Re: General Theory Seminar--Moore (reply to Mosler)

[Warren Mosler <mosler@xxxxxxxx>]

mike sproul wrote:

> Warren:
>
> By 'green money' I meant what is commonly called base money: coins,
> cash, and reserves. I would definitely not include Treasury securities.

You are welcome to define Green Money as you please, of course.

I put Tsy secs, for private sector liquidity purposes in the same category
as bank CD's.

And, of course, govt deficit spending shows up as some combination of cash,
reserves (clearing balances at the Fed), and tsy secs.


>
> To use your bean analogy, there are base beans (actual beans) and
> derivative beans (claims to beans, or 'open interest'). If a trader
> issues a 'derivative bean', then that is his liability. In no sense do
> Treasury securities substitute for derivative beans. The trader might
> own some T-bills as his asset, and some of those T-bills might even back
> his issue of derivative beans, but they are not part of open interest in
> beans. Neither are Treasury securities part of open interest in base
> money.

Tsy secs are an 'account' at the Federal Reserve Bank as are reserves
(clearing balances).  The difference is that Tsy secs offer an interest rate
and have a
maturity.  This is functionally the same as a commercial bank offering
checking accounts and savings account.  Note that as it 'offsets operating
factors'
the Fed is offering interest bearing accounts (tsy secs) as an alternative
to non interest bearing deposits (reserves).

Likewise, reserve requirements are analagous to what commercial banks
call 'minimim balance requirements' in their various accounts.  Fall below
the minimum required by any bank and suffer the penalties.


>
>
> "Just like buying of bean futures can raise both the spot and forward
> price of beans borrowing to make purchases can drive up prices."--Mosler
>
> ANSWER: you forget that every purchase of beans is also a sale. Open
> interest in beans can be large or small without affecting the price of
> beans.

Exactly my point.  Nor does the size of the 'M's' necessarily determine the
'price level' of the currency.  Both are 'open interest.'   And the value
of the underlying commodity/currency moves as indifference levels
change.  In both cases, for example, rising 'open interest' can be
associated
with movement up or down.

>
>
> I don't follow your meaning when you say "the price level is a function
> of prices paid by govt..."
>

The issuer of the currency (government) is the single supplier of that which
it demands for payment of taxes and other debts to the government.  Single
suppliers are 'price setters.'

>
> I'm probably the same Mike Sproul you remember. I don't think there's
> another one in the econ profession, and I did send around a paper on the
> real bills doctrine a few years ago.

OK, and it looks like we probably still have our differences of opinion on
the operational aspects of the clearing system.

Warren

>
> --Mike Sproul