Re: financing, funding, etc

[Warren Mosler <mosler@xxxxxxxxxxxxxx>]

--- Warren Mosler <mosler@xxxxxxxxxxxxxx> wrote:
> Date: Mon, 3 Feb 2003 07:36:38 -0800 (PST)
> From: Warren Mosler <mosler@xxxxxxxxxxxxxx>
> Subject: RE: financing, funding, etc
> To: pdavidso <pdavidso@xxxxxxx>
>
>
>
> > >
> > >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.
>
> OK, I see your point.  My point is that the process
> of crediting $US to a member bank fed account to
> make
> payment on behalf of the US govt. is not 'revenue'
> constrained.  The only constraints are self imposed
> by
> govt.
>
> >
> > >Other self imposed constaints include
> Congressional
> > >debt limits, etc.
> >
> > That is known as legal constraints-- an the law
> > often restricts what people
> > do.
>
> Right.  And they could pass a law that payment could
> only be made on Friday, etc.  My point remains that
> the only constraints on payment are self imposed,
> as above.  In otherwords, social security checks
> won't bounce unless govt decides to bounce its own
> checks.
>
>
> > >
> > >> >>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.
>
> Yes, and again, you are pointing at self imposed
> constraints?  And there are others in Japan,
> including
> restrictions on the BOJ buying fx for its own
> account
> (only the MOF can do it).
>
> (also, if I recall correctly, doesn't
> 'double entry' refer to using both income statements
> and balance sheets?)
> >
> > >
> > >>
> > >>
> > >>>
> > >> 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
>
> Yes, if they want more it simply can't happen
> without
> some other sector going into debt.  So the condition
> of unfulfilled desires to net save of a sector
> is evidenced by excess capacity, unemployment,
> deflationary bias, etc.  Govt deficit spending is
> the
> only source of net financial assets for the non
> govt sector, etc.
>
> >
> >
> > >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--
>
> Right.  You are here looking at investors desiring
> to
> switch asset classes, in this case from equities
> to cash, bonds, real estate, gold, whatever.
> This will be evidenced by changing prices as
> indifference levels are altered.
>
> This by itself does not lead to excess capacity,
> unemployment.  The 1987 crash for example did not
> dampen aggregate demand.  I suggest that was because
> there was sufficient govt deficit spending such
> that income held up and final sales/gdp was
> sustained.
>
>
> Recently, to the contrary, the govt had been
> draining
> net financial assets from the non govt sector via
> it's tax structure/surplus, etc. and only a burst
> of accelerating non govt debt, y2k spending, etc.
> finance available to impossible business plans, etc.
> kept employment growing for a couple of more years.
> When that bubble burst agg demand was unable to hold
> up
> and continues to weaken.
>
>  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.
>
> ???  A govt surplus removes effective demand.  They
> would need to buy stuff with deficit spending to
> support an expansion?
>
> Also, 'liquidity pumping' by the Fed is a matter of
> loans and loan guarantees.  Buying securities is
> functionally the same a making loans.
>
> >
> > >
> > > 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!
>
> I didn't read his remarks that way, and I'm pretty
> sure he agrees with the above, though I haven't
> seen all he has typed recently.  But so be it!
>
> >
> > >
> > > 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.
>
> Yes.
>
> >
> > >> 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".
>
> Rubber checks?????????
>
> Best!
>
> Warren
>
> >
> > 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
> >
>
>
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>
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