Wednesday, 2 September 2015

The real purpose of central banks



One of the things that has emerged from the PQE debate is a suggestion that it is time to consider ending the Bank of England's inflation-targeting mandate. Unfortunately this got mixed up with calls for ending the operational independence of the Bank of England (Richard Murphy), or abolishing central banks (Bill Mitchell, stated in response to a question at Reframing the Progressive Agenda).

What we might call the "twin peaks" approach to macroeconomic policy-setting has been adopted the world over. Separation of fiscal and monetary policy, and independence of the central bank, have become the hallmarks of good practice. Many countries have also adopted inflation targeting, though not all have: a good many developing countries still target exchange rates, and are currently learning (painfully) that exchange-rate targeting doesn't work when everyone's currencies are depreciating madly due to commodity price falls.

But the status of the central bank and the primacy of inflation control in macroeconomic policy setting are not really related to each other. To illustrate this, here's a thought experiment.

Suppose that we did what Bill wants, and abolished the central bank. Government would become its own central bank: it would spend directly into the economy by crediting private sector bank accounts, and would drain excess money through a programme of differentiated taxes. I've noted before that taxes and interest rates are essentially the same thing but with different distributional effects. Both control the amount of money in circulation. But interest rate changes indirectly influence private sector saving and borrowing, whereas tax changes directly affect private sector spending. We might expect, therefore, that tax changes would be both more powerful and more immediate in their effects than interest rate rises - though strangely, the mainstream economic community seems to think the reverse is the case.

In theory, therefore, this could work. Inflation control would be exercised by means of tax rate changes, particularly the poorly-named "indirect" taxes (VAT, sales tax, sin taxes). Indirect tax changes have direct, immediate and powerful effects on the economy: not long ago a promising recovery was derailed in Japan by an ill-considered increase in sales tax, and in the UK the VAT increase immediately after the Coalition government came to power in 2010 probably contributed to the slackening of growth later that year.*

So we do not need a separate central bank to control inflation. Government can do that itself. But why do we want to control inflation? Indeed, can we control it? We fear it, so we want it controlled, but it is by no means clear that we have effective control of it. Central banks the world over are failing to meet inflation targets. Western economies have inflation far below the standard 2% target. Why is this?

There are all manner of theories to do with commodity price falls, weak currencies and low demand. Some combination of all of these is no doubt partly to blame. But in Europe, where low inflation is firmly entrenched despite very high unemployment, the principal reason is that the inflation target has effectively been abandoned.

The ECB has price stability as its single mandate. But the primary macroeconomic targets are not set by the ECB. They are set by the member state governments and enforced by the European Commission with (increasingly reluctant) support from the ECB. The primary macroeconomic targets in the Eurozone, and to a lesser extent the EU, are the Maastricht Treaty limits on government debt and deficit. It is slavish adherence to these that makes it impossible for the ECB to meet its inflation target.

As I noted before, changes in taxation (including government spending, which can be regarded as negative taxation) are equivalent to interest rate changes. So contractionary fiscal policy across the entire Eurozone acts like very high interest rates, sucking demand out of the economy. Also, the ECB is struggling with "zero lower bound" constraints that limit the effectiveness of monetary policy in very demand-deficient economies, Consequently, the ECB simply does not have the power to offset the depressing effect of continual fiscal austerity as countries try to comply with the too-tight fiscal restraints of the Stability and Growth Pact. It cannot get anywhere near its 2% inflation target.

I would suggest that ANY country that is attempting to hit particular targets for government debt and/or deficit has de facto abandoned its inflation target. That includes the UK, whose Chancellor is targeting zero deficit by 2018 and fiscal surplus by 2020. The Bank of England still has an inflation target, but it has no more chance of hitting it than it would have if the Chancellor were "going for growth" with a highly expansionary fiscal policy. "Monetary dominance" is a myth.

Ending the Bank of England's inflation-targeting mandate would make little difference as long as the government remained firmly wedded to balancing the books. Indeed it might make matters worse: if the Bank no longer had a target to try to meet, popular pressure might make large interest rate rises hard to resist. It should be obvious by now that interest rate rises combined with fiscal austerity would be severely contractionary, possibly disastrously so. The Bank of England's inflation target is therefore serving a protective function. There are powerful voices calling for interest rates to rise back to "historic" levels. Targeting inflation silences them.

So we might need an independent central bank to provide some protection from politicians (or fiscal councils) setting insanely tight fiscal targets. However, the Eurosystem, with its one-size-fits-all monetary policy, is not able to protect individual countries from the awful consequences of severe fiscal austerity. So if it can't hit its inflation target because of over-tight fiscal policy, and it can't offset the effect on  real economic activity of over-tight fiscal policy, does the Eurosystem serve any useful purpose at all?

It certainly isn't needed to create money. The right to create money is conferred on central banks (base money) and private banks (broad money) by government, and the value of money thus created arises entirely from the trust that people have in government. In the hydra-like Eurosystem, the authority of  the ECB and national central banks to create money comes from the governments of its 19 member states.

Even in the Eurozone, it would in theory be possible for private banks to be provided with reserves directly by Treasury departments: conversely it would in theory be possible for member state governments to be the only banks. These are extreme positions and I am not suggesting either. I merely point out that both are logically coherent. Central banks and private banks are not essential for fiat money creation.

Occasionally we find cases where the central bank is more trusted than the government, but these are unlikely to be associated with genuine fiat currency systems. For example, Bulgaria has a Euro currency board, which means that its monetary policy and to a large extent its fiscal policy too are in practice dictated by the ECB. And the people like it that way. They haven't forgotten 1996, when Bulgaria experienced hyperinflation. They don't trust their government, and they only trust their central bank because it doesn't really have control of the currency.

It is false to claim, as some do, that the Euro has broken the link between government and currency. Nothing could be further from the truth. Successive crises have shown us that the stability of the Euro crucially depends on the credibility of its member governments. There was even hyperinflation in the Eurozone in the run-up to the closure of Greek banks, when Greek citizens dumped Euro deposits in Greek banks as fast as they could due to fears of confiscation and/or redenomination (value destruction). At that moment, as Greek broad money approached worthlessness, the Euro was fragmented. The loss of credibility of the Greek government threatened its integrity. The Euro is as dependent on trust in government as any other fiat currency.

So we do not need a central bank to control inflation. Even more importantly, we do not need a central bank to create money. All we need is a trusted government. This is the reason for Bill's call for central banks to be abolished. He thinks they serve no useful purpose.

Of course we might want to have a central bank for other purposes, like acting as lender of last resort for the banking system (though as we saw in 2008, the burden of rescuing a collapsing banking system eventually falls on government). It can be convenient to separate the support of the banking system from the support of the real economy. But in the Eurozone, it is hard to see what other useful purpose the central banks serve.

However, there is another reason for having an operationally independent central bank in a democracy. In democracies - even those that have a "fiscal council" or balanced-budget laws - fiscal policy is set by politicians. Politicians disagree on fiscal policy: indeed political parties' pitch to voters is mostly about how bad the fiscal policy of the other side is. For the party in office, the temptation to set fiscal policy to their own electoral advantage is very great: while for parties aiming to dislodge the party in office, the temptation to make headline promises to reverse existing fiscal policies is equally great. So we should expect fiscal policy settings to be significantly determined by the electoral cycle.

An independent central bank can dampen the swings in fiscal policy caused by changes in government. It can't offset them fully, especially when interest rates are close to the zero lower bound, but it can mitigate their effect. It acts, in effect, as an automatic stabiliser, anchored by its mandate: it doesn't much matter what the mandate is as long as there is one. The high inflation of the 1970s was in my view at least partly due to the loss of the Bretton Woods anchor, which resulted in ten years of confusion before a new anchor (inflation targeting) was adopted.

So it is public choice theory, not inflation control, that makes an independent central bank necessary. This, I'm afraid, fatally undermines Richard Murphy's call for the ending of the operational independence of the central bank. The last thing we need is a central bank that is ALSO driven by the electoral cycle. No central bank at all is probably better than this.

And this raises another issue. Those who think central bank governors should be directly elected should perhaps consider whether elected governors might themselves be driven by a desire to remain in office. The prospect of fiscal and monetary policy being driven by two different electoral cycles that are out of phase with each other is  too awful to contemplate.

But if the real purpose of central banks is to protect economies from the whims of politicians (including those in other countries - fiscal policy effects spill over to other economies) - and thereby help to maintain trust in government even when it doesn't deserve it - there must be serious questions about the purpose of the Eurosystem, since it is manifestly unable to dampen fiscal policy swings. There could definitely be a case for abolishing the ECB and returning responsibility for monetary policy to national central banks.

Of course, an independent central bank dampening swings in fiscal policy is smoke and mirrors. The central bank is a political institution. Its mandate is set by politicians and it is only as independent as politicians allow it to be.

There is a widespread view that inflation targeting by independent central bank prevents irresponsible management of the economy by politicians. But I would argue that the reverse is the case. The "twin peaks" model, in supposedly protecting the economy from the whims of politicians, enables politicians to be irresponsible while blaming  the central bank for the consequences of their irresponsibility. This is what is happening all over Europe. Politicians are irresponsibly driving economies into stagnation or depression through a misguided belief that debt is bad and government must "live within its means". And central banks are being held responsible for the resulting lowflation, lack of growth and high unemployment.

It is a dysfunctional model. But until there is greater understanding of macroeconomics among politicians and voters, I can't think of a better one.

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Related reading:

PQE, inflation and the problem of voter power
Krugman, Bowman and the monetary financing of government
Inflation is always and everywhere a political phenomenon - Pieria

*If this is correct, then we should expect that the enormous VAT increase in Greece imposed with immediate effect under the terms of the recent bailout should have a serious negative impact on growth, since it is equivalent to a whopping interest rate hike. It's worth remembering that the Russian central bank's political decision to raise interest rates to 17.50% in November last year knocked the stuffing out of an already recessionary economy. Greece's general VAT rate has been raised to 23%, which for most industries is a rise of at least 10%. I await the Q3 and Q4 GDP figures for Greece with academic interest and personal foreboding.


37 comments:

  1. I don't think it is reasonable to characterise Bill Mitchell's position as a desire to abolish the central banks. They obviously carry out some necessary functions in any modern fiscal system. Rather, he does not believe that they are truly independent of political influence, and that it would be better to place them explicitly within a system of democratic accountability. This blog post is indicative.
    As to whether central bankers are indifferent to the electoral cycle in the current system, there is an amusing paper by Jamie Galbraith and co-workers which says not.

    dnm

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  2. Interest rates and taxes are not the same thing, When the BoE increses rates its not trying to remove money from the hands of taxpayers, it doesn't even decrease the amount of money in the economy, The interest rate transfers interest payments from borrowers to bank share holders and deposit holders.

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    1. Dinero, I don't want to discuss this here as I have covered it in considerable detail elsewhere, but I'm afraid you are not correct. Targeting a particular interest rate is the principal mechanism by which the central bank controls the amount of money in circulation.

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    2. Hi Frances, do you have any specific article in mind? I try to read as much as possible from what you write, but taxes being the same as interest rates is new to me (at least I think). If you don't have the time to reply, no problem, I'll eventually might find what you mean, but otherwise apreciated. Thanks.

      regards, Matthijs

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    3. Thanks, I see it now.

      regards, Matthijs

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    4. Taxation is not the same thing as interest rates . Taxation applies to the population as a whole , tnterest rates apply only to potential borrowers. The BoE inflation target is based on how the price of credit effects price inflation, it does not include all the other factors across the economy that effect price . If the government were to target inflation in the same way as the BoE does it would have to have a policy aimed at a change in the price of credit , as the BoE does, not change taxation levels across the population, and so the proposition that taxation and interest rates are essentially the same is incorrect as they are not the same thing in process or effect.

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    5. Interest rates and taxes are equivalent, not identical. I said in the post that they had different distributional effects. Indeed I specifically said that interest rates affect saving and borrowing, whereas taxation directly affects spending. I also said that because of this, taxation is a lot more powerful than interest rates as a control mechanism. You aren't saying anything different.

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    6. Its not just a distributional effect, the consequence would be the tax payer in general being forced by government to reduce their aquisition of economic resources and to alow the aquisition of economic resources by new borrowers to go on unchecked. Don't you think it makes more sense to counter a temporarary scarcity of resources caused by credit fuelled aquisition of said resources with a temorary rise in interest rates, so the borrowing slows down.

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  3. Neochartalists are fools.

    As you pointed out, had they not acted on time, the financial system would have collapsed. But the Neochartalists act as if the Fed and other central banks should have let it all happen. Stupidity to the core.

    There's a debate about too-big-to-let-fail and ideally a central bank should let big institutions fail. But it's not clear that even now if we are in that situation and truth is far more complex.

    And if the financial system goes down, production firms will also face difficulties in obtaining finance and paying employees. And it's hilarious who the "MMTers" preach morality and are ready to let people lose their jobs.

    Apart from domestic policies, central banks in many nations also manage foreign reserves and manage the operations of the exchange stabilization funds. But the MMTers are foolish to think that one can just let the exchange rate float ... bla bla.

    Stupidity has its limits. Total lack of any intuition for understanding how institutions work.

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    1. Ramanan,

      I would say that the big problem with MMT is where its originators hail from. As far as I can see there is zero representation from developing economies, which make up two-thirds of the globe. And there is little representation from Europe, either. I may be being unfair, but it seems to me that MMT is based upon a few well-to-do countries with long-established democracies and no history of default. Countries like that are rare breeds.

      Developing economies fix their exchange rates for good reasons. And many of them have learned very painful lessons about running large fiscal and/or external deficits.

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    2. Right. Most from the handful from the US and one from Australia. Agree with you. There's fear of floating, there's original sin and so on. But anyway not being able to appreciate the role of the Fed during during the crisis itself is a bad thing.

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    3. I think a lot of developing economies problems are on the governance side, or rather the lack thereof. I'm not sure the MMT framework is the problem, but that rather the large fiscal/external deficits these countries run are largely geared at increasing consumption without taking into account the real structural constraints faced by their economies. That is economies that have real physical constraints in supplying goods and services are going to rapidly overheat when consumption is pushed beyond what the economy can deliver

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    4. The basic MMT literature I’ve read has been pretty explicit about the need for credible, decent governance to be in place in order for their conclusions about how a modern economy works to hold. Perhaps this gets lost in the translation from academia to “popular” (well, popular amongst the economic commentariat?) discourse?

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    5. My point is that their conclusions don't hold even in countries that have, by any reasonable modern standards, credible and decent government. The electoral cycle is baked into credible and decent government: indeed it is the existence of that cycle that gives it legitimacy. If there is no possibility of the government being unseated, there need be no swings in fiscal policy: but that isn't democracy.

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    6. Surely that doesn't apply in the UK at all? Even if those criticisms hold, they don't hold in the UK context.

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    7. My comments about the electoral cycle and the use of fiscal promises to get elected absolutely apply to the UK.

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    8. One thing (some) MMTers support is strong auto stabilisers. This dampens the cycle somewhat.

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  4. One of the main purposes of central banks is to supervise the banking system, I think that was their traditional role, and lender of last resort.

    Now there is a train of thought that the real purpose of a central bank is to create a crisis, which can then be used be used to transfer even more wealth from labour to capital.

    Now all crisis started by the central banks follow this pattern, starting with the overly harsh increases to dampen inflation in the late 70s/early 80s. This killed industry, especially in the UK, and weakened labour and increased the power of capital.

    First creating a property boom, and then a property bust was a Bank of Japan specialty to 1990.

    The lax supervision and ultra-low rates until 2008 crisis brought the last great depression. Here all central banks were to blame. Again, increasing rates too late brought about the crash.

    The Eurocrisis, the ECB is both guilty in running too loose a policy after Euro introduction in the South, especially regarding increase in lending in Souther EU/Ireland, and then after the crash of inadequate responses to remedy it.

    That is just a few of the many failures of Central Bank policy. Independent or not, these crisis have always resulted in more money for capital, and less money for labour. Crisis will allow political change, which is what politicians desire, as it gives them more power.


    From that point of view central banks have been highly efficient, and clearly, if politicians can pretend there is some independence here for central bankers, then it is not "their fault" if we will have yet another crisis at one time or another in the future ( apoint which you also make), which will yet again result in a transfer of wealth from labour to capital. And an increase in their power base.


    You can, Frances, if you want, completely completely ignore that wealth transfer effect of central bank policy, and argue that that wealth transfer through crisis is not their real purpose. But how come labour always loses out, and capital wins? Whenever there is a crisis?

    But why is it that banks work with minimal capital, still now, years after the crisis? How is it that financial transactions are not taxed, when everything else is? And how come we still have huge derivative positions in the banking sector (not supporting the real economy at all) and only 4% of lending to the real economy from the banks still huge balance sheet?

    Now clearly, any central bank could just say banks should run with 30% capital, not with 1%, and we will tax financial transactions, and derivatives are just betting, not allowed, that would be the end of it. It is just not prudent and does not help the real economy.

    Why don't they?

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    1. Because, Matt, central banks do what politicians want. And politicians want 95% mortgages and lending to small businesses. If 30% capital ratios mean no mortgages with LTVs above 80%, and no lending to small businesses unless they have substantial fixed assets to offer as collateral, then politicians complain about "market failure" and pressure central banks to find ways of getting banks to lend.

      Taxation, even of financial transactions, is fiscal policy and therefore not within the central bank's remit. It is for politicians to decide whether FTT is required.

      You want to ban ALL derivatives? Including forward FX contracts and grain futures? Forward FX contracts are essential hedges for export businesses and grain futures buffer farmers from the effects of swings in world food prices. Do think it through.

      If central banks have conspired to create a wealth transfer from labour to capital and from poor to rich, it is because politicians have wanted them to. I'd say the political imperative from politicians of the Left as much as the Right has been to support capital at the expense of labour. Funny you blame central banks for that.

      Central banks are political institutions. I did say this in the post.

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    2. Public choice theory is about the behaviour of officials as well as politicians and it's not as simple as 'central banks do what politicians want'. Even if the institutional framework can ultimately be traced back to political decisions, it can still give actors (such as central bank governors) considerable discretion.

      I don't know if Draghi spoke to Merkel before suspending ELA to Greek banks but he was under no obligation to do so.

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    3. "I'd say the political imperative from politicians of the Left as much as the Right has been to support capital at the expense of labour. Funny you blame central banks for that. "

      That is true, but we only had one government of the left in the UK in the last 35 years, which believed it had banned "boom and bust" until events proved otherwise. They worked with the banks, through a period of economic growth. And after 2008 they hoped to keep the whole thing afloat in an emergency.

      However, the independent German Bundesbank did push through rate rises against the wishes of the social democratic government in the late 70s, and the Greeks would of course argue that the ECB put political pressure on them recently. So if central banks are really independent from government they have a lot of power which is against the political will of the representatives of the country.

      Even if there is political oversight, almost any action central banks take will redistribute money to the top. Central banks cannot decide on equity capital for banks of 30%, FTT, or stricter derivative rules, but they could recommend it to the government, as it makes banking a lot safer. And a safe banking system is part of their remit.

      It would also make banks a lot smaller and more expensive ( I guess it would be the lending to hedge funds and derivatives which would mainly be affected, banks could still give 95% property loans, but they would now have the capital to pay for bad debts if they go wrong!). But turkeys will not vote for Christmas. That is why there is no drive by the BoE for much stricter rules. They act often like an industry representative for the banking industry.

      So the Bank of England is certainly not a government institution like the Department of Transport or the NHS. Its actions, even when not a conspiracy, (nobody would think there is a conspiracy,the fact that the bosses all central bank bosses come from Goldman Sachs is a pure coincidence) allow banks to create money. If that is made easy and cheap, then the rich get richer. but the risk for all of us is higher. If that is made difficult and expensive, the rich still get richer, but less quickly. And the risk for the rest of us could be made a lot smaller.

      I know this is not what you wrote about in your original text, when you just talked about the narrower role of the BoE to set rates, but I think it is relevant under the heading "Role of the Central bank" generally.

      If we just say, Central Banks have a role in setting regulation for the banking sector, acting as lender of last resort, and as (effective or not, independent or not) setter of interest rates to keep inflation down then that sounds like that are some kind of benign bureaucracy, like a government welfare department.

      And central banks are, but they are providing welfare for the rich and not the poor, by design. We just do not talk about it enough. Easier to introduce a benefit cap, or introduce a bedroom tax.

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    4. Surely the fact that we only had one Left government in 35 years, and many people would say that it was not really Left, supports my point? If voters persistently elect governments that serve capital and the rich, it is hardly surprising if government institutions such as the central bank do so too. Government appoints central bankers, after all.

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    5. Yes but the real question now being posed by the likely election of Jeremy Corbyn as Labour leader is 'could a future government that wished to introduce policies to benefit the majority rather than the rich rely on the support of the central bank?' As Mark Carney has already interfered in the leadership election with comments critical of Corbyn's economic proposals, I doubt it.

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  6. The obvious problem with the twin peak model (CB doing monetary policy and treasury doing fiscal) is that it involves having two bodies responsible for stimulus. That makes about as much sense as having a car with two steering wheels controlled by a husband and wife in the middle of a matrimonial row.

    The obvious potential problem with solving the latter problem by merging CB and treasury is that that gives politicians access to the printing press.

    The solution: merge CB and treasury, but have the TOTAL amount of stimulus decided by an independent committee of economists - perhaps even the existing BoE monetary policy committee. As to the exact way stimulus is delivered (i.e. whether extra stimulus should take the form of spending on health or education or tax cuts, etc) that is a political decision and should be in the hands of politicians.

    And what do you know? That's the system advocated by Positive Money, the NEF and Richard Werner in their submission to Vickers (see p.10-12 in particular.) See link below.

    As for objecting to that because those three authors also advocate full reserve banking in that work, that's not a valid objection, because it would be easy to implement the "independent committee" system without implementing full reserve banking.

    http://b.3cdn.net/nefoundation/3a4f0c195967cb202b_p2m6beqpy.pdf

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  7. Good post and discussion, something I was looking for. One thing not touched upon is the fact that democracy comes in many flavours. I wonder if our duopoly FTP system helps or hinders the 'fiscal policy by electoral cycle' argument, with its narrow representation and tendency against coalitions.

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  8. I tend to agree with Ralph here. Why not have a committee to decide on the amount of stimulus/tightening and choose the best tool for the job. Seems KISS but unrealistic.

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    1. "Unrealistic"? I can't see the problem.

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  9. I think your False Accusation post needs an update to the update :-)

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  10. Re MMT and realism, I do think you miss a few points here:
    1. There is an accounting link between the CB and the Treasury, through debt management policies, which is usually not discussed, ref. some papers by BIS
    2. This validates the MMT position that you could in theory merge the two, and for analytical purposes it might clarify the general discussion as well
    3. This view is eloquently put forward by Faust and Leeper in their recent Jackson Hole paper, ref. their fiscal theory of the price level position
    4. We are currently in a "active monetary/passive fiscal" mode, but nothing universal about this; quite the contrary
    5. NY Fed paper by Sims and del Negro point to the need for CB to have fiscal backstop
    6. My own Levy Economics paper on the treasury - fed accord of 1951 show that Eccles was cognicant of the need to support FDR while at the Fed during the Great Depression, but also of containing inflation in 1951, i.e. central banks should not be absolutely independent
    The problem today seems to be (as pointed out by Wren-Lewis) that first we have told politicians that fiscal policy is impotent or impractical, and that monetary policy should stabilize output and inflation, but as MP now (not surprisingly) is pushing on a string wo effect, it is hard to tell the same group that fiscal policy should be used instead. Therefore we get suggestions of fiscal policy though the back-door, while pretending that CB independence is preserved.
    Perhaps this is required to uphold the fiction about responsible fiscal policy and independent CBs?
    PS. FDR used lots of extra-budgetary tricks to boost fiscal spending, ref. also the story about Jesse Jones and the Reconstruction Finance Corporation; same should be more actively use now as well, especially in boosting necessary public investment expenditures

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    1. I don't think that acknowledging the link between CB and Treasury, or admitting that CB needs fiscal backstop, in any way makes the case for merging CB and Treasury.

      The "fiscal policy is impotent" argument has indeed hamstrung monetary policy. In that respect, mainstream economists (including some central bankers) are reaping what they have sown. However, I suspect that they have promoted this because they know perfectly well that fiscal policy is a lot more powerful than monetary and are terrified of it being in the hand of politicians. They are now acknowledging that fiscal policy has a role - and are promoting "fiscal councils" to remove fiscal policy from political control.

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  11. Well guess then key q is whether all countercyclical policy, incl monetary, fiscal and macro prudential, should be delegated to expert councils? Not very democratic and think you underestimate capacity of democratically elected bodies to act rationally

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    1. I do not support "fiscal councils". I would have thought that could be deduced form the conclusion to this post. As you say, it is hardly democratic.

      However, it is I think as unwise to assume that democratic bodies will always act rationally as it is to assume that markets will all ways act rationally.

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  12. Cb like centralization have proven to be the greatest unnatural disaster ever to hit humanity.
    The long term decline in the real mean standard of living of Dutch and Later English peasantry upon the inception of proto capitalism is proof of this.
    In England the lid was put on the tin box post glorious revolution.
    The average and not mean standard of living only began to rise in core capitalist countries as massive influxes of goods from both colonies and closer peripheral areas filled the market stalls.
    It's very possible that this centralised model of "Development" is imploding.

    Only the creation of indivdual.national credit offices which would distribute the surplus downward can prevent this huge dislocation of humanity which we sadly see happening around us today.

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    1. The role of the CBs is to act as the credit banks little sisters.
      We can see this in the Ireland of today.
      Refer to the Ireland after Nama blog : Irelands new transnational landlords.
      People just fail to grasp the current scale of capitalistic extraction given that national capitalistic operations (nation states)are no more.

      Need I remind you the failed Irish independence drive was initially successful , its core objective while it remained decentralized until "independence " was to reject external land renting activities of whoring and gambling landlords.
      This policy extended into the 1930s and the economic war with England.

      Irish independence has gone full circle thanks to the imposition of a foreign CB which has plotted the nations destruction since day one.

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  13. Bills wild idea seems to credit credit banks ........a strange double credit process.
    But credit banks are extremely wasteful of real resources...........

    Anyhow in the real world of today Irish domestic credit remains extremely negative.
    External credit banks with the backing of their mother CBs have continued the inflation of housing despite its wild abundance.
    ( we are now living inside the wider EU market state)
    To the point where again mean standards of living has collapsed.
    CBs core objective is extraction and subsequent centralization.
    They interfere in a dramatic fashion with inherent demand signals so as to maintain scarcity and therefore freedom for the few and not the many.

    Of course they are elitist pits of despair.

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