Berlin

12 May, 2022 at 08:09 | Posted in Varia | 1 Comment

beerlinbild

Touring again.

Guest appearance​​ in Berlin.

Regular blogging to be resumed next week.

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  1. Charles Dubois, may I respond here to your last comment, since the other thread has been closed? May I start by referring you to Perry Mehrling: https://sites.bu.edu/perry/2016/01/27/great-and-mighty-things-which-thou-knowest-not/?
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    Can you see how I can easily use your dry cleaner example to demonstrate that balance sheets can remain expanded indefinitely? (In the linked Mehrling blog, he describes it as: “no saving and no investment, but the new money stays in circulation and is not destroyed.”)
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    Say the dry cleaner buyer defaults, but the bank sells the loan (perhaps bundled with many other loans) to the Fed? Does the loan liability in that case not disappear? If the Fed buys a non-performing loan, does it ever have to destroy the money created to make the loan? In practice, does it simply not mark up reserves, but after the net financial asset was created by the private sector? Thus, can we say that both private and government sectors have the ability to create new net financial assets, and the private financial sector does this on a scale of trillions of dollars per year?
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    As for “export warrant” (a phrase frequently used by Lars), may I offer my own in the form of this BIS working paper: https://www.bis.org/publ/work963.htm
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    “The Fed’s forceful response to pandemic-induced turmoil in financial markets shored up investor confidence and improved market sentiment, effectively forestalling fire sales and stabilising conditions in the market well before the Fed bought anything.”
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    In other words, can we easily tell a story where the financial sector has a lot of assets on its books that correspond mostly to equity on the liability side, and the Fed implicitly guarantees this equity created out of balance sheet manipulations?
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    What happens to your model if Net Financial Savings >> 0?


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