MMT perspectives on rising interest rates

14 Dec, 2020 at 12:24 | Posted in Economics | 34 Comments

The Bank of England is today wholly-owned by the UK government, and no other body is allowed to create UK pounds. It can create digital pounds in the payments system that it runs, thus marking up and down the accounts of banks, the government and other public institutions. It also acts as the bank of the government, facilitating its payments. The Bank of England also determines the bank rate, which is the interest rate it pays to commercial banks that hold money (reserves) at the Bank of England …

The Great Unwind: What Will Rising Interest Rates Mean for Bank Risk  Exposures? The interest rate that the UK government pays is a policy variable determined by the Bank of England. Furthermore, it is not the Bank of England’s remit to bankrupt the government that owns it. The institutional setup ensures that the Bank of England supports the liquidity and solvency of the government to the extent that it becomes an issuer of currency itself. Selling government bonds, it can create whatever amount of pounds it deems necessary to fulfil its functions. Given that the Bank of England stands ready to purchase huge amounts of gilts on the secondary market (for “used” gilts), it is clear to investors that gilts are just as good as reserves. There is no risk of default …

The government of the UK cannot “run out of money”. When it spends more into the economy than it collects through taxes, a “public deficit” is produced. This means that the private sector saves a part of its monetary income which it has not spent on paying taxes (yet). When the government spends less than it collects in taxes, a “public surplus” results. This reduces public debt. That public debt to GDP ratio can be heavily influenced by GDP growth, which explains the fall in the public debt to GDP ratio in the second half of the 20th century …

So, do rising interest rates in the future create a problem for the UK government? No. The Bank of England is the currency issuer. There is nothing that stops it from paying what HM Treasury instructs it to pay. Gilts can be issued in this process as an option. The government’s ability to pay is not put into doubt since the Bank of England acts as a lender of last resort, offering to buy up gilts on the market so that the price of gilts can never crash. Higher interest rates cannot bankrupt the UK government.

Dirk Ehnts

One of the main reasons behind the lack of understanding that mainstream economists repeatedly demonstrate when it comes to these policy issues is related to the loanable funds theory and the view that governments — in analogy with individual households — have to have income before they can spend. This is, of course, totally wrong. Most governments nowadays are monopoly issuers of their own currencies, not users.

The loanable funds theory is in many regards nothing but an approach where the ruling rate of interest in society is — pure and simple — conceived as nothing else than the price of loans or credit, determined by supply and demand in the same way as the price of bread and butter on a village market. In the traditional loanable funds theory the amount of loans and credit available for financing investment is constrained by how much saving is available. Saving is the supply of loanable funds, investment is the demand for loanable funds and assumed to be negatively related to the interest rate.

There are many problems with this theory.

Loanable funds theory essentially reduces modern monetary economies to something akin to barter systems — something they definitely are not. As emphasised especially by Minsky, to understand and explain how much investment/loaning/ crediting is going on in an economy, it’s much more important to focus on the working of financial markets than staring at accounting identities like S = Y – C – G. The problems we meet on modern markets today have more to do with inadequate financial institutions than with the size of loanable-funds-savings.

A further problem in the traditional loanable funds theory is that it assumes that saving and investment can be treated as independent entities. This is seriously wrong.  There are always (at least) two parts in an economic transaction. Savers and investors have different liquidity preferences and face different choices — and their interactions usually only take place intermediated by financial institutions. This, importantly, also means that there is no “direct and immediate” automatic interest mechanism at work in modern monetary economies. What this ultimately boils down to is that what happens at the microeconomic level — both in and out of equilibrium —  is not always compatible with the macroeconomic outcome. The fallacy of composition has many faces — loanable funds is one of them.

All real economic activities nowadays depend on a functioning financial machinery. But institutional arrangements, states of confidence, fundamental uncertainties, asymmetric expectations, the banking system, financial intermediation, loan granting processes, default risks, liquidity constraints, aggregate debt, cash flow fluctuations, etc., etc. — things that play decisive roles in channeling​ money/savings/credit — are more or less left in the dark in modern formalisations of the loanable funds theory. Thanks to MMT that kind of evasion of the real policy issues we face today, are now met with severe questioning and justified critique.

34 Comments

  1. Philips P. views might unfortunately play out the way Brexit is being handled.

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    – Naomi Klein “En rockstjärna inom sitt fält” – The Times
    “Den här boken kommer att bli inflytelserik” – Financial Times

    “Oavsett vilken utmaning vi står inför – att stärka sjukvården, skapa nya jobb eller förhindra en klimatapokalyps
    – uppstår oundvikligen samma fråga: Hur ska vi betala för det?
    I Underskottsmyten visar Stephanie Kelton att den frågan är missriktad. Allt vi har fått lära oss om pengarnas och
    de statliga utgifternas roll i ekonomin är fel – i synnerhet tron att underskott äventyrar vårt långsiktiga välstånd.
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    hon oss att fråga: vilka underskott har faktiskt betydelse?
    Stephanie Kelton är den ledande tänkaren och mest kända förespråkaren för modern penningteori (MMT)
    – den viktigaste idén inom nationalekonomin på årtionden.
    Här erbjuder hon en radikalt annorlunda och djärv vision för hur vi kan bygga ett rättvist och välmående samhälle.”
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  3. MMT ignores Eurosterling. See https://financial-dictionary.thefreedictionary.com/Eurosterling+Bond
    .
    > A bond denominated in British pounds issued by a non-British company outside the United Kingdom. It is important to note that these are traded worldwide, not just in Europe. Like other Eurocurrency securities, Eurosterling bonds are subject to fewer regulatory restrictions because the central bank that issued the currency (in this case, the Bank of England) does not have any jurisdiction over the pounds because the bonds are issued and traded outside Britain. For example, an American company may issue a Eurosterling bond to attract non-British sterling investors for its financing needs.
    .
    When you add clearinghouses, you get Sterling traded that were created by private firms. Thus, the UK is not a monopoly issuer of its own currency.
    .
    “Thanks to MMT that kind of evasion of the real policy issues we face today, are now met with severe questioning and justified critique.”
    .
    You don’t need MMT to criticize real policy issues. MMT has too much theoretical baggage, such as a naive fetishization of abstract sectoral balance sheets that are defined to net to zero; in reality, they balance to Net Worth.

    • Robert,
      .
      “….you get Sterling traded that were created by private firms.”
      .
      Please explain how.

      • A US company issues a bond denominated in Sterling. The buyer uses Sterling issued by a private bank or clearinghouse to buy it. Those pounds were not issued by the Bank of England. The clearinghouse debits the buyer’s account and credits the seller’s account. The BoE need not be involved at all. The bond seller holds the Sterling in the clearinghouse account; if it wishes to spend the pounds, it might buy an asset from another clearinghouse member. Again, the clearinghouse simply debits one Sterling account and credits another; the BoE never issued any Sterling to cover these Sterling-denominated transactions. The Eurosterling can remain in this private system, which is totally outside of the BoE’s control, indefinitely.
        .
        If, eventually, a holder of Eurosterling wants actual cash banknotes, at that point the clearinghouse or bond issuer can borrow BoE-issued sterling. The BoE will print it after the fact, if necessary.
        .
        Imagine a 30-year Eurosterling bond that stays in the private clearinghouse system for 30 years; the seller keeps making Sterling transactions with other clearinghouse customers, so the sterling never has to leave the clearinghouse system. The BoE never issued any sterling, yet the clearinghouse customers are transacting in Sterling that they created.
        .
        Maybe after the 30-year bond comes due, at that point the issuer borrows BoE-issued sterling to cover the cash payout. But the BoE can just print new Sterling at that point. The privately-created Eurosterling could have circulated for 30 years without involving the BoE, then when it needs to be monetized in BoE sterling, the BoE can easily expand its balance sheet to make a loan.
        .
        See https://ondemand.euromoney.com/the-sterling-bond-market/
        .
        > What is the impact of the Sterling bond market?
        > On a bank – typically, deposits alone will not be enough to fund lending to retail customers; banks will also need capital in their balance sheet to satisfy regulators that they have enough of a buffer to absorb losses in the event of a crisis. Much of this buffer is typically made up of debt instruments.
        .
        Those debt instruments can be privately-created Eurosterling bonds. The BoE never issued the Sterling that they are denominated in. The bank can hold those bonds for a long time, and report them as Sterling assets, and transact within the clearinghouse system in Sterling, without involving the BoE.
        .
        MMT completely misses this crucial component of international finance.

      • Shorter version: Eurosterling are promises to pay BoE-issued sterling, but those IOUs can circulate indefinitely within the international financial system. At time of issue, the Sterling promised has not yet been issued by the BoE

  4. @rsm/Robert,
    You are right in saying “MMT ignores EuroSterling”.
    .
    But note that MMT also ignores Koala Bears, and for the same reason.
    This reason is that the existence of EuroSterling and Koala Bears have no significant implications for MMT.
    .
    You fail to mention the relevance of EuroSterling bonds to MMT.
    In the absence of this connection, your comments here are irrelevant and off-topic.

    • Kingsley,
      .
      MMT maintains that sovereign nations such as the UK are monopoly issuers of their own currency.
      .
      Eurosterling are IOUs that circulate just like Sterling in normal times, settling debts, even paying taxes.
      .
      In crises, the Bank of England prints (digitally) new Sterling to backstop the privately-created IOUs.
      .
      In other words, Sterling today can be seen something like gold used to be: supposedly, paper money was redeemable in gold on demand, but the paper money often exceeded the amount of gold. Today, there are estimates that paper gold is 16 times the physical gold (see https://intelligent-partnership.com/paper-gold-volumes-vs-physical-gold-volumes/ ).
      .
      MMT adopts the position that only the BoE can create pounds; but this ignores the IOUs to pay pounds that circulate at par with real pounds.
      .
      In crises, as has been amply demonstrated in 2008 and again in 2020, the BoE will create new “official” pounds to backstop the huge volumes of private IOUs to pay pounds.
      .
      MMT simply hand-waves away the very real effects of IOUs to pay pounds that circulate as “official” pounds.
      .
      In other words, MMT maintains that the BoE is strictly in control of the supply of pounds; but in reality, the BoE merely passively creates more pounds as needed to backstop private pound creation.
      .
      Eurosterling, or private IOUs to pay real sterling, result in a lot of real economic activity. Like I say, if the UK has anything like the US Treasury Tax & Loan program, you could pay UK taxes in Eurosterling, which were not created by the BoE.
      .
      I hope I’ve elucidated the relevance of my comments. If not, please ask!

  5. Robert,
    Thanks for your response. This exposes several misunderstandings.
    —–
    You claim that “Eurosterling …result in a lot of real economic activity.”
    This is incorrect. Eurosterling bonds are merely one of many alternative sources of finance available to private companies. They may sometimes have limited advantages for a small fraction of private investment, but these advantages will rarely be sufficient to influence whether investments take place.
    —–
    Very serious is your apparent ignorance of MMT when you claim that
    “MMT adopts the position that only the BoE can create pounds…this ignores the IOUs to pay pounds that circulate at par with real pounds”.
    In fact MMT emphasises the distinction between the monetary base M0 and the broader money supply.
    The following quotes are from MWW:
    Mitchell, Wray & Watts “Macroeconomics” 2019
    https://b-ok.asia/book/5632239/0abbfc
    “M1 typically comprises notes and coins in circulation plus current bank deposits held by the private non-bank sector…It is also a liquid measure of the money supply because its components are readily available to be used for spending on goods and services.” (MWW p.148)
    —————
    You claim that “Eurosterling are IOUs that circulate just like Sterling in normal times, settling debts, even paying taxes.”
    This is simply untrue. Eurosterling bonds are not counted in even the broadest definitions of the money supply. Try to pay a bus fare with a Eurosterling bond!
    ————
    You also misrepresent MMT when you claim that “MMT maintains that the BoE is strictly in control of the supply of pounds.”
    In fact MMT’s position is completely the opposite.
    “Central banks now pay little attention to the growth rates of monetary aggregates, realising that they can really only set the price (typically the overnight interest rate), which has only an indirect impact on the quantity of reserves and the quantity of privately created money – and hence the money supply.” (MWW p.362. See also p.157)
    —-
    You mention that “In crises, the Bank of England prints (digitally) new Sterling to backstop the privately-created IOUs…as has been amply demonstrated in 2008 and again in 2020”.
    Yes, but this is irrelevant.
    Crisis bailouts etc. not paid to private companies to help them service their Eurosterling debts.

    You say “Sterling today can be seen something like gold used to be”.
    Wow!!

    • MMT is inconsistent; if the UK is a monopoly issuer of its currency, how can banks issue pounds too?
      —-
      “Try to pay a bus fare with a Eurosterling bond!”
      .
      I can get a loan in Eurosterling to buy a house, and the seller can put the money back in the same bank, all without involving the BoE. The shadow bank expands its balance sheet and simply debits one account while crediting another. Thus a real house can be bought with pounds that were not issued by the UK. Thus Eurosterling should be considered part of the Sterling money supply. The problem is, you cannot get an accurate measure. But this just means, again, that the UK is not a monopoly issuer of its own currency, something that MMTers repeat a lot (and which prompted my first comment to this post).
      .
      For more on this, see https://seekingalpha.com/article/2961016-the-feds-quandary-with-uncle-ed-eurodollar
      .
      > From January 2015, BIS working paper 483: […] “dollar funding flowed into the U.S. through non-US headquartered banks’ balance sheets.”
      .
      The UK experiences the same phenomenon: Eurosterling funds purchases of real goods (such as houses) and services inside the UK.
      —-
      “Central banks now pay little attention to the growth rates of monetary aggregates, realising that they can really only set the price (typically the overnight interest rate), which has only an indirect impact on the quantity of reserves and the quantity of privately created money – and hence the money supply.”
      .
      This quotation is inconsistent with “the UK is a monopoly issuer of its own currency.”
      —-
      Sterling can be seen as gold used to be, but when there is a run on Sterling, the BoE has an unlimited supply of “gold” to satisfy the demand.
      —-
      “Crisis bailouts etc. not paid to private companies to help them service their Eurosterling debts.”
      .
      Yes, they are. Can you prove otherwise? How can you be sure? Cenral bank currency swap lines backstop the Eurodollar and Eurosterling markets.

  6. Robert,
    .
    “The buyer uses Sterling issued by a private bank or clearinghouse to buy it. ”
    .
    Can a clearinghouse create a sterling credit out of thin air.? That is a banking operation which would require a bank licence. Yes or no?
    .
    Why would a bond buyer borrow sterling from a private bank to fund a bond purchase?

    • No, clearinghouses and shadow banks do not require a UK bank licence.
      .
      Quoting Milton Friedman, quoted in the link supplied in my reply to Kingsley above:
      .
      “Eurodollar banks are subject to the regulations of the relevant banking authorities in the country in which they operate. In practice, however, such banks have been subject neither to required reserves on Eurodollar deposits nor to maximum ceilings on the rates of interest they are permitted to pay on such deposits.”
      .
      Eurosterling are likewise not subject to UK laws.
      .
      “Why would a bond buyer borrow sterling from a private bank to fund a bond purchase?”
      .
      Because it has an attractive return, which is paid in Eurosterling that can be used to buy a house (for example) in the UK. The UK never need issue any sterling used in the purchase. Thus the UK is not a monopoly issuer of its currency, as was claimed in the original post by Professor Syll above …

    • Another source: https://www.ft.com/content/033a7ad2-9762-35c9-a0e5-f59ea2968757
      .
      > Everything begins and ends with the Fed having to uphold the integrity of the so-called “eurodollar” […] eurodollar liability creation is based on the rules of foreign lands, and in the worst case scenario (just like err, Bitcoin) no rules at all.
      .
      Eurosterling is the same. Banks issuing Eurosterling do not need UK bank licences.
      .
      > The problem for the US is that because these [Eurodollars, and likewise Eurosterling for the UK] mimic conventional dollars [or Sterling] so well, they end up feeding back into the domestic network
      .
      Thus to address Kingsley’s objection, you absolutely can pay for UK bus fare with Eurosterling using a bank card …

  7. Robert,
    .
    “No, clearinghouses and shadow banks do not require a UK bank licence.”
    .
    It does not seem plausible that clearing houses could create sterling credits at whim, to any quantity, unregulated.
    .
    It makes a nonsense of the banking system and banking laws.

  8. Robert,
    .
    My point is that these shadow banks do not create money.
    .
    They are intermediaries.

    • Henry,
      .
      Shadow banks are not regulated, so how can you know? They create credit that circulates like central bank money until a crisis, when central banks print (digitally) new money to backstop, after the fact, the created credit.
      .
      MMT fails to realize just how much the financial dog wags the central banks as a tail. Shadow banks create IOUs and central banks buy the IOUs as needed.
      .
      “Intermediaries” create money too, but states can regulate traditional banks (although the Fed recently set fractional reserve requirements to zero, meaning US banks can create as many deposits as they wish without needing any reserves to back them).
      .
      Shadow banks are outside the regulatory authority of states. Why wouldn’t they create money?

      • “Shadow banks are outside the regulatory authority of states. Why wouldn’t they create money?”
        .
        They recycle money, not create it.

        • Shadow banks create IOUs (unregulated by states). Intermediaries have always done this. The IOUs circulate at par with state currencies. Central banks backstop the IOUs by printing in panics.
          .
          See this recent BIS paper: https://www.bis.org/publ/bisbull34.pdf
          .
          2020 saw over $2 trillion in increased liquidity, representing ” the ‘elastic’ nature of the global banking system (central bank plus commercial banks)”. Elastic means the private unregulated shadow banks expanded the dollar supply, backed only partly by central bank currency swaps.
          .
          > the global supply of US dollars expands on account of both the Fed’s injection of reserves into the US banking system and the increase in non-resident dollar deposits in US-based banks. In this way, the swap lines leverage on the “elasticity” of the Fed’s and commercial banks’ balance sheets to offset rising demand for dollar liquidity. This “grand dollar overdraft” reflects the Fed’s critical role as a backstop for the dollar-based global financial system.
          .
          If you read that carefully, they are saying that private off-shore (unregulated) banks are creating the means of payment, i.e. dollars; the Fed backstops such private dollar creation as needed.
          .
          > Such injections of liquidity flow across borders and show up in the form of a rise in cross-border interbank and intragroup claims. These represent the increase in non-resident holdings of the means of payment that helps to stabilise global dollar liquidity conditions.
          .
          Translation: the increase in non-resident holdings is mostly shadow-bank created money, with a backing of Fed swap line dollars that they are promising to pay but may never need to pay.
          .
          Your “recycle money” model simply cannot account for a $2+ trillion increase in the means of payment in a few months.

        • Where non banks are mentioned in the BIS paper it is in relation to deposits obtained from banks.
          .
          Shadow banks create credit, not money. They do this by borrowing funds and on lending them.

          • I’m reminded by Bill Blacks example of a sub prime mortgage lender bank in Long Beach, that got caught out issuing predatory control fraud sort of loans, and once tagged BK’ed, only to resurrect as a non regulatory mortgage broker.

            Hence the legal construct proceeds any notion of money and its denotation.

          • “The use of the swap lines expands the balance sheets of the central banks as well as those of the commercial banks in both countries.”
            .
            Before the crisis, shadow banks had a lot of dollar-denominated assets, created out of thin air. During the crisis, those assets were converted to dollar deposits. The assets were created first, and later monetized through balance sheet expansion by both commercial and central banks.
            .
            Shadow banks create dollar-denominated assets that are turned into money as desired.

          • Another relevant, recent post saying what I’m saying:
            .
            https://www.realclearmarkets.com/articles/2020/12/18/vaccine_euphoria_and_inflation_hysteria_obscure_dollar_problem_653661.html
            .
            > The fuzzy nature of collateral underpins everything; money dealers’ money dealing activities up and down the line, all across this global eurodollar system, depend upon collateral as its entire basis. From derivatives to plain vanilla lending, in the middle of all of it are these really complicated ways that securities are used and, really, abused as a “normal” part of doing business in this modern global money framework.
            .
            Shadow banks create securities on spreadsheets and value them arbitrarily, in dollars. They sell the securities to commercial banks for bank money created as loans, but which are not necessarily subject to Fed regulations (note that the Fed set fractional reserve requirements to zero this year, acknowledging that they were always an ineffectual regulation). Thus shadow banks together with commercial banks expand the dollar supply (also pounds) without necessarily involving the relevant central banks.
            .
            > The problem was Economics, more specifically econometrics.
            .
            Your simplistic model of recycled money was, and still is, the problem.

  9. Robert,
    All your blather about fluctuations in world dollar and/or sterling liquidity is just a reincarnation of archaic monetarist thinking.
    .
    I have already pointed out that the MMT view is:
    “Central banks now pay little attention to the growth rates of monetary aggregates, realising that they can really only set the price (typically the overnight interest rate), which has only an indirect impact on the quantity of reserves and the quantity of privately created money – and hence the money supply.” (MWW p.362. See also p.157).
    .
    So your comments here remain entirely irrelevant and off-topic.

    • Kingsley,
      .
      MMT has the interest-rate focus wrong, as usual. See https://www.wsj.com/articles/interest-rates-wont-work-against-coronavirus-11583766853 (note that this piece was written in March of 2020, before the Fed expanded its balance sheet by $3 trillion in three months):
      .
      > The world’s major central bankers and commentators fetishize interest rates.
      .
      MMT fetishizes interest rates.
      .
      > Interest rates as a gauge of the Fed’s monetary-policy stance were—and are—no better than flying blind.
      .
      The Fed dropped interest rates in the Depression, which MMT and mainstream economists think necessary and sufficient. But it didn’t work. MMT, and the mainstream, are wrong about interest rates being the only response in panics.
      .
      > Monetary policy today has become detached from reality and the needs of markets. It is driven by misleading theories about what interest rates can achieve. Contrary to popular belief and the wisdom of crowds, monetary policy isn’t about interest rates. It is about providing the right amount of funding—the right quantity of money.
      .
      This passage testifies to the ignorance of both MMT and traditional economics.
      .
      > the Fed needs to supply liquidity to deal with the panic—whether by quantitative-easing purchases of long bonds, by Treasury bill purchases, by repos or, most important, by increasing the amounts of U.S. dollar swaps available to the central banks of Japan, China, South Korea, Taiwan and Hong Kong.

      This is what the Fed did, along with dropping interest rates. The expansion of the money supply served to monetize previously-created shadow bank dollar-denominated collateral, which was created out of thin air.
      .
      The relevant point here is: shadow banks create collateral out of thin air, assign an arbitrary dollar value to the collateral, and monetize it. The money supply expands as needed to meet the arbitrarily assigned collateral values.
      .
      Keep trying …

  10. Robert,
    .
    “Another relevant,……”
    .
    Can’t see the connection.
    .
    “Thus shadow banks together with commercial banks expand the dollar supply (also pounds) without necessarily involving the relevant central banks.”
    .
    The commercial banks create the money – the shadow banks do not create the money, they merely recycle it.

    • Where was $2+ trillion recycled from?
      .
      The relevance is that shadow banks create collateral, arbitrarily assign a dollar value to it, and monetize it for newly-created bank dollars. Recycling money is not involved.

      • How do shadow banks create collateral?

        • Henry,
          .
          Short answer: they write figures in spreadsheets.
          .
          https://mises.org/wire/role-shadow-banking-business-cycle provides a longer answer (despite my prejudice against Austrian economists’ conclusions, their analysis is often spot-on):
          .
          > The aim of this article is to fill this gap, by showing how shadow banking impacts the credit expansion and, thus, the business cycle. The main findings are that securitization increases the traditional banks’ ability to expand credit, while collateral intermediation additionally enables shadow banks to create credit themselves.
          .
          See https://www.federalreserve.gov/monetarypolicy/files/FOMC20080916meeting.pdf for Dudley’s explanation:
          .
          > We give them Treasuries, and they give us other stuff.
          .
          “Other stuff” had been created on shadow bank spreadsheets, as IOUs, before the Fed had to get involved by accepting the arbitrary assigned value to the collateral (i.e., “other stuff”).
          .
          The upshot of all this is that private entities outside of a currency-issuing state’s control create credit, denominated in state currencies, that trades at par with state-issued currency. Central banks ensure the par value. MMT and traditional economics ignore this vast credit creation that occurs outside the state’s control.

      • “The upshot of all this is that private entities outside of a currency-issuing state’s control create credit”
        .
        That’s what I am saying. However, they do not create money.

  11. Henry,
    .
    “My point is that the textbook view, in which banks mainly take deposits from households and create credit upon them, is no longer valid.”
    .
    The author is referring to the “recycled money” model you present.
    .
    “I do not argue that these wholesale deposits, or repo transactions, are money proper. However, the key is here to notice that in the contemporary economies there are many money-like assets (and distinct forms of money for different economic agents). I agree that short-term liabilities issued by shadow banks may not be immediately used as means of payment, but they may be converted on demand at par to money proper, hence they are a close substitute (Michell, 2016).”
    .
    Shadow banks create credit that circulates at par with state currencies, unregulated by the relevant states.
    .
    “The current definition of money supply is too narrow and not sufficient to understand the contemporary economy (Pozsar, 2014). According to Pozsar (2014), the monetary aggregates do not include the instruments that asset managers use as money, particularly repos. As far back as 1935, Hayek (1935, pp. 411–412) doubted whether is it possible to draw a sharp line between what is money and what is not, and noted that all sorts of ‘near-money’ had already existed in his time. Hence, economists should, perhaps, also include in their monetary analysis ‘shadow’ money and re-use of collateral (Singh, 2012, p. 14–16).”
    .
    Shadow banks create money.
    .

    • Shadow banks create money as you idiosyncratically define it.

      • Money, as today’s reality defines it. Financiers make a Nobel Prize every year in bonus money that is shadow-bank originated. Your definition of money is the idiosyncratic, fantastical, theoretical, unconnected-to-reality one …


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