />My only point was about the phrase "arbitrage"<br /><br />But my point was that it tends to get overused - so for example, there are some articles about cash management of the US Treasury where worry is about reducing interest paid on these bills. <br /><br />The comments by wh10 kind of gives the impression (when applied to CMBs) that the cash management bill will always be absorbed at the announced rate.Ramananhttps://www.blogger.com/profile/11123448543333785121noreply@blogger.comtag:blogger.com,1999:blog-913439.post-4283188827834277102011-11-28T04:15:27.010-08:002011-11-28T04:15:27.010-08:00"The UK could go MMT tomorrow without requiri..."The UK could go MMT tomorrow without requiring a single act of parliament."<br /><br />So it doesn't run according to "MMT" guidelines?Ramananhttps://www.blogger.com/profile/11123448543333785121noreply@blogger.comtag:blogger.com,1999:blog-913439.post-83885450299607429982011-11-28T04:04:00.995-08:002011-11-28T04:04:00.995-08:00Ramanan,
The arbitrage is that of the expected po...Ramanan,<br /><br />The arbitrage is that of the expected policy rate path versus the long rate.<br /><br />This is unobservable, but the logic is reasonable.<br /><br />However, the critical point is that the expected policy rate path can and does change on a dime. It is reasonable to interpret high volatility in the expected policy rate path, and therefore high volatility in bond rates, particularly those of longer term. I think that goes to your point.<br /><br />An unusual commitment to a given policy rate path can reduce that volatility, but only on bonds with a term less than or equal to the commitment period.JKHhttps://www.blogger.com/profile/10275975730082410689noreply@blogger.com