Re: financing, funding, etc

[pdavidso <pdavidso@xxxxxxx>]

>===== Original Message From Warren Mosler <mosler@xxxxxxxxxxxxxx> =====
>>
>> Although the US Constitution gives Congress the
>> power to control the money
>> supply -- as long as Congress does not want to print
>> money directly (and if it
>> did[as during the US Civil war when "greenbacks were
>> printed"] the money
>> printed would be an IOU of the government--
>>
>> In the absence of "printing greenbacks, thendeficit
>> spending requires the US
>> Treasury to issue an IOU  to some one-- be it the
>> public or the Federal
>> Reserve.
>
>Yes, but this falls into the category of 'self imposed
>constraint.'  That's like lacing your shoes together
>then saying you can't run.

No by double entry bookeeping, even a grenback has to be a liability of the
Treasury -- annd a liability is, in essence, an IOU.

>Other self imposed constaints include Congressional
>debt limits, etc.

That is known as legal constraints-- an the law often restricts what people
do.
>
>> >>PAUL: That is strange condsidering Warren Mosler's
>> argumen t that if the
>> >>government
>> >>runs a deficit [FISCAL POLICY} it is to provide
>> financial assets to savers
>> >>who
>> >>want to increase their holdings of financial
>> assets.
>>> Interesting point. Can you give an example of the
>> federal government running a
>> deficit and not issuing either "greenbacks" or any
>> other government debt
>> paper?
>
>Sure, Japan deficit spent 20T yen which it leaves
>as excess reserve balances in member bank accounts
>at the BOJ.  These are simply deposits best understood
>as balances credited by the BOJ as payment by the MOF
>when it (deficit) spent.
>


No by double entry bookeeping, this has to be a liability of the Treasury --
annd a liability is, in essence, an IOU.   You can't use double-entry
bookeeping as a basis only when you want to. You point is merely that the IOUs
of the Treasury are simply an IOU from one government agency to another
quasi-government agency.   It still is a liability -- even though you can ague
the BOJ will never call the government to "cover" its IOU.

>
>>
>>
>>>
>> If everyone in the private sector suddenly "is not
>> happy" with its portfolio
>> and they decide they want to "liquidate" , say,
>> their stock market holdings to
>> obtain cash to spend on goods and services ,-- i.e.,
>> when the bubble bursts--
>> where does the public get these funds equal to the
>> value of their portfolio
>> before the bubble bursts?
>
>First, they will not get funds equal to 'valuations'
>before the bubble burst, by definition.
>
>When someone sells secs, funds come from the (non
>govt) agent who buys them.

But that merely means that someone (in the privater sector) wants to increase
his/her net holding of financial assets to offset the person who wants to
reduce one's holdings of financial assets


>The total shares outstanding remains the same.
>Funds exchange hands.  Prices fluctuate as buyers and
>sellers interact.

Exactly, the private sector, in this example, has no net change in their
desire to hold financial assets "on the spot". Stoc demand equals stock
supply.

But the question was when, in the aggregate, the entire private sector wants
to reduce its holding of financial assets, and therefore  the bubble bursts
and the market maker cannot match sales with purchases-- e.g., circuit
breakers at the NYSE, in Hong Kong stock market in 1998, etc. --

Suddenly the liquidity of the market dries up -- and remains that way until
for example either the central bank or someone pumps liquidity back into the
market, e.g., the government runs a surplus and buys back outstanding
.securities.

>
> Or are you saying that if
>> the central bank moves in
>> and buys up all the equities offered to sale at the
>> last price before the
>> bubble burst, then it is monetary policy tha has
>> provided the iquidity
>> desired.
>
>I'd call that fiscal policy, looking at it
>functionally, even though the cb does it.
>A loan from the cb would be closer to monetary
>policy in my book, but the line is blurred under
>close examination.


But BILL MITCHELL insisted it is not fiscal policy it is monetary policy and
fiscal policy has nothing to do with anything!

>
> If the latter is what you are saying, then
>> why don't you say it?

Warren we tend to agree on the mechanism although we may use different
terminology.  I can not say the same for Bill's tortured taxonomy.

>> Of course it is the function of the central bank to
>> take care of liquidity!
>
>The cb is permitted to do this, not specifically
>required best I can determined, and it usually
>involves its lending function.

According to the legislation setting up the Federal Reserve system the Fed is
responsible for providing " an eleastic currency".

Paul

Paul Davidson
Editor, Journal of Post Keynesian Economics
University of Tennessee
SMC 503
Knoxville, Tennessee 37996-0550
phone # (561)369-1951; fax #(561)369-1951;
email pdavidson@xxxxxxx
http://econ.bus.utk.edu/davidsonextra/Davidson.html