ALB
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MMT theorists don’t say that individual banks can make money out of thin air.
They share the mainstream academic view that only the whole banking system centred on the government Central Bank can do this. In a sense this is true as the monetary authorities can issue as much money-tokens as they want. The trouble is that, if they overdo it, this will lead to a depreciation of the currency and so to a rise in the general price level. No new wealth will be created (only the application of human labour to materials that originally came from nature can do that). All that happens is that the price of already-existing wealth goes up. What these days is called “inflation”.
MMT say that this is not much of danger, at least not below the full employment (of resources as well as workers) level. It’s a new version (with a different theoretical justification) of the Keynesian view that a government can spend its way out of a slump. Which of course has been tried — and failed. So you could say that the policy has been tried even if not as such.
If applied again, the result is likely to be no more than a short-lived boost to production. The longer term result would be a rise in the general price level (“inflation”) like that that occurred in the 1970s. Stagnation + Inflation, or Stagflation.
The result wouldn’t be so bad as if the currency crank theory about banks causing problems by creating too much money out of thin air was to be implemented. Artificially limiting the amount of loans that a bank can make when it has the money to make them would provoke a financial crisis and slump because it would restrict business investment, the driver of the capitalist economy. It would be impeding banks’ role as financial intermediaries between those with money to lend and those who want to borrow money.
I wonder how they would treat an objector who invoked socialist reasons for not wanting to be called up:
Interesting though.
The authorities in Ukraine have adopted a different approach:
That’s a clincher. If the Gnomes of Zurich can’t conjour up money from thin air then nobody can.
I notice that the chairman of Credit Suisse is called Lehmann. I am imagine he hopes he can avoid the fate of his brothers.
Hopeful Republican candidate for the next US presidential elections Ron DeSantis is describing the Ukraine War as a “territorial dispute” between Russia and Ukraine — which is some respects it is — adding that what’s going on there is not of vital interest to the US.
If elected, this could be the quickest way the slaughter there will end, as without US military and financial support Ukraine would have to sue for peace. If he does become the Republican Party candidate for president this will create a dilemma for devotees of the “lesser evil” doctrine since at the moment the Democrats are the war party.
Mind you, DeSantis wants to concentrate on confronting China which he still anachronistically calls “Communist”. Maybe he is stupid enough to believe that.
More on why SVB failed, showing that people in the City, as opposed to academia, know that banks can’t create money out of thin air and that they are financial intermediaries borrowing money at one rate of interest and lending it at a higher one.
From today’s Times:
“Banks are fundamentally precarious things, borrowing short and lending long”
“The bank [SVB] pumped money into long-dated bonds, whose value has collapsed in the past year, while having to pay out higher interest rates on skittish deposits.”
He’s certainly not turned out to be the lesser evil he was cracked out to be. But then if you are there to look after the affairs of a capitalist class you’ve got to do what you’ve got to do.
There’s a good explanation of why the Silicon Valley Bank failed here:
https://www.politico.com/news/2023/03/10/silicon-valley-bank-collapse-00086586
“Silicon Valley Bank has been bleeding deposits as the Federal Reserve has aggressively raised borrowing costs to fight inflation. Higher interest rates bludgeoned many of the tech businesses that had deposited their money with the bank. As venture capitalists retreated from offering companies fresh infusions of capital to sustain their businesses, startups needed to burn through the cash in their accounts to stay afloat. Deposits the bank had on hand have fallen steadily over the last several months, according to S&P Global Ratings. Higher rates also meant more investments offered an attractive yield, leading some clients to pull out their deposits and put them elsewhere.”
To try to compensate for this, the Bank sold off its holding of government and other bonds. Unfortunately for them, rising interest rates meant that the price of bonds went down and they couldn’t raise enough. And they went bust.
“When banks run into trouble, they can be forced to sell off investment assets, typically U.S. government debt and mortgage-backed securities, that they purchased to earn a return on their customers’ deposits. As interest rates climb, the price of those older securities fall — which means the banks sell those investments at a loss.”
If banks could, as some claim, simply create money to lend “out of thin air” and get interest on it, why would losing deposits make any difference? If a bank was short of money, all it would have to do would be create some more to lend and get the money as interest on them.
That this didn’t happen shows that banks cannot create money out of nothing but are only financial intermediaries borrowing money at one rate of interest to cover loans at a higher rate.
Our theory of the nature of banking stands confirmed. New wealth can only be created by humans applying their mental and physical energies to change the form of materials that originally came from nature, not by banks practising magic or financial alchemy.
Yes, everything we do is “biologically dependent”. Human behaviour is dependent on human nature. I don’t think we can say, though, that “instinctual behaviour” in humans forms a “sizeable” part of “our repertoire of behaviours”. “Non-negligible” might be a better term. The great bulk of how we behave is not “instinctual”. It depends on the society in which we were brought up in and live.
All animals can only do what their biology allows but, in the case of humans, this allows a wide degree of latitude that distinguishes us from all other animals, meaning that a much smaller proportion of our behaviour is “instinctual” compared with theirs.
Just heard that Paresh Chattopadhyay died on 14th January 2023 at the age of 96. He did a lot to expose the idea that the old USSR was somehow socialism or had anything to do with what Marx would have regarded as what we now call socialism ( and which Marx called communist society).
An obituary here:
Marxist Economist Of Global Fame Dr. Paresh Chattopadhyay Is No More
I don’t know why we are arguing. I don’t disagree with what you say. Maybe it’s because I’m talking about the capabilities of the species while you are talking about that of individual members of the species.
As you say, what an individual experiences in the first years of their life, when their brain is still developing, is crucial for the formation of their personality which will shape how they are going to behave in response to later experiences.
I think this applies to the individual members of other species as well.
You write:
“This is why personality typology is linked to experiences, psychopaths personalities for example are not generally born but are generally results of many factors, including their early experiences.“
This it is an argument against those biological determinists who argue that some humans are born “psychopaths” (or homosexual or whatever).
I’ll go along with “linked to experiences” rather than “learned”. I wasn’t using it in the literal sense anyway but more in the sense of “not innate”.
But, then, as I said, I was talking more about the features of the species. Humans have a brain that enables them to engage in a wide variety of behaviours and to pass on a learned “culture” from generation to generation. It’s “human nature” to be able to adopt or adapt to, and so engage in, a wide range of behaviours. Hence the distinction we have always insisted on between “human nature” and “human behaviour”.
Actually, what you point out strengthens the argument that human behaviour is not determined by genes in the way biological determinists preach.
What genes determine is the physical anatomy and physiology of humans and other living things. That determines what they can and cannot do, the limits of how they can behave, if you like. The particular anatomy and physiology of humans means that they are capable of learning a great variety of behaviours. That the way an individual behaves shapes the physical brain, in the ways you point out, again shows that the genetic structure a human has at birth has even less influence on their behaviour.
More, recent stuff on this sort of thing here:
Do you know what our theory of banking is? In case you don’t, it repudiates the quasi currency crank view that banks can somehow create money to lend “out of thin air”.
If this was the case, then why would a bank go bankrupt? It could simply create more money. In fact, of course, banks can only lend funds that they already have (or can quickly get) as from depositors or by themselves borrowing money.
The news report confirms this:
“SVB. . . launched a rescue share sale to plug a near-$2bn (£1.7bn) hole in its finances.
The bank lost the funds when it sold a portfolio of bonds in response to a decline in customer deposits. Those bonds had dropped in value as a result of rising interest rates, leaving SVB with a shortfall.”The “shortfall” was between its loans and the funds it had to cover them due to a fall in deposits, and then to the sale of the bonds (loans it had made to companies or government) not raising enough to cover it.
As they couldn’t fill this “hole in their finances” (the difference between the loans they had made and the funds to cover them) they went bankrupt. This confirmed our view that banks don’t and can’t create money to lend out of thin air.
Banks are financial intermediaries borrowing money at one rate of interest and lending it a higher rate, the difference between these being their income of which a part is their profits.
The Professor Andrew Whiten mentioned in that report (not one of the researchers) is recorded in our pamphlet Are We Prisoners of our Genes as pointing out:
“Humans are the most social species on Earth and our ancestors formed hunter-gatherer groups which pulled together to adapt to their new lifestyle. Unlike every other species, they had an egalitarian culture where everything was shared out equally: no other animal does that. There was also no hierarchy in the society or tribal chiefs, as anyone who tried to lead was pushed back down by the others. Everyone was considered to be equal and they lived in a culture of primitive communism. We might expect as the products of evolution our ancestors would be selfish, but it was their ability to work together and support each other which made them more successful than any other. This supportive culture allowed technology and skills to be passed down and improved with each generation. Although this egalitarian lifestyle is not present in most of the world today, it may be resting dormant within us waiting to be reawakened” (Paper delivered to the Royal Society of Edinburgh, see The Times, 19 August 2000).”
I don’t think he criticised Putin but was just saying that various governments departments were fed up with his lobbying for more munitions. In any event, he seems to have got his way. According to Al Jazeera:
“In another audio message on Friday, Prigozhin said he had thanked the Russian government for a “heroic” increase in ammunition production. He said his men had been “blown away” by the fact they had started to receive ammunition deliveries labelled as produced in 2023. He said ammunition was now being produced “in huge quantities, which cover all the necessary needs”.
