Advantages/disadvantages of a monetary system that is entirely endo vs exo created...

[imagep]

For anyone who isn't familiar with the terms, exogenous money (aka "vertically created money", aka "high powered money") is money that is directly created by a single authority, while endogenous (aka horizontal or low powered) money is created by banks or a banking system. Currently we have a system that results in both endo and exo money with most of it being endo (some claims are that it is up to 97% endo although I find that dubious).

I can see several possible HUGE advantages of having a money supply that is entirely exogenously created and only one drawback. I can only think of one minor advantage of a system our money supply is entirely endogenous, but huge drawbacks.

Anyone else think that it might be advantagous to switch to an entirely exogenous system?

 

[JohnfrmClevelan]

Re: Advantages/disadvantages of a monetary system that is entirely endo vs exo create

I'll try to get the ball rolling here...

For anyone who isn't familiar with the terms, exogenous money (aka "vertically created money", aka "high powered money") is money that is directly created by a single authority, while endogenous (aka horizontal or low powered) money is created by banks or a banking system. Currently we have a system that results in both endo and exo money with most of it being endo (some claims are that it is up to 97% endo although I find that dubious).

I can see several possible HUGE advantages of having a money supply that is entirely exogenously created and only one drawback. I can only think of one minor advantage of a system our money supply is entirely endogenous, but huge drawbacks.

Anyone else think that it might be advantagous to switch to an entirely exogenous system?

The advantage of endogenous money is it's flexibility. The demand for money determines the size of the money supply. You need capital, and the bank creates capital.

The disadvantage of a system that is 100% exogenous money is that there is only one source of capital - the government. If private banking exists in this system, it would work by gathering up dollars (since they cannot create them) and lending them out to the highest bidder. So the govt. has lost control of interest rates. Great for those who hold excess dollars and want to earn interest on their savings, but not so great for borrowers, who would pay higher interest rates.

You also have the problem of the government deciding how much money should be in circulation. The only way to remove exogenous money from the economy is to tax it away, or for the government to somehow get it back (loans with interest?).

 

[Lafayette]

Re: Advantages/disadvantages of a monetary system that is entirely endo vs exo create

For anyone who isn't familiar with the terms, exogenous money (aka "vertically created money", aka "high powered money") is money that is directly created by a single authority, while endogenous (aka horizontal or low powered) money is created by banks or a banking system.

Excuse my apparent lack of good-English, but what is the difference if the FRB (a single authority) is also the central Bank of a banking system?

Or do you just mean the Federal Reserve Bank, which is non-commercial, versus Commercial Banks? And if you do, who, in a system purely of Commercial Banks, who is printing the currency employed? A central-committee of commercial banks? They also set the commonly applied interest rate, or do they let the "market-rate" prevail?

Which is nothing more than a "kind of Federal Reserve Board".

Just wondering about the definitions to a very interesting question ...

 

[sookster]

Re: Advantages/disadvantages of a monetary system that is entirely endo vs exo create

Not sure if this is relevant, but The Greenback puts loaning authority, as well as any central bank process in the hands of the government. Historians believe the reason why Abe Lincoln was assassinated had to do with him promoting The Greenback. In fact, there are letters from bankers that have be confiscated, and they did not want The Greenback because it was something they could not control. So the theory was he was killed, and the foundations of our current banking system was established.

In the Greenback, the government is the loan issuer. If I wanted a loan on my farm, I would go to the government. They would provide me cash with interest and a payment plan. Interest on loans, are taxes so to speak. If people had loans out, the amount they would be paying on taxes are reduced from overall taxes. People could get a surplus if they had more loans than the tax rate. In the end, the government wants to loan out money to get more interest, to use that money in theory. Banks in this system, just store money.

I'm bringing this up, because The Greenback is exogenous money to the T. I think the overall system is constructive, however there is a lot of financial power onto one entity, and that's the government. It would be like having a central bank, a treasury, and a large component of the banking system all rolled up into one entity. The first thing that comes to mind, is corruption. I mean, there is so much corruption these days I'm not sure if it could get worse. If you put these duties on the shoulders of congress, in theory it would be less corrupt there. I think government has even more power because they are such a huge influence on everyone's finances. Maybe someone could play the system for exploitation for the gain of a few.

I guess one advantage and/or disadvantage to vertical money, is the source of the currency lies within the central entity. In the greenback system, I start to ask, why have interest? You want the people to work and be constructive to society, so really the concept of paying back the government is paramount. But all of that money can just be created. The government would have the power to just create more money for loans, and pretend that the interest rates on those loans matter.

Maybe it is me just being used to what I am studying, but I like the concept of a separate central bank. The banking system, central bank, and treasury all work together, with one of them, the central bank, prepares for systemic risk. Whereas with vertical money only everything resides onto that single authority. My intuition is telling me, but I haven't thought it through (it's late), that it would be harder to prevent or recover from systemic risk under vertical money compared to horizontal.

 

[Lafayette]

Re: Advantages/disadvantages of a monetary system that is entirely endo vs exo create

REALTY FEEDING FRENZY

So the theory was he was killed, and the foundations of our current banking system was established.

Interesting "theory", over drinks in a bar. Real history has the reason otherwise; see here. If any banksters wanted to see Lincoln killed, they were southern banksters.

I think the overall system is constructive, however there is a lot of financial power onto one entity, and that's the government.

Well, that's the way it should be - because some think that, if left in the hands of just the Bankers, then a catastrophe leading to a repeat of the Great Depression could happen. Uh, let's call it the Great Recession; and let's remember that it was massive fraud during a realty-frenzy that brought about the SubPrime Mess (and thusly the Great Recession).

So, you see, if left to their own whimsies, what happens is Men in Gray Suits at investment-banks think up ways to maximize income and walk away millionaires, whilst the rest of us are wondering "what in hell happened?"

After all, why not. If you actually have a scheme going that will bring in a 10 megabucks for the bank (which is comparatively a pittance) then you are going to keep about $100K, 70% (or $70K) of which is going right into your pocket! So, all one need do in an investment-bank is rake-in 10/15/20 such deals (or any combination thereof) in the year - and ...

Bingo! Are they sitting pretty on a megabuck in their bank-accounts! With which, after a few years, they can retire to somewhere in Palm Beach, Florida, with an immensely costly house overlooking the seaside and not too far from a Golf Course.

Nice deal, huh ... ?

POST SCRIPTUM
*Which is why the FRB-head has recurrent meetings (to determine policy) with the entire Board, all seven members of which are nominated by the PotUS and confirmed by the Senate. Other than confirmation, they are independent of the "government" (meaning the PotUS), and the body can only be dissolved by Congress. Which has never happened.
*Conspiracy theories are great for Hollywood Movies, but that's about it. They are otherwise extremely different to pull off nowadays.
*The above is a very brief explanation of the cause of the Great Recession, which was faulty Mortgage Underwriting during a Realty Feeding-Frenzy (2003/2008) - as is more amply reported in this WikiP article here. Who was criminally at fault was side-stepped to save the precious asses of Finance Top-Management. Their banks were subsequently required to pay humongous fines, which was no real skin off their backs.

 

[Lafayette]

Re: Advantages/disadvantages of a monetary system that is entirely endo vs exo create

COMPETITION AND NOT COLLUSION

The advantage of endogenous money is it's flexibility. The demand for money determines the size of the money supply. You need capital, and the bank creates capital.

Flexibility? How?

Yes, when the Demand for money increase of course everybody will try to loan money.

But what about contractions, they are all looking for the first one's to crack - and that's the small fella who cannot avoid to retract operations because of fixed-costs. Inevitably the little-guy goes first, bought up by the Bigger-Guy. Until what's left (after a period of years) is what is called a "oligopoly".

And what do oligopolies do in order to increase profits? The set prices. No, not together in a dark 'n smokey room. That would be "collusion", and forbidden by law. No, they're a lot smarter nowadays.

They have introduced "sticky-pricing". The majors in any market just look at any prevailing market price set by the Big-Guy-on-the-Block, then they more or less stick-to-it. That is, their pricing is all within 1, 2, 3 or 5% of one another; so no collusion and no real competition.

Someone new enters the market at a lower price, and they "gang-up" on them by all meeting the newcomers price. (Often creating smaller outlets to lower overhead costs.) Then, once gone-under or bought-out by one of the "elders", they all mysteriously raise market-prices once again to gouge the market.

MY POINT?

No, boys 'n girls, any real market is a composite affair, fair and honest where real competition and not collusion prevails. And anyone heading a company who "does not play the game" is a loser - replaced quickly and silently by the BoD.

By the who? The Board of Dunces, most of which are corporate heads all playing, in their own industries exactly the same stoopid market-pricing game.

And who pays for the game-playing? Look in the mirror, sucker!:doh

The consumer pays ...
___________________________

 

[Lafayette]

Re: Advantages/disadvantages of a monetary system that is entirely endo vs exo create

DIGRESSION

yes, I am digressing from the subject of Banking; but only to show that Banking is not the only market that suffers from the very same fault, called "market olipolisation". That is, the expansion of competition (by same supermarket retailers) in order to maintain overall margins by means of cost-price manipulations.

There is a variation to the all-product large supermarket retailing, called "discounting". Played the world over nowadays by means of smaller outlets that discount prices.

See here: Brutal competition batters supermarkets the world over. Excerpt:

As they scramble to maintain market share, the big four British grocers can take comfort from the fact that at least they are not alone. The global supermarket industry has its share of epic competitive scraps, too. In Europe alone, the discounters that have wrought havoc for Tesco, Morrisons, Asda and Sainsbury's have an even more powerful grip on the industry. While Aldi and Lidl control around 8% of the UK market, according to figures from market research group Kantar the share controlled by discounters in France is 10% and in Germany – home of Aldi and Lidl – it is 37%. In the UK, two-thirds of the market is controlled by four players; this is the same as in Germany, while in France 56% of the market is controlled by the top four and in Spain just under 50%. A look at these markets, plus some of the biggest outside Europe, shows that every territory poses challenges for big grocers.

The report is made from a European point-of-view, but it mentions nonetheless the fact that the same "game" is being played in the US. From the same article linked above:

United States
For the past 25 years America's grocery shopping habits have been dominated by the "supercentre". Many thought the dominance of massive, out-of-town stores – mainly owned by Walmart – would kill local supermarkets.

But something is changing. This year Kroger, the US's largest supermarket chain, will pass $100bn revenue mark, despite having no presence overseas. This local chain has now enjoyed 43 consecutive quarters of growth. Walmart has taken note and is trying to get back into smaller, urban supermarkets after spending years trying to kill them off.

John Rand of Kantar Retail in Boston has spent 47 years watching the US grocery business. The landscape, he said, had seldom been so competitive.

And if the US is like France in the retail market, then it is because the established Larger Retailers who are opening up defensively the smaller outlets sometimes in the same mall. How do they pull that off without killing the bigger store?

Easy, in manipulating certain prices by changing labels on the same bottled/packaged product or the same kind of product made more cheaply. Or, putting in a "Drive" (called in English the very same here in France!) These Drive-stores have lower prices, lower margins, but remain nonetheless a better alternative than losing entirely customers in lesser frequented larger supermarkets.

Anything goes to dupe the consumer ... !

 

[JohnfrmClevelan]

Re: Advantages/disadvantages of a monetary system that is entirely endo vs exo create

Flexibility? How?

Yes, when the Demand for money increase of course everybody will try to loan money.

Endogenous money, being debt-based, is extinguished as loans are paid down. The size of the money supply is somewhat self-regulating.

Exogenous money, being an injection from an outside source, is only extinguished when that entity takes the money back. In the government's case, that is normally taxation, which is not a nimble way to adjust anything. This is why I say that you end up with a relatively static amount of dollars, which leads to a pile-up-and-seek-the-highest-bidder system of apportioning capital, which leads to higher interest rates.

The other alternative, brought up by Sookster, is that the government attempts to act like a private bank, and decide who to loan money to. And we all know how well that would work out.

On a side note, banks aren't the problem. A lack of oversight and adequate regulation is the problem. I'd rather deal with underregulated banks than a crooked government bank.

 

[gavinfielder]

Re: Advantages/disadvantages of a monetary system that is entirely endo vs exo create

Anyone else think that it might be advantagous to switch to an entirely exogenous system?

I guess, yeah, but yeesh.

The libertarian in me says that we deserve the worst case consequences of our decisions to give unilateral power to any entity.

That said, I recently had to write an essay on another form of government power in which I concluded that power itself wasn't the problem, but simply a lack of checks and balances. Not simple oversight, mind, but a proportionally powerful agency designed to check and balance the power of another, in this case, I suppose, the Federal Reserve. I've said many times that the Federal Reserve is functionally the fourth branch of our government. That others say it's independent belies the problem.

 

[imagep]

Re: Advantages/disadvantages of a monetary system that is entirely endo vs exo create

If it is true that 97% of our money supply is endogenous money, then it occurs to me that our government simply has not issued and spent into circulation enough money.

If this is correct, if we were to phase in an exogenous money creation system, using regulations to gradually reduce banks ability to create money to do so, we may be able to eliminate the need for taxation for the next decade or maybe even a few decades, without any fear of inflation (even if our economy was fully employed and operating at above the Potential GDP.

I brought up this theory/plan on another venue a few months ago, and the idea was pretty much poo pooed, but I've learned that on that venue, every new idea gets poo pooed by a bunch of people who just repeat the standard set of talking points for that group, so I don't really take a lot of stock in the answers that I got.

However, I'm also thinking that if endogenous money creation only expands to the point that it is needed, then our gov could eliminate taxes (or alternatively drastically increase spending), without even having to limit endogenous money creation - because endogenously created money would automatically contract by the same amount that exogenously created money was expanding.

Now just to define a point, I fully get that even gov created money is created in the form of debt, so for the sake of this conversation, I am treating exogenously created money as if it was directly created and spent into our economy, rather than borrowed from the fed (because that's really what borrowing from the fed is, the federal debt owed to the fed never HAS to be repaid, it can roll over for ever).

 

[imagep]

Re: Advantages/disadvantages of a monetary system that is entirely endo vs exo create

I'll try to get the ball rolling here...



The advantage of endogenous money is it's flexibility. The demand for money determines the size of the money supply. ...

I agree. But how important is that advantage? Outside of the occasional bubble and burst, I would think that our need for money would increase at a fairly constant rate. And isn't the ability of an endogenous system to virtually instantly poof up debt based money a contributor to bubbles? So maybe an entirely exo system would stablize our economy (I dunno, just theorizing here).

 

[imagep]

Re: Advantages/disadvantages of a monetary system that is entirely endo vs exo create

Excuse my apparent lack of good-English, but what is the difference if the FRB (a single authority) is also the central Bank of a banking system?

I would assume that the Federal Reserve bank and the central bank are about the same thing. In the US, the Federal Reserve Bank IS the central bank. The FRB is government owned (despite the fact that there are some loonie conspiracy theories claiming otherwise).

Or do you just mean the Federal Reserve Bank, which is non-commercial, versus Commercial Banks? And if you do, who, in a system purely of Commercial Banks, who is printing the currency employed? A central-committee of commercial banks? They also set the commonly applied interest rate, or do they let the "market-rate" prevail?

In the US, it's the FRB that creates exogenous money (it creates money directly, and distributes that money into our economy by purchasing bonds and similar securities). We call individual privately owned banks Commercial banks, and they are indeed privately owned despite the fact that they are all "members" of the banking system.

But all that said, I assume that each individual countries banking system may vary a little. I was recently reading that German banks deposit their all or part of their required reserves with other commercial banks and not the central bank.

 

[imagep]

Re: Advantages/disadvantages of a monetary system that is entirely endo vs exo create

Not sure if this is relevant, but The Greenback puts loaning authority, as well as any central bank process in the hands of the government. Historians believe the reason why Abe Lincoln was assassinated had to do with him promoting The Greenback. In fact, there are letters from bankers that have be confiscated, and they did not want The Greenback because it was something they could not control. So the theory was he was killed, and the foundations of our current banking system was established.

In the Greenback, the government is the loan issuer. If I wanted a loan on my farm, I would go to the government. They would provide me cash with interest and a payment plan. Interest on loans, are taxes so to speak. If people had loans out, the amount they would be paying on taxes are reduced from overall taxes. People could get a surplus if they had more loans than the tax rate. In the end, the government wants to loan out money to get more interest, to use that money in theory. Banks in this system, just store money.

I'm bringing this up, because The Greenback is exogenous money to the T. I think the overall system is constructive, however there is a lot of financial power onto one entity, and that's the government. It would be like having a central bank, a treasury, and a large component of the banking system all rolled up into one entity. The first thing that comes to mind, is corruption. I mean, there is so much corruption these days I'm not sure if it could get worse. If you put these duties on the shoulders of congress, in theory it would be less corrupt there. I think government has even more power because they are such a huge influence on everyone's finances. Maybe someone could play the system for exploitation for the gain of a few.

I guess one advantage and/or disadvantage to vertical money, is the source of the currency lies within the central entity. In the greenback system, I start to ask, why have interest? You want the people to work and be constructive to society, so really the concept of paying back the government is paramount. But all of that money can just be created. The government would have the power to just create more money for loans, and pretend that the interest rates on those loans matter.

Maybe it is me just being used to what I am studying, but I like the concept of a separate central bank. The banking system, central bank, and treasury all work together, with one of them, the central bank, prepares for systemic risk. Whereas with vertical money only everything resides onto that single authority. My intuition is telling me, but I haven't thought it through (it's late), that it would be harder to prevent or recover from systemic risk under vertical money compared to horizontal.

We've had at least 7 different monetary systems in the US, each one a little different. Even after the federal reserve was established we have had three different systems, and even some variations and changes within those three systems.

It all gets very confusing to me.

Prior to the Civil War, there were at least two periods of time when private banks were chartered to issue money, and needless to say that didn't work out to well. Those banks would ramp up lending, then they would cut back on the lending, which of course would cause a money crunch and a recession, and they would then foreclose on massive amounts of property. Basically, it wasn't just a license to print money, it was a license to steal property.

 

[imagep]

Re: Advantages/disadvantages of a monetary system that is entirely endo vs exo create

...
Well, that's the way it should be - because some think that, if left in the hands of just the Bankers, then a catastrophe leading to a repeat of the Great Depression could happen. Uh, let's call it the Great Recession; and let's remember that it was massive fraud during a realty-frenzy that brought about the SubPrime Mess (and thusly the Great Recession).

So, you see, if left to their own whimsies, what happens is Men in Gray Suits at investment-banks think up ways to maximize income and walk away millionaires, whilst the rest of us are wondering "what in hell happened?"...

Absolutely.

And a great reason to reject and endogenous system. As much as we may fear government abuse of a monopoly right to create money, I find that less fearful than the idea of private sector created money. I suppose it comes down to who we trust more, the people we elect into office, or the bankers that we don't elect.

 

[JohnfrmClevelan]

Re: Advantages/disadvantages of a monetary system that is entirely endo vs exo create

I agree. But how important is that advantage? Outside of the occasional bubble and burst, I would think that our need for money would increase at a fairly constant rate. And isn't the ability of an endogenous system to virtually instantly poof up debt based money a contributor to bubbles? So maybe an entirely exo system would stablize our economy (I dunno, just theorizing here).

Imagine for a moment how different it would be - getting a loan from your bank, or applying to the government for a loan. You have lots of banks to choose from, as opposed to one govt. agency. I think loans would be a much more difficult, drawn-out process through a govt. agency. So while they could probably increase the money supply at a useful rate, I doubt they could service individuals and businesses nearly as well as banks do. Money in the system is different than money in the right hands.

I don't blame bubbles on the ability to make endo money so much as I blame it on corruption and insufficient regulation. You could have the same problems with exo money, I would think.

 

[sookster]

Re: Advantages/disadvantages of a monetary system that is entirely endo vs exo create

If it is true that 97% of our money supply is endogenous money, then it occurs to me that our government simply has not issued and spent into circulation enough money.

If this is correct, if we were to phase in an exogenous money creation system, using regulations to gradually reduce banks ability to create money to do so, we may be able to eliminate the need for taxation for the next decade or maybe even a few decades, without any fear of inflation (even if our economy was fully employed and operating at above the Potential GDP.

I brought up this theory/plan on another venue a few months ago, and the idea was pretty much poo pooed, but I've learned that on that venue, every new idea gets poo pooed by a bunch of people who just repeat the standard set of talking points for that group, so I don't really take a lot of stock in the answers that I got.

However, I'm also thinking that if endogenous money creation only expands to the point that it is needed, then our gov could eliminate taxes (or alternatively drastically increase spending), without even having to limit endogenous money creation - because endogenously created money would automatically contract by the same amount that exogenously created money was expanding.

Now just to define a point, I fully get that even gov created money is created in the form of debt, so for the sake of this conversation, I am treating exogenously created money as if it was directly created and spent into our economy, rather than borrowed from the fed (because that's really what borrowing from the fed is, the federal debt owed to the fed never HAS to be repaid, it can roll over for ever).

Just a couple things I want to say. First, the fact that the vast majority of our money supply is endo, is shown with bought government debt. A lot of people focus on the Fed, but it is the private sector that owns the most debt. When our deficit was 11 trillion a while back, 9.7 trillion was owned by the private sector and 1.3 was owned by The Fed. And in our system it's a win win theoretically. The endo created money buys treasuries which is deficit spent which allows for more endo created money. People get loans, and in theory deficit spending is spent on the people. And billionaires get even richer because they have interest on the t bonds. But what I wanted to say is first, if we wanted to now, I believe we could get rid of taxation if we wanted to. But me being stubborn, and to the disagreement to a lot in the economic community, I think taxes are required.

I think there are dire consequences if you just print however much you want as fast as you want. There are consequences, positive and negative, in anything in life. I think you want to print a certain rate in accordance to GDP growth. I have to lay down and really think out the course of events if we printed too much too quickly. I also know of a LAW of physics called The Constructal Law. In any flow system, and money is one of them, there HAS to be "imperfections" as the book termed it, to slow down the over speed of the flow system, to ensure the rest of the system gets flow. So in a tree, if a trunk was transporting too quickly, branches wouldn't get nutrients. It's that concept. And money is a flow system, and taxes are a "imperfection" or a resistance to the flow.

I guess if I were to take that literally, if we were to print super hard, super fast, then rich would get really really rich, (because making money by having money is much easier than not having money), and the poor would remain the same, their wages wouldn't be increased because people in this nation are against that, so they would actually become poorer.

There are other avenues that I could take I think, but I just haven't thought about it. So all I'm saying, is I think taxation is a requirement and slows the rate at which you print, which I think in mist cases is a good thing. It may not maximize GDP all the time, but you still get growth, and you still get stability.

 

[Lafayette]

Re: Advantages/disadvantages of a monetary system that is entirely endo vs exo create

WHEN THE FIT HITS THE SHAN

But all that said, I assume that each individual countries banking system may vary a little.

Yes, like it or not, dysfunctional or not, it is the system we have devised and employ presently.

Which does not mean it is the best system-in-the-world. I will harp upon the fact that the FRB did nothing to stop the realty feeding-frenzy that was based upon defective mortgaging practices. (Insufficient proof of underlying capacity to pay the loans.)

As Greenspan was bent to say, "We didn't see it coming!" Well, Alan, the FRB should have been looking!!!

That is, looking for it at the Main Street level and not "directing" from the national level.

The faults in finance are almost always in the details, because we have allowed to be created a massive Finance Industry with far too much concentration at the top. And the revolving doors on LaLaLand on the Potomac allow those who are investigators to become the investigated - and vice-versa. That relationship has become far too cozy.

See here, WSJ, The Federal Reserve's Too Cozy Relations With Banks
Except:

Cozy bank-Fed relationships are especially important for financial regulation and crisis management. We pursue these topics in our books "Fragile by Design: The Political Origins of Banking Crises and Scarce Credit" ... and "Guardians of Finance: Making Regulators Work for US" ...

There are too many examples to list here, but the Fed's response to the 2007-08 subprime mortgage crisis is illustrative. We do not question the Fed's rescue of the banks to protect the economy from a potentially catastrophic collapse of the financial system.

We do, however, stress that in the months and years leading up to the crisis, the Fed did nothing to curtail the run-up in risky lending that caused the crisis. We also point out that when the Fed finally acted, it not only rescued the banks, it also bailed out their shareholders as well as the executives who had helped steer the banks and country into the crisis. In contrast, when the government rescued General Motors, it forced shareholders and bondholders to take huge financial losses and executives to be fired.

And all this for what? So that Executives can be paid colossal salaries, perquisites, and stock-options? Whilst the 15% below the Poverty Threshold (50 million Americans, I never tire of repeating) take the brunt of their catastrophic errors.

When the fit-hits-the-shan? That's a suckers game.

A SUCKER'S GAME

And nothing, but nothing, will change until we start understanding that Our Governance of the nation is tri-partite: Executive, Legislative and Judicial. Meaning what?

Meaning that you just don't change a PotUS and expect him/her to "fix the system". And if you need a recent lesson in history underlying that argument, just look at what the Replicants did to Obama in 2010 after they took control of the HofR (from where all spending-bills commence, which they nixed).

MY POINT?

Thus preventing any Stimulus Spending (out of the idiotic notion that - in a Great Recession - we must concentrate on Debt Reduction). The very same mistake that Roosevelt made in 1930, before he was awoken by Keynes who spearheaded a revolution in Economic Thinking called "Stimulus Spending"*.

A thinking that, to this day, the Replicants refuse to admit has proven its worth as a primary-principle of modern Economic Theory ...

*WashPo: Did the stimulus work? A review of the nine best studies on the subject

 

[Lafayette]

Re: Advantages/disadvantages of a monetary system that is entirely endo vs exo create

Exogenous money, being an injection from an outside source, is only extinguished when that entity takes the money back.

I quite a agree, but in times of necessity, if a nation is expecting Endogenous Money to come to rescue with Stimulus Spending, then the economy is destined to nose-dive further, creating even worse an economic situation (and deprivation to the people) ...

 

[imagep]

Re: Advantages/disadvantages of a monetary system that is entirely endo vs exo create

...
I think there are dire consequences if you just print however much you want as fast as you want.

Possibly, but if most money is endo, that means we have already suffered the consequences because the printing has already been done. What if we gradually cut back on the endo money, while we simultaniously and equally allowed the supply of exo money grow (resulting in zero change in the money supply), what consequences could happen that haven't already happened?

I think you want to print a certain rate in accordance to GDP growth.

If we exceeded that rate, what would happen? We exceeded that rate recently with QE and bank bailout money and spendulous bill money, yet the inflation rate has been at record lows.

I also know of a LAW of physics called The Constructal Law. In any flow system, and money is one of them, there HAS to be "imperfections" as the book termed it, to slow down the over speed of the flow system, to ensure the rest of the system gets flow. So in a tree, if a trunk was transporting too quickly, branches wouldn't get nutrients. It's that concept. And money is a flow system, and taxes are a "imperfection" or a resistance to the flow...

In economics, there are no absolute laws, not like the speed of light, or anything. I understand what you are saying about imperfections, but imperfections work both ways and tend to balance each other out. One of the things that MMTers discuss is "money leaks", and they theorize that we constantly have to have a flow of newly created money to make up for those leaks.

 

[gavinfielder]

Re: Advantages/disadvantages of a monetary system that is entirely endo vs exo create

Imagine for a moment how different it would be - getting a loan from your bank, or applying to the government for a loan. You have lots of banks to choose from, as opposed to one govt. agency. I think loans would be a much more difficult, drawn-out process through a govt. agency. So while they could probably increase the money supply at a useful rate, I doubt they could service individuals and businesses nearly as well as banks do. Money in the system is different than money in the right hands.

I don't blame bubbles on the ability to make endo money so much as I blame it on corruption and insufficient regulation. You could have the same problems with exo money, I would think.

The biggest problem with private lenders is 300% APRs.

That may be the extreme case, but the privatization of financial services makes it inherently rent-seeking. Which is probably as good an explanation as any as to why we need so much regulation to control the financial sector.

 

[imagep]

Re: Advantages/disadvantages of a monetary system that is entirely endo vs exo create

The biggest problem with private lenders is 300% APRs.

That may be the extreme case, but the privatization of financial services makes it inherently rent-seeking. Which is probably as good an explanation as any as to why we need so much regulation to control the financial sector.

You are assuming that in order to eliminate bank created money that we would have to eliminate private banks. All we we would have to do is to gradually increase the reserve ratio to 100% and to not allow banks to directly issue money.

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[JohnfrmClevelan]

Re: Advantages/disadvantages of a monetary system that is entirely endo vs exo create

You are assuming that in order to eliminate bank created money that we would have to eliminate private banks. All we we would have to do is to gradually increase the reserve ratio to 100% and to not allow banks to directly issue money.

A 100% reserve system would eliminate bank-created money. Before a bank could loan $1000, they would have to come up with $1000. That would make it a pile-up-capital-to-loan-it-out system.

 

[imagep]

Re: Advantages/disadvantages of a monetary system that is entirely endo vs exo create

A 100% reserve system would eliminate bank-created money. Before a bank could loan $1000, they would have to come up with $1000. That would make it a pile-up-capital-to-loan-it-out system.

Yup.

Exactly what I was saying. So we to have a totally more mostly exo money supply, it's not a matter of having to have a socialist style totally government-owned banking system, we can still keep our privately owned commercial banks and allow them to compete for business.

Banks would still have money to lend because they could still lend from savings accounts and other time accounts (CDs, money market, etc), and of course they could still lend their own money (investor money, retained earnings, etc) or they could loan money that they borrowed from other sources (such as the interbank lending system that they already use).

By gradually increasing the reserve ratio, government could either spend more, or tax less, or a combination of both, without risking inflation. I dunno how long we could do that, but I'm pretty sure it would be decades (if only 3% of our money supply is exo, then that means the government could directly issues roughly 33 times more money than already exists. Our current M0 is about equal to our entire federal budget, so theoretically, we might could eliminate taxation for the next 33 or so years, (gradually increasing the reserve percentage over that 33 years to 100), plus we could still increase spending by the same amount that our economy grows to insure that we have an ample money supply to accommodate growth.

 

[gavinfielder]

Re: Advantages/disadvantages of a monetary system that is entirely endo vs exo create

You are assuming that in order to eliminate bank created money that we would have to eliminate private banks.

I wasn't. I have a hard time seeing where that came from. I was responding to the implication that privatized lending is generally better for consumers.

 

[imagep]

Re: Advantages/disadvantages of a monetary system that is entirely endo vs exo create

I wasn't. I have a hard time seeing where that came from. I was responding to the implication that privatized lending is generally better for consumers.

Yes, some types of finance companies have high interest rates, but if we went to a system where all money was exogenous, it wouldn't really make much of a difference, predatory lenders charging 300% would exist, but they already exist.