Coffee with Joe 2/18/10: Chartalism and Fractional Reserves

Joe and Pete discuss the similarities and differences between their ideas for monetary reform (along the lines of the Chicago Plan of 1933 and the American Monetary Act (http://www.monetary.org/amacolorpamphlet.pdf) and those of the neo-Chartalists like Bill Mitchell (http://bilbo.economicoutlook.net/blog/), Randall Wray (http://cas.umkc.edu/econ/economics/faculty/wray/raymain.html) and Warren Mosler (http://moslereconomics.com/)

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News & Politics

Tags:

• Coffee with Joe 2/18/10
• EconomicStability.org
• Joe Bongiovanni
• Peter Young
• debt-free money
• American Monetary Act
• monetary reform
• Warren MoslerRandall Wray
• Bill Mitchell
• Chartalists

[joebhed]

@sidchem1

While creating excess bank reserves has the potential for causing inflation in a fractional-reserve system, it would only do so if excessive lending, based on the excess reserves, actually takes place.

Excessive lending, that beyond the real potential for national economic growth, does cause inflation.

Our rub with the chartalists is not inflation - its real monetary sovereignty.

It's about WHO creates the nation's money.

It's about BEING the monopoly issuer of currency.

[joebhed]

@sidchem1

The only issue is whether fractional-reserve banking, in which all money is issued privately as a debt, is inflationary or not.

It is.

By needing debt interest payments to have a medium of exchange, every loan takes from future economic potential a hidden tax that increases the price of everything.

Thus, all debt-money in existence commands compounding interest which steals wealth from the economy in the form of price inflation.

See at 6:25 and 8:25 in.

Thanks.

[sidchem1]

Joe

Bank reserves are not necessary for loans and increasing reserves does not increase lending. So your arguments about increasing bank reserves causing inflation does not hold water. See Bill Mitchell's Blog if you want a complete explanation of this

Cheers

[rodneyorondeaujr]

I wanted to pause and thank everyone for engaging me. It is not often I bump into people who care about these issues let alone have a basic understanding of how it works.

[joebhed]

@rodney

I understand the FED protocol for returning excess income to Treasury.

So?

The government has the Constitutional right to create the money directly.

Why do they allow private bankers to create the money and lend it to the government at interest - which must be collected from the taxpayer - and then pay the excess back to the Treasury?

Sounds stupid.

You really believe the $600B in GUV purchases was about interest rate maintenance?

The Fed had already reduced interest rates to zero.

????

[joebhed]

@rodney

Again, sorry Rodney.

This is monetary pablum.

It is not worth a response.

[joebhed]

@rodney Hey, please. I read the Buckaroo story years ago. It is not relevant to anything I am saying. It never was. It never will be. I invite all readers to google Buckaroo Money and Randy Wray's 2001 paper at UMKC. It's fun reading. Sorry you went through all the trouble to try to make it relevant. I think you know that I do not agree with the Warren-Randy-Bill postulations about modern money. Wray build on Innes. Innes is wrong. Money does not need to be a debt, until it is lent.

[joebhed]

@rodney Another round I guess. Where did I say that the government borrowed from the central bank directly? At what min. of the video? Or quote whatever reply, please. I know how the open market transactions take place. Why do you say this? And what is the significance of the accounting? I won't chase that rabbit unless you make it relevant to something. On the other hand, it is the CB (FRBNY) that handles the transactions between the GUV and the primary dealers. What's your point?

[rodneyorondeaujr]

the fed does own treasury debt. they return most of the interest they collect to the treasury. it never buys directly from the treasury though. the fed buys it from the public when it conducts open market operations. it cannot just buy whatever it wants whenver it wants. this is all just interest rate maintenance.. look, its clear you have no idea what your talking about. anyone interested in the truth look up warren mosler, bill mitchell, mike norman, randall wray and economics. they're profeso

[rodneyorondeaujr]

now the parent could borrow business cards from the child and pay interest. but why would it do this. the currency issuer has no real need to borrow its own cuurency that it issues at will. it all has to do wiht interest rates. It is just a tool to set the price of money and control how much spending power the currency users have. We have passed laws saying we have to borrow everything we spend that isn't collected in taxes. Those are self imposed.