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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?
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.
So the theory was he was killed, and the foundations of our current banking system was established.
I think the overall system is constructive, however there is a lot of financial power onto one entity, and that's the government.
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.
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.
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.
Flexibility? How?
Yes, when the Demand for money increase of course everybody will try to loan money.
I guess, yeah, but yeesh.Anyone else think that it might be advantagous to switch to an entirely exogenous system?
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. ...
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?
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.
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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?"...
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).
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).
But all that said, I assume that each individual countries banking system may vary a little.
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.
Exogenous money, being an injection from an outside source, is only extinguished when that entity takes the money back.
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I think there are dire consequences if you just print however much you want as fast as you want.
I think you want to print a certain rate in accordance to GDP growth.
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...
The biggest problem with private lenders is 300% APRs.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.
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.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.
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.
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.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.
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