The American Monetary Institute has invited me to speak at their 2010 Monetary Reform Conference, at the University Center in downtown Chicago, between September 30th and October 3rd. I have agreed, though since this is in the middle of a teaching period for me it will be a “lightning trip” to the USA–leaving Sydney on Wednesday 29th and leaving Chicago on Monday 4th.
I’ll give a presentation covering the statistics on the debt-driven process that led to the economic crisis, an explanation of how money is created in a pure credit economy (based on my “Roving Cavaliers of Credit” post on this blog), and a model of debt-deflation as covered in my recent talk in New York.
If you’d like to attend the conference, the organisers have agreed to give a $45 discount on the $395 registration fee to anyone who is referred from my blog. If you’d like to attend, click here to send an email to reserve a place at the conference. They don’t have an online fee payment system for the conference, though you can use their PayPal link to pay your fee. Alternately, you can send a check to:
American Monetary Institute
P.O. Box 601
Valatie, NY 12184
Ph: 224-805-2200
I hope to see some of you there.
July 21st, 2010 at 1:36 pm
Steve,
With all of your intl. conferences, how do you cope with the jet lag
?
Ex. If you go from LA to Syndey, it’s what, 18 hours? If you go the opposite way, it’s 24 hours. Plus extra legs to NY or wherever.
July 21st, 2010 at 1:50 pm
Steve
I’ve posted links to this site on a number of occassions and not received a response. I thought that was because you thought government could not control private money creation which is essentially what the money institute wants to do, and therefore you were not interested in this organisation.
That private creation of money leads to destructive speculation I think we all agree on. To control speculation you want to get to the root of what drives it and for you I think the root is the legal property of shares that allows them to be unlimitedly traded.
I’ve heard fairly broadbrush reasons for your preference for changing the legal structure of share ownership, however, I’ve never been able to convince myself just based on this.
Could you explain or direct to more detailed evidence, because I know you are quite convinced of this but I’ve never felt I’ve understood in depth how you’ve come to this conclusion.
I guess, to me, speculation and power to create liquidity are two essentials to an immense power to create wealth for oneself, and I don’t quite understand why its possible to use rules to control the speculation side and not over the creating liquidity side and it does seem to me that the power to create liquidity is the more dominant root with potential systemic abuse. You can still get isolated tulip bubbles with pure speculation, but you need liquidity creation to get a systemic housing bubble.
Cheers
Mark
July 21st, 2010 at 2:23 pm
Sure Mark,
Will do in preparation for giving my talk to the AMI. I have my reservations about their solutions to the problem, but am in agreement over what the problem is–as you note the tendency of finance to promote speculation rather than genuine investment. They are also open minded about their solutions too–Stephen emhasised that in his invitation, even though they have a Bill ready to go to Congress implementing their preferred solutions.
Cheers, Steve
July 21st, 2010 at 2:23 pm
I seem to be pretty durable when it comes to jetlag soho,
But for this one I’m endeavouring to raise enough funds to go premium economy if not actually business class. 40 hours of flying in 5 days is a hell of a task!
July 21st, 2010 at 3:00 pm
Sorry I KNOW this is the wrong place to put this but I’m looking for and economics 101 reading list? Can anyone point me in the right direction (the only ones i’ve read are wealth of nations and general theory of interest and employement)
July 21st, 2010 at 3:01 pm
Thanks Steve
To give the power to create money out of thin air to private individuals pretty much guarantees the current situation in my opinion. Giving the power to governments creates problems too, corruption and inflexibility; however I think incentive is at the heart of the issue. Through a proper constitution that is enforced by the education and expectation of the people who can vote out governments that do not follow it I think governments can be created where proper incentives are in place regards monetary policy (ie a public utility). I think private self interest held in check by competition in markets has shown itself inadequate in managing incentive, with regards to monetary policy, to guard against it becomming perverse.
July 21st, 2010 at 4:38 pm
marvenger,
Giving the power to governments creates corruption and inflexibitility but I think most importantly opens the door for the effects of human incompetence and politics in the process. At least in the current set up the incompetence risk is not concentrated in one single institution. This is really the key, there are a lot of people who have wonderful theories claiming they can do it better, but I am very skeptical about this kind of grandous one theory to fix all kind of thinking. The system needs sufficient freedom to be allowed to evolve, what we need to do is make sure it evolves in the right way and this is where theory could potentially fit in and could allow for a more proactive rather than reactive policy response.
July 21st, 2010 at 6:45 pm
Hi Bankruptcy Ben,
This might seem like self-promotion, but have you considered getting my Debunking Economics? It’s an anti-101 reading list in effect (and there is an eBook version).
A recent book on a similar theme is Economics for the Rest of Us: Debunking the Science that Makes Life Dismal, which has been favourably reviewed.
July 21st, 2010 at 10:56 pm
Truth
The gold standard has had its problems, supposedly to do with the lack of flexibility, but this is after there has been too much fractional reserve flexibility. There were long periods of stable and strong growth on gold standard though. I dont think that massive flexibility of money supply is needed for strong growth, and it is abused for unfair ponzi gains for sure. Therefore Im not so sure the need for evolution is a problem, if anything too much evolution that is not needed and is abused is the problem
July 22nd, 2010 at 1:42 am
Stepping away from in-depth analysis of various theories for a second. One thing that I’m not seeing much of here is more posts about the political side of changing the economy.
Not to take anyting away from Steve or the others who post here. But, we can argue Minsky vs. Bernanke all day long. And while some might get some satisfaction scoring points against somebody else, look at the people behind the various current policies:
Many of Obama’s key advisors have Wall Street connections.
Goldman Sachs was Obama’s biggest campaign donor.
Apparently, Minsky’s theories are banned in all govt. economic offices?
Therefore, why not much talk about the political side?:
The two-party system will never change. So what’s the point?
The pundits are too busy making money off “examining” the Ongoing Global Economic Meltdown (the next ABC special report)?
Who wants to talk about the same old boring rubbish politicians?
Do we really need more You tube videoclips from Peter Garrett wannabes on Q and A?
And so on.
If you have more of a balance here, maybe you’ll draw in more people who usually feel intimidated by technical economic theories? Just one opinion.
July 22nd, 2010 at 11:17 am
I thought it might be a “learn the rules, then learn why the rules are wrong” type of scenario. Thank you very much self promotion is excused it is YOUR website after all
July 22nd, 2010 at 11:45 am
Steve,
I’m happy to be back after the holidays. I was observing sea turtles rather than stock exchange trading systems what was good.
Bankruptcy Ben,
You will find a lot of stuff you’re after in the “Lectures” section of Steve’s blog (just scroll up).
To have the full picture of post-Keynesian economics please visit prof. Mitchell’s blog as well.
http://bilbo.economicoutlook.net/blog/
Studying neoclassical economics (based on static general equilibria and rational expectations) is a waste of time in my opinion. It is like the phlogiston theory. You don’t start studying chemistry by learning about the dephlogisticated air only to move to quantum chemistry.
Marxist economics may contain certain interesting points but these were largely absorbed into the post-Keynesian thought thanks to Lerner and Kalecki.
Austrian school is in my opinion based on completely wrong methological foundations and highly toxic.
July 22nd, 2010 at 12:14 pm
Good to see you back AK,
Just in time for a nice piece from Deninger detailing the problems with chartalism that I was attempting to explain to you a week or two ago,
http://market-ticker.org/archives/2516-Crack-Smoking-Part-Deux.html
Bankrupsy Ben also avoid the fraud that is MMT or Chartalism (which you will find in AK’s link above). If I could reccomend anything it would be avoiding a dogmatic belieif in any ‘ISM’, as far as I can see they are all ‘toxic’ and also largely dead wrong.
July 22nd, 2010 at 12:51 pm
Ned
great link to Deninger which I haven’t come accross before.
Agree with not having Dogmatic beliefs as well.
July 22nd, 2010 at 1:12 pm
ned,
The Deninger’s article contains several factual errors based on lack of understanding of the functioning of the banking system and on rational expectations theory.
He also expresses extreme (im)moral views in regards to absolute property rights linked to his concept of money.
It is irrelevant that for example 300 homeless people died last winter in Poland or over 40 million people receive food stamps in the US as long as money is not “printed” what would constitute a “theft”.
Deninger:
“Printed additional “shares” (or currency), on the other hand – that is, raw, unbacked emission – does the opposite – it creates permanent debasement.
Likewise, the argument that “QE” reduced or capped rates is exactly backward. It did no such thing – it in fact caused rates to rise – that is, it supported bank THEFT via interest from ordinary Americans – exactly the opposite of the claimed intended effect!
I argue unbacked emission of materiality in our fiat monetary system will never be done, for one simple reason: History tells us what the consequence is the instant unbacked emission happens – the monetary system in question is immediately and irrevocably destroyed.”
I will comment more on these bizarre theories in the evening.
In the meantime I can recommend Warren Mossler’s book which explains what is wrong with the monetarism and Austrian economics:
http://moslerforsenate.com/wp-content/uploads/2010/06/7DIF.pdf
July 22nd, 2010 at 2:35 pm
ak,
Once again you look for what fits your ideology and reject reality. The fact that homeless people die is irelevant to this discussion, but please be aware that printing money will NOT prevent people being poor (in contrast it ensures we will be) or people dying.
Look at where he is correct and you will see the failure of MMT, namely private lending thus ceasing to exist and certian currency anahilation.
Please be aware I am neither a monetarist nor an Austrian school advocate. I know there are many things wrong with both monetarism and Austrian economics, most likely allot more than are included in that book.
I suggest you read Taleb’s Black Swan and throw these worthless ideas away, they are all frauds.
July 22nd, 2010 at 3:29 pm
ned,
There is no proof that private lending (money creation by the banking system) will stop if “money is printed”. Well except for a pseudo-proof based on the rational expectations theory.
Will expansionary fiscal policy (“printing”) compromise the creditworthness of the people or companies taking the loans? Quite the opposite. What destroys the system is deflation and that’s why there is no lending in the US.
The government always can buy the goods and services and stop the rot.
The core of the problem is the refusal by some economists and commentators to understand that money are just numbers in the distributed database system – they are tokens mainly used to exchange goods and sometimes to store value or generate income on its own. The Chinese understand this. Bill Mitchell understands this. But Denninger doesn’t.
We are not in the gold standard or in American free banking era. We have central banks which act as lenders of last resort.
If people stop hoarding money and inflation kicks in there is no need to keep running deficits and stimulating the economy. At the same time bond rates can be set by the central bank if they wish to do so:
http://bilbo.economicoutlook.net/blog/?p=8986
But Denninger still thinks about money as a mythical pre-existing commodity based on personalised claims and promises to deliver future goods and services. A commodity which needs to be acquired by the government before spending or else hyperinflation will destroy everything or the government will start stealing goods. Bad government!
This is ideologically driven not what I think as a computer programmer about the nature of money (which are to me just numbers in a distributed database system).
Denninger does not understand that if productive capacities are not breached there will be no hyperinflation even if some cost-push inflation develops due to exchange rate gyrations sparked by speculators (“financial markets”). He also fails to properly analyse the historic events of hyperinflation – but he is not alone.
Please see this article and my comment about the hyperinflation in Poland at the bottom:
http://bilbo.economicoutlook.net/blog/?p=10799#comments
Regarding printing money and poverty – people were poor in Eastern European socialism and the system was corrupt and inefficient to that extent that we had food rationing – but you did not have homeless dying on streets. I am not defending communism this is just an observation. Now you have BMW cars driven on the very same streets homeless people die. 2 million people left the country. Unemployment is still >10% But everything is OK as the GDP is growing and the Polish cities look good.
Am I a communist if I see that situation as a problem? What if MMT has a solution to unemployment and poverty by increasing aggregate demand? If economics is defined as the art of making profits and increasing consumption of the rich class then yes I should exclude the homeless from the equation. But for me this is not only wrong but also naive.
Maybe what the Chinese are doing is right as they have eliminated the inefficiency of command economy but did not implement the cult of free market and just blindly replaced despotic Communist Party by Haliburton, Blackwater, BP, Goldman and Monsanto to name just a few.
One day we will see which system is more efficient in building productive capacities.
July 22nd, 2010 at 4:44 pm
I believe that the proper description of the credit money creation and destruction processes must be the foundatons of any dynamic model of economy.
Credit money destruction on repayment of individual loans does not mean that the aggregate quantity of money (M1 or M2) must fall as loans are created and destroyed all the time. If these money aggregates start falling this means monetary deflation and creates a hole in the aggregate demand leading to CPI deflation – the drop in the money velocity follows, amplifying the negative effect.
http://en.wikipedia.org/wiki/Velocity_of_money
But first let’s go back to what Denninger fails to understand. I am also unsure whether he understands the difference between stocks (M1 and M2) and flows (aggregate demand affecting the price level).
“I argue unbacked emission of materiality in our fiat monetary system will never be done, for one simple reason: History tells us what the consequence is the instant unbacked emission happens – the monetary system in question is immediately and irrevocably destroyed.
Indeed, the very threat that such might take place (as was the case during “QE”) caused rates to rise relative to where the market would otherwise have seen them.
To understand this you must first understand why any private holder of capital would agree to lend it out. To do so he must be convinced of two things: That you will pay, and that the monetary system will operate within a defined and known set of parameters during your term of performance.
He calibrates the demanded interest rate based on these factors. Interest is best defined as the time value of money, plus the risk of default, plus the risk of monetary instability during the expected term of performance, plus an expected margin of profit.
It is for this reason that the rate charged for longer periods of time is higher than the rate charged for shorter ones. The risks of default and monetary instability increase over time. The time value of money and the expected margin of profit are both reasonably fixed.
Now add to this the credible threat of or actual emission of unbacked currency and tell me how you judge the monetary stability risk. You can’t, especially for term loans of material duration.
Private lending thus ceases instantly.”
Not true at all. Private lending does not cease. Might have worked like that in the 18th century. But we are in the 21st and we have a Central Bank.
The “pseudo-money-multiplier” failed for different reasons – the seizure in the productive sectors of economy due to falling aggregate demand caused by private debt repayment – deleveraging.
This is the old post written by JKH which also answers the old question about money destruction on credit repayment.
Please read it very thoroughly. It describes the bank lending process from the accounting point of view in the modern banking system with the Central Bank.
The discussion which followed the JHH’s post is also worth reading.
http://worthwhile.typepad.com/worthwhile_canadian_initi/2009/11/money-banks-loans-reserves-capital-and-loan-officers.html?cid=6a00d83451688169e20120a6eb7061970b#comment-6a00d83451688169e20120a6eb7061970b
July 22nd, 2010 at 4:53 pm
ned.
I’ve read them all as a lay person therefore tend to agree however it may be that I am not qualified enough to argue moniterism or any other ism. It would appaer that those much more educated in economics than I also have this problem.
The black Swan appealed to me as far as crystal ball gazing goes as well as sound basic philosophy.
The rest is as they say -academic of which I enjoy from the sidelines.
July 22nd, 2010 at 6:42 pm
marvenger,
I came from a pragmatic perspective, not really disputing theory itself but to presume that the theory and the conclusions can be implemented well enough to have the intended consequences is pragmatically naive.
The way economic management works at the moment, as far as I can see is a give it a ‘nudge’ and see what happens approach. Kevin Rudd came in with grandous ideas and look at what happened. Nothing wrong with the ideas themselves except that perhaps there was no consultation with pragmatic people on the ground to see if those ideas are feasible from a practical perspective.
The educated ‘nudge’ and see what happens approach is an acknowledgment of the uncertain nature of the economy. What I see from the theoritical side are very nice theories, but the conclusions based on those theories in terms of what we ‘should’ do to fix things are very much based on a presumption that one is fully aware of all the consequences associated with implementing those conclusions.
One of the take aways from the Minsky model is that it is demonstrably easy to create chaos. The Minsky model is based on only a handful of economic variables, interacting in a very basic way and you still get chaos. The real economy is a lot more complex so a natural conclusion is that the economy is fundamentally uncertain. Given that, I am always confused as to how you can have this knowledge and yet present concrete conclusions and very specific suggestions on what would fix things.
The lament of this is that the good theory, because of the radical and non-pragmatic conclusions, is not given enough credit to be considered in economic management in it’s current form.
July 22nd, 2010 at 8:29 pm
“The core of the problem is the refusal by some economists and commentators to understand that money are just numbers in the distributed database system – they are tokens mainly used to exchange goods and sometimes to store value or generate income on its own. The Chinese understand this. Bill Mitchell understands this. But Denninger doesn’t.”
Yes, that is Bill’s understanding. Not sure about the Chinese, I’m sure they have as much diversity of opinion as we have (probably more). In any case, the fact is that, at present, all money in modern central banking systems is backed by debt (taxpayer and private). The “tokens” are contracts, undertaken in good faith, between debtors and creditors. It is conceivable that this could change, and the government issue non-debt-backed currency, but I wouldn’t want to be living in a country where that happened.
I agree 100% with Denninger on this and highly recommend that he be read thoroughly because he is one of the few that truly understand (or at least, one of the few that understand and are prepared to write about it). A lot of his other opinions I do not care for however.
July 22nd, 2010 at 8:49 pm
Truth.
I agree on the unknown consequences of drastically different action. I still believe there has been too much freedom and ‘financial innovation’ and things need to get a lot simpler and more boring. All the innovation and immense wealth inequality is the grandiose aspect in my opinion, and the financial crisis is proof of these financial geniuses illusions. More boring and egalitarian is the way to go and hopefully we can increase the value of the mutual love and decrease the value of the cheap risky thrills on cheap debt. A gradual process is probably preferable but we may be forced into a rapid one if we go off another economic cliff with insufficient government spending potential next time round.
July 22nd, 2010 at 8:55 pm
here is a mathematical take on what I am saying
think of the economy as a really complex system of equations, so complex that it is beyond human capacity to understand it. Within this system we still want to find some solution, for this analogy the solution is arbirtrary but lets go with sustainable growth.
How do you arrive at any solution in a complex system. First one must acknowledge that one can’t do it analytically. Then you implement a relevent numerical solver, Powell Method as an example -http://math.fullerton.edu/mathews/n2003/PowellMethodMod.html
The essence of numerical solvers is that they make educated incremental changes, observation of the effect of those change is used in consideration of making the next change.
The connection to the real economy is not to find some optimal solution but to present that in a system where analytical solutions are not possible the best way to proceed to a desired outcome is incremental. The added complexity of the economy is that as it evolves the rules change so there is not really such a thing as a solution ‘truth is there is no truth’, but that does not mean we should not be trying to make progress.
If you implement radical changes you will find yourself in a place with different rules and different problems which cannot be predicted before making this change. Even if it fixes the intended problem, you cannot predict what other problems it would create.
July 22nd, 2010 at 9:07 pm
I agree with what you are saying and my take on that is that the reaction of the system was correct in causing a crisis. From my perspective the fact that unsound financial practices caused a crisis to some degree validates that the system is behaving correctly. Correctly in the sense that the evolutionary mechanism is there, that is wrong action was punished and even eliminated some of the worst perpetrates. I would be more worried if we were doing the wrong thing and it remained unpunished.
July 22nd, 2010 at 9:39 pm
Paul & AK
Looking at Denninger’s take on MMT
“We’ll start with the fact that these charlatans get the cycle backwards – Treasury sells the debt first, not the other way around, and to do so it must find someone who has surplus in dollars – the currency in which the Treasuries are funded.
Let’s next run this little claim to exhaustion in an attempt to see if this is a clear-cut Ponzi Scheme – ask yourself why Treasury doesn’t just print up and sell the entire $14 trillion in GDP every year.
That would instantly absorb all excess capacity and result in an immediate and monstrous economic boom, right?
Well, no, it would not.
Were Treasury to attempt to do this it would discover what the words “failed auction” mean in short order, as there simply isn’t enough existing surplus (electronically or otherwise) to absorb that supply.”
I read this and it discredits his argument in my view.
1. The 14 Trillion is the GDP right? not the Govt expenditure, it’s the amount of money spent in the economy which is not a) the amount of money in the economy and b) has nothing to do with how much money is required by the Government to cover it’s deficit.
2. The amount of money required to fund the deficit expenditure less taxes. If that deficit is “spending” and you used “printed” or “non backed” dollars. Then there is no additional dollars to be “absorbed” by the market, by any market in fact. There’s only one place those dollars end up in and that is in the bank balance of the person/party that the money was spent on. And if it was a printed dollar what does that person care, so long as it is accepted. Yes it is inflationary but it won’t be if that printed dollar is removed at some point in time by taxes, why does it need to be bought back by the treasury.
Paul, is there anything else that Denninger says that is valid, it’s quite hard to follow. If he gets something that fundamental, admittedly using reductio ad absurdum, so he must be wrong the rest of it as well.
July 22nd, 2010 at 11:14 pm
Paul Andrews,
Denninger is totally wrong in expecting or observing inflation caused by the expansion of monetary base and his theories have very little in common with the reality.
The way he wrote his article shows that he wanted to offend his opponents rather than produce any meaningful arguments except for repeating that we have to believe that all the money is debt or else the world will end and inflation is an increase in money quantity.
One may wonder whether we have a bigger issue with the supply or with demand for this kind of writing.
I cannot argue against his sectarian and cultist moral beliefs in regards to property rights (“fiscal expansion as theft”). I may only argue against the conclusions reached in his a-priori reasoning which are inconsistent with the reality.
I know how hyperinflation looks like as I lived through a brief period when it developed in Poland in 1989. It had nothing to do with the emission of money not backed by debt. It was caused by aggregate demand exceeding productive capacities in a failing post-communist command economy. Money was excessively printed because of the political pressure from the workers.
http://en.wikipedia.org/wiki/Balcerowicz_Plan
The hyperinflation was halted by imposing a hefty levy on public firms increasing wages (so-called POPIWEK tax) and at the same time opening up the economy, deregulating prices, closing some state-owned firms and stabilising the exchange rates (the Government got special foreign loans for that).
And this was pretty much it – no “credible announcements” or “rational expectations” played any role. Just a brutal fiscal policy. I forgot to mention the unemployment which reached 15%. It got much worse during the second period of disinflation when the NAIRU theory was tested on humans in Poland. Then it went up to 20%.
Back to critique of Denninger’s article:
1. Some of the Treasury and other public debt is held by the Federal Reserve – actually it may be a quite large amount.
http://en.wikipedia.org/wiki/United_States_public_debt
Selling Treasury bonds to the Fed even indirectly and spending money amounts to “printing money” but the monetary system has not disintegrated yet. And despite all the effort with stimutaing the economy they still haven’t fully escaped the deflationary trap… (QE is not money printing just an assets swap and here Denninger is right)
2. The statement that emission of unbacked currency destroys the monetary system is simply false. In China they do not bother to borrow money from the Central Bank (what has been abandoned). They simply tell the commercial banking system to create money by extending dodgy loans to everyone. The result? Stable economic growth despite having some asset bubbles and some corruption. So what?
Reference:
http://www.amazon.com/Party-Secret-Chinas-Communist-Rulers/dp/0061708771
3. The view that the Treasury and Central Bank cannot affect costs of servicing public debt (drive it to zero if required) is plainly incorrect:
http://bilbo.economicoutlook.net/blog/?p=4402
http://bilbo.economicoutlook.net/blog/?p=1731
July 22nd, 2010 at 11:24 pm
ak,
I lol’d when I read this “The core of the problem is the refusal by some economists and commentators to understand that money are just numbers in the distributed database system – they are tokens mainly used to exchange goods and sometimes to store value or generate income on its own. The Chinese understand this. Bill Mitchell understands this. But Denninger doesn’t.”
Spoken like a real ‘economist’ living in theories, you sure you don’t have a degree. Here in the real world what you say “personalised claims and promises to deliver future goods and services” are peoples SAVINGS. I know people who think inflation is the magic silver bullet, the free lunch, the final solution to a debt induced boom hate savings, all those bastards that saved money for the future and funded the excess. Who need’s savers when you can just print the capital you need.
So where does this lead us? People are dumb, but not so dumb as to accept negative real interest rates. You see some people save money for retirement and don’t spend every cent they have as quickly as they can as you would like. Seeing their savings erode they will look for options that aren’t losing them money on a daily basis. This will see OUR savings going overseas, but I guess the great Professor Mitchell will suggest laws to dissuade or abolish this so we will see a massive run into capital assets. This will be a huge bubble and will cripple the banks, lucky the government will easily have enough cash to bail them out.
But there’s not only the problem of private capital, our currency will be smashed, and any industry that relies on a relatively stable currency (i.e. import export) will have major problems. They can handle small swings in currency value but trade will be hammered. The only way I can see this working is if it is orchestrated in the G20 and they all agree to it, but I am not a conspiracy theorist and cannot see unanimous agreement any way.
Also what is this comment about? “One day we will see which system is more efficient in building productive capacities.” You seem to think we live in a system, what system do we live in?? What Steve and I have been saying here is that there is a system, but NONE of the current descriptions describe it. The system I talk about is reality, I suggest you embrace it dude, it’s the only system we’ve got. You’re living in a myth.
July 23rd, 2010 at 12:37 am
ned,
The core issue is that people who have “savings” here in Australia or in the US expect to have an income generated by these “savings” what will lead to them having even more “savings”. The best way to multiply “savings” is to provide cheap credit which will then be invested in speculation.
Please do not tell me that people who have worked the whole life are concerned about their retirement. Their problem can be easily solved based on MMT principles. The state can provide decent pensions as long as the real economy can handle the additional demand. This is what our state is for. Not for invading another Iraq or liberating Afghanistan all over again.
People have been brainwashed into believing that unless they do not hoard money they will die in poverty and desolation.
Don’t vote for the Liberals and you will be spared – it is as simple as that. I will vote for the Greens despite having some reservations about their anti-industrial policies.
These people whose lives revolve around hoarding “savings” are absolute egoists as they believe in absolute property rights. They do not care about these who don’t have “savings” or don’t have means to generate “savings” (because of being unemployed). They only fret about their “savings” not being diluted. Marx called this process of maintaining a group delusion the “class consciousness”. The neoliberal manipulation was based on creating an illusion that everyone is an investor – owns some means of production by participating in the superannuation scam.
http://en.wikipedia.org/wiki/Class_consciousness
Personally I don’t need any superannuation and can pay a 9% higher tax to maintain the balance in the aggregate demand as long as the state guarantees my pension. The state can do that.
At the same time of the Great Hoarding and Wealth Creation in the West there is an organisation called Communist Party of China which is hell bent on building productive capacities of their nation which by accident is the largest on the Earth. They consider the productive capacities to be the source of the real wealth of the nation. Not consumption (Adam Smith) but production (Marx).
Please read the book I mentioned. It is quite biased against CCP and the author may not fully understand some very basic concepts like the role of political officers in the army but at least it contains some interesting facts and observations.
One day the neoliberal people will have the “savings” and they will have the wealth. This is not MMT as Bill Mitchell actually doesn’t see it that way. This is common sense. A similar thing actually happened in the 18th and 19th centuries in Poland with one quite prominent ethnic group.
It will be my pleasure to watch what will happen to neoliberal people with their “savings” in 10-20 years time. I promise to be on the right side as I do understand how the system works.
This is the reality. The game will soon be over and the neoliberal West will complete committing the economic suicide precisely because people see no alternative.
July 23rd, 2010 at 4:15 am
Here are a few questions for you:
Based on what you consider to be the most accurate information so far:
How long do you think high unemployment will continue in the States?
Even if Obama doesn’t win a second term, will the same economic advisors stay in place?
What are the short and long term effects of the States putting billions into Afghanistan infrastructure (vs. back home)?
Is it realistic that at some point the IMF will step in and bail out the States? And considering how the dollar is still the main currency, how will the rest of the world cope with that?
If that did happen, yes the politicians will spin it as best they can to minimize the political damage. But again, unless every source that I trust now is lying, what sign(s) are there to prevent it?
It’s happening to other countries. But it won’t happen to the States because of the “we-are-superior” mantra? Sheer arrogance will magically make it go away? I don’t think so.
July 23rd, 2010 at 4:38 am
ned
I lol’d when I read you “I lol’d when I read this “The core of the .. etc”.
I agree with ak money is just numbers in a distributed database and the only theory needed here is an understanding of computer databases. The rest can be gained from an understand of just how “money” is created and this is best understood by reading Steve Keens “Roving Cavaliers of Credit”.
As I see it the most pernicious set of these numbers in the database apart from the obvious personal debt and national current account debt is not written as a “debt” at all, neoclassical economists call it “savings” it is in our superannuation account entries. It gives immense power to people who have never been elected and never have to face election. This money not having any intrinsic value acts as a dangerous tool in the hands of the “fund managers”. It could even be used directly against us if they are permitted to join in the real estate ponzi scheme just as they they now have a major part in the share market ponzi scheme.
“But there’s not only the problem of private capital, our currency will be smashed, and any industry that relies on a relatively stable currency (i.e. import export) will have major problems.”
You seem to think that our currency has some intrinsic value on the international scene even though we have not balanced the current account and have needed to borrow to consume for the last 50 years rolling over debts year after year (the word “insolvent” comes to mind). You just need common sense to see that this can not go on or totally stupid to think it can. We are dependent on the continued generosity (or fear) of foreign bankers to maintain the unrealistic exchange rates which have crippled any chance of real wealth creation in this country just as it has enabled the Chinese to develop their technological capability and real wealth. I say fear because when Australia goes down so do they.
We can’t live with this system because even though it is “the only one we’ve got” because it is about to go down just like similar but not identical system’s went down in 1842,1892, and 1930. We need to gain a better understanding of the economic system dynamics (and I believe that no one has yet achieved this) so that the next system doesn’t fail some time between 2040 and 2080.
July 23rd, 2010 at 8:49 am
BrightSpark1: “I agree with ak money is just numbers in a distributed database and the only theory needed here is an understanding of computer databases. The rest can be gained from an understand of just how “money” is created and this is best understood by reading Steve Keens “Roving Cavaliers of Credit”.”
Money is not just distributed numbers in a distributed database. It is credit, i.e. a collection of credit contracts – binding agreements between debtors and creditors. The numbers are just a convenient record of the value of those contracts. This is simply restating what the Roving Cavaliers of Credit has to say: lending (credit contracts) create deposits (money).
You can’t have it both ways and say “money is just numbers”, then say you agree with Roving Cavaliers of Credit.
July 23rd, 2010 at 8:50 am
soho44,
We are not doomed yet but people have to realise that the current system must be reformed as proposed by “MMT++” or else we will travel along the falling line in the Steve’s model.
Regarding MMT:
There will never be a problem of solvency in the US. This is the core message coming from the Modern Monetary Theory. The second message is that moderate currency emission does not have to create CPI inflation.
Again here is the link:
http://moslerforsenate.com/wp-content/uploads/2010/06/7DIF.pdf
“MMT++” for me is the original MMT (with the Job Guarantee included) combined with spending several percent of GDP on massive R&D programs to lessen our dependency on fossil fuels and prevent destroying the environment (climate). Something like the cold-war Apollo combined with other DARPA programs – these which gave us the Internet, modern materials etc.
This is our only chance and There Is No Alternative.
I’m re-posting the link to the superb article written by Andy Grove again:
http://www.bloomberg.com/news/2010-07-01/how-to-make-an-american-job-before-it-s-too-late-andy-grove.html
Andy Grove can see the problem and Warren Mosler knows the answer. It is way too late for protectionism to work.
The program must be run by the state (and obviously involve private firms as well) as nobody else has enough money to finance it.
If “landing on the planet Earth space program” is not run by the US it will be financed and run by the Chinese. There will be no vacuum and our civilisation will not collapse – only the centre will move a bit. Their country is run by engineers not lawyers or bankers.
Unfortunately I am pessimistic. People in the West don’t want any change and behave like lambs to the slaughter. I have no difficulty in explaining my views to my Chinese or Eastern European friends. But there is a cultural issue if I try to talk to Anglo-Saxon “Real Aussies”. They mostly think that I’m a commie or I’m dumb. Maybe but so what… this does not invalidate my arguments.
What I believe is going to happen is that sooner or later USD will lose its reserve currency status and free cargo will stop arriving regardless of printing or not printing more USD. Then unemployment may drop then but the society fixated on satisfying the individual greed will be demoralised enough to make restoring productive capacities difficult in the short run. If this coincides with the increase in real prices of commodities and inflation targeting is not abolished completely, the US (and the so-called West) is toasted.
In the short run I think that if the Democrats win, the US may have a slim chance to introduce some reforms. But the Democrats will most likely lose, Obama will be a lame duck and quite soon another incarnation of George W Bush will ensure that global peace, stability and rapid growth are maintained.
As I’ve already mentioned the new players will be China, India and Latin America.
As for Australia I believe we will evolve into a kind of Saudi Arabia – a commodity export-based society with a relatively good level of consumption and no real productive economy. Fortunately we have enough people from Asia who can maintain the culture based on hard work rather than just speculation and income redistribution. So we may be like Singapore or Hong Kong and Saudi at the same time.
What worries me the most is the possibility that Fidel Castro is right. Somebody may think like in 1914 that a six-weeks long war can fix all the problems.
July 23rd, 2010 at 9:07 am
Paul Andrews,
“Money is not just distributed numbers in a distributed database. It is credit, i.e. a collection of credit contracts – binding agreements between debtors and creditors. The numbers are just a convenient record of the value of those contracts. This is simply restating what the Roving Cavaliers of Credit has to say: lending (credit contracts) create deposits (money).”
This is the core issue I believe. That’s why we are doomed as long as we stick with that definition. We have to change the way we think or else we (as the so-called Western Civilisation) are 100% doomed …
From MMT perspective money are just numbers. As soon as you spend credit money from your deposit account “holes” are separated from “electrons” (using the semiconductor analogy – sorry about that). Our “electrons” can then diffuse through solid-state material and create electric current.
We can and we should inject some electrons from outside to create an additional current. This comes for free. The Chinese will do it with their semiconductor sample anyway. They don’t care about stupid Western absolute property rights.
Believe me or not but it really works that way – I was born and lived in a country with a pure fiat monetary system where money were just tokens not backed by debt. Socialism in Eastern Europe didn’t collapse because of inflation. It collapsed because of the inefficiencies in the command economy and the pressure from the outside (the Cold War).
Also:
Moderate inflation is not a problem and there will be no inflation as long as productive capacities aren’t exceeded by the aggregate demand. Inflation will not be caused just by increasing M0. This view is based on confusing flows and stocks.
What will stop working though is the little nice income generator based on interests on deposits if interest rate is zero (what is stated by MMT). I believe this is not a great loss…
July 23rd, 2010 at 9:26 am
AK: “Some of the Treasury and other public debt is held by the Federal Reserve – actually it may be a quite large amount.
http://en.wikipedia.org/wiki/United_States_public_debt
Selling Treasury bonds to the Fed even indirectly and spending money amounts to “printing money” but the monetary system has not disintegrated yet. And despite all the effort with stimutaing the economy they still haven’t fully escaped the deflationary trap… (QE is not money printing just an assets swap and here Denninger is right)”
All purchasing of assets by the Central Bank amounts to “printing money”. This, or bank borrowing from the CB using real assets as collateral, is actually the only way to get High Power Money (physical banknotes and/or CB deposits) in a Central Banking system. This is, on the whole, fine so long as the assets hold up (meaning in the case of treasury bonds that the government upholds their end of the bargain to service and pay down the debt from tax revenue).
If HPM were to be created without being backed by debt, that is the HPM that would potentially destroy the monetary system through hyperinflation. Creating HPM not backed by debt is essentially what MMT people propose. Actually they think that is already happening – i.e. they believe the debt is not credible and doesn’t need to be. Denninger doesn’t think they are right and neither do I.
AK: “The statement that emission of unbacked currency destroys the monetary system is simply false. In China they do not bother to borrow money from the Central Bank (what has been abandoned). They simply tell the commercial banking system to create money by extending dodgy loans to everyone. The result? Stable economic growth despite having some asset bubbles and some corruption. So what?”
The Chinese government borrows largely from domestic private investors – i.e. the money created through this process is backed by taxpayer debt to those private investors. You may be correct about the dodgy loans. I’m not sure why you think a huge private debt bubble built on dodgy loans is stable.
AK: “The view that the Treasury and Central Bank cannot affect costs of servicing public debt (drive it to zero if required) is plainly incorrect:
http://bilbo.economicoutlook.net/blog/?p=4402
http://bilbo.economicoutlook.net/blog/?p=1731”
I agree, the Treasury and Central Bank could do this if they desired. However they do not so desire. The Central Bank does not desire it, in part because they know that it would destroy the monetary system. Furthermore, the Central Bank acts in the interests of the private banking system – i.e. the creditors, who have no interest in seeing their government bond investments driven to zero. The Treasury, being under the control of politicians, may desire it, but they cannot “go it alone” – removal of, or subversion of, the Central Bank would also destroy by definition the monetary system. As such, it would be resisted by private banking interests.
July 23rd, 2010 at 9:35 am
AK: “This is the core issue I believe. That’s why we are doomed as long as we stick with that definition. We have to change the way we think or else we (as the so-called Western Civilisation) are 100% doomed …”
This is not the core issue, this is the reason for three hundred years of prosperity that would have been unimaginable before the evolution of modern banking and private property rights. The kind of prosperity that socialist countries with true non-credit fiat currencies could only ever dream of.
We are only doomed if we allow things to degenerate to a point where promises freely made are allowed to be reneged upon. By promises I mean contracts, and in particular credit contracts. Government bonds are credit contracts. MMT people think that these are being reneged upon, and they think that that is just fine. This is something to be worried about.
July 23rd, 2010 at 10:17 am
Paul Andrews,
Contracts are rubbish if they do not relate to physical goods. You cannot feed people with contracts.
So what exactly can we manufacture in Australia except for bricks to build oversized homes and raw materials? Oh I forgot sheep and trading software.
Almost anything in my room has been made in China, Korea or Japan. I have one old item made in the US. I don’t use American software much, my computer runs Linux.
The 300 hundred years of prosperity of the West was to some extent based on exploitation and destruction of competition in India and China. This era is now coming to an end.
Why do you think that the monetary system will collapse if debt backing currency is not credible? Rational expectations theory is plainly false. I can provide links to social psychology books describing the actual behaviour of humans.
Normal “working class” people usually spend as much as they can get hold of or borrow. This has been correctly identified by Keynes (and Kalecki). Working class people do not care how well money is backed by public or private debt. They just pay with notes or plastic. Aggregate demand rules.
Only “middle classes” invest for profit the surplus. Since neoclassical economists belonged to that social group most of them didn’t understand how most of the people behave. There was a neoliberal attempt to trick people to believe that we are all middle class. But we are rather very mean middle class. We may believe in the rubbish peddled by the neoliberals but we still behave mostly like Marxian workers and consume whatever we can.
OK so in the minds of middle class people the currency will collapse. But this has very little to do with the reality especially with manufacturing goods in China.
July 23rd, 2010 at 11:57 am
ak,
You just don’t get it do you. Asumptions asumptions asumptions, the classic economist mistake. You think you know so much about what the “working class” and “middle class” and how they will act. Lol you crack me up man. I seriously suggest you read the black swan, you might just find out that you don’t know as much as you assume you do.
Also I noted how you have ignored my point about trade being severley impeded by an extremely unstable currency. You seem to do that quite regularly, duck and weave man, duck and weave.
Oh and a quick question, since you like communism and the are in awe of Chinese adoption of MMT so much may I ask why you haven’t moved there already? I am sure there is a place for you in a factory on a production line you can slide into, you seem to think this is such a wonderful way to live I am curious as to why you haven’t adopted it yourself.
July 23rd, 2010 at 12:18 pm
@ak: Considering the connections that some people in Australia make between “the Middle East” and “terrorism”, I’m not so sure about Australia turning into another Saudi Arabia.
I’m trying to not recycle content that we’ve all seen a million times already. Give me a minute
.
At this point, considering the stress in the Chinese economy, I’m surprised that they’re still lending to the States. If you’re the Chinese govt. what are the benefits?:
The debt is leverage against Obama.
It’s also leverage against the other G8 and G20 countries
(when necessary).
If problems continue in different parts of the economy (workers killing themselves due to enormous stress), they’ll censor it as much as possible.
No surprise that spying (both with spies and hacking)is going up. If someone’s caught, it’s really no big deal. Lots of “official govt. comments”. Call in diplomats. Threaten to or recall someone. Then it all dies down and life goes on.
The only downside to the Chinese calling in their debt? The fact that the dollar is still the global standard. The system is so conditioned to using it that if it goes down, what do we use instead? The global economy’s not protected enough to switch over without massive panic. Also included in this will be even more protectionism. Like that’s really going to help.
In public, the Chinese come off as being polite (but getting their point across). But if you look online, privately a growing number of people are pissed off at the States total
irresonsibility financially. And, can you blame them?
Investing in infrastructure here is a pipe dream at this point. What does it say when Obama will spend billions in Afghanistan, but not here? The “hearts and minds” of Afghanis are way more important than deserted Detroit?
And the Democrats actually think that this “standing up to terrorism” is their ticket to winning the mid-term elections.
I won’t even try to explain that.
July 23rd, 2010 at 12:22 pm
Truth
I agree with your mathematical analogy if you are trying to predict specific quantitiative categorical outcomes. But what about qualitative aspects. You may not have a fancy model that can predict outcomes, and if this is indeed impossible then it also makes more sense to also think in qualitative terms where changes in qualitative features can effect economic trends.
In the way you are thinking it sounds like you want to be able describe each movement due to certain data inputs – impossible because too complicated but should try – and then you can justify everything as just in terms of cause and effect. But I think there is a strong case for qualitative thinking such as where power can be abused for a free lunch, you can’t measure it but know its there; this causes imbalances to build up until there is a violent reaction – non of which you can accurately measure in quantities and time. Therefore just like we individually make life decisions with qualititative features, and chose those features with a certain range of expected but unknown outcomes that we think on the whole will be most suited to us and those around us, we should do the same with the economy.
What you can measure you can measure and I agree we should try and improve these abilities,but I don’t think everything is accurately measurable and predictableand that doesn’t then mean we are off limits to changing a feature that we have an expected but unknown outcome for. These decisions are why we need a strong democracy if we are to live in large and complex social groups.
July 23rd, 2010 at 12:28 pm
Paul Andrews@31+
The credit creation cycle described by Steve Keen in the Roving Cavaliers details just one of the ways in which the numbers in the databases are manipulated. It describes just one of the feedback loops which influence the economic system and which are beyond the small understanding of neoclassical economists.
“Money is not just distributed numbers in a distributed database. It is credit, i.e. a collection of credit contracts – binding agreements between debtors and creditors.”
These agreements might be binding but can only be honored if the debtor has the means to do so, that is remains economically solvent. They are no more tangible than the numbers in the data base and the probability of failure is never quantified making the numbers in the database even less associated with reality.
How would you feel about such agreements made with the various departments of a corporation if the corporation had been a net borrower for 50 years always borrowing to pay interest and always rolling over the debts? e.g. a corporation with the credit history of Australia.
“This is not the core issue, this is the reason for three hundred years of prosperity that would have been unimaginable before the evolution of modern banking and private property rights.”
What do you mean by “core issue”? and on what planet has there been 300 years of prosperity???? Do you know any planet Earth history? many wars including two World Wars the three major economic Depressions, the major famines the Holocaust and the current troubles?
A Spanish born colleague of mine recently opined that at the time of the enlightenment in the eighteenth century the British pursued technology and the Spanish pursued gold, by the end of the nineteenth century the British had all the technology and all the gold. Now the Chinese are following the British path and they are not far from having all the gold and all the technology.
July 23rd, 2010 at 12:55 pm
Ak,
As both you and I shared a similar background, I believe we understand a bit more about communism than many in this forum. It is interesting to know what has happened in your country, which I am not well aware. However, I come up completed different picture in regard to China. I am not sure how your opinions are formed, but I have to say many of them are inaccurate. I won’t claim I am the expert, but I do keep contact with almost every sources I have, official, unofficial, friends, mates, relatives, ex-colleagues, etc.
I won’t argue each points with you, but I just want to say mines are quite opposite than yours.
I guess due the language/culture barriers, many views of western/foreign people are formed based on limited sources which can be obscured.
July 23rd, 2010 at 12:55 pm
marvenger,
I totally agree with you and believe it or not that was my intention. I just enjoyed the mathematical abstraction that’s why I wrote it. The point was to show the incremental mechanism of achieving a goal, qualitative or quantitative, in an uncertain enviroment.
July 23rd, 2010 at 2:00 pm
Truth and marvenger
I do not believe that the mathematics described in Powell Method can describe what is going on in economics because it is simply an iterative process for solving mathematical problems (an algorithm) and not a method of describing a dynamic system. It cannot be used to describe dynamic feedback effects.
July 23rd, 2010 at 2:18 pm
Truth
I read an interesting biography of a French Mystic – Father Joseph – by Aldous Huxley, which deals with unintended consequences. http://www.amazon.com/Grey-Eminence-Aldous-Huxley/dp/0099477823.
My take from the book was that Mystics, concerned with the pursuit of truth to find the ultimate one-pointed light of truth and reaching enlightenment – believed that you had to engage in a small sphere of influence so you could observe cause and effect otherwise unintended consequences would abound and you’d never understand truth.
Using the mystic’s frame of reference and goals I believe they are pure of heart and have arrived at the logical conclusion by operating on a small sphere of influence. However, if your name is true and there is no truth, then there has to be an acceptance of unintended consequences and a balance has to aimed at between what you think you know and what you think you don’t (tempting to do a donald rumsfeld here).
Interesting…..
July 23rd, 2010 at 3:30 pm
Ak,
I hope you are not put off by the criticisms of people here, I personally have trouble making sense of all this, however, I think you raise really interesting points, and I am not all convinced by the arguments of your opponents here.
It seems that some problems are clearly evident in any case, and that you have them clearly in mind, however, your opponents seem lost in a world of theory, or at the very least the problems they are looking at are abstractions linked to various mechanisms aimed at addressing these problems. At the end of the day we do need to trade and deal in real things. In Australia the employment opportunities for people are in fact very limited. They can work in: retail; for a big corporation (most of our infrastructure needs are now controlled by these); in a large factory, such as our subsidised car factories; education, or one of the various “service” sectors (finance, tourism etc). Agriculture is now not really profitable and there are few opportunities there. In terms of opportunities for everyday people to run an honest business producing something of real value there is not much outside a few niche areas, some trade jobs (but most are tied to housing and, again, working for big industry) in most cases people end up just retailing stuff produced overseas.
I am not sure what has lead us to this state, but I think it is the type of thinking that invests 1.5 billion dollars in a ticketing system (MyKi) to replace a working system because they cannot get parts for the machines (presumably it will have cost more than 1.5 billion to manufacture these parts???), in about 10 years it will probably not be possible to get parts for MyKi and we will start again. For this 1.5 billion we could manually man every station, take a set of people off unemployment and out of the drug trade, and offer a better service by being able to open toilets at stations (service levels were better 50 years ago – is this progress?), help people on and off trams etc and avoid having to pay for safety and ticket police constantly patrolling public transport. Sorry – my rant. Just one example of “Economics gone mad”.
http://www.theage.com.au/victoria/myki-set-to-go-on-trams-buses-20100722-10ltj.html
July 23rd, 2010 at 3:44 pm
Ak,
Sorry one more thing, regarding your statement:
“with spending several percent of GDP on massive R&D programs to lessen our dependency on fossil fuels and prevent destroying the environment (climate)”.
I don’t think this will ever save us. Firstly, the required investment will never happen until it is too late. Secondly, energy replacement technologies to maintain our current energy hungry society are not possible. We could, however, invest in re-organising society to be more sustainable (reduced energy use), but again, this investment will not happen (and in any case people will not be interested in this) until it is too late.
July 23rd, 2010 at 3:58 pm
MMitchell,
You and ak are stuck in theory, how can you not see this. He is quoting the bilbo blog and other MMT sources as if they were scripture. Yours is a world inhabited by imaginary actors, real people will NOT act the way you think they will.
Example, above you say “For this 1.5 billion we could manually man every station, take a set of people off unemployment and out of the drug trade”. If you think someone will leave the drug trade where they can potentally make millions for a nice steady job as a train conductor you have rocks in your head. This simply will not happen. People don’t sell drugs because they have run out of other options for employment, they take it up because it is highly profitable for those that succeed at it. Any theory based on assumptions like these will fail. Stop trying to fit the world into a theory, this approach is fundamentally flawed.
July 23rd, 2010 at 4:09 pm
Ned,
I think you are the one who is lost in theory. I know at least one person who was once gainfully employed as a tram conductor, since they got rid of tram conductors that person has made their living selling drugs. To my knowledge they have never worked another job since losing the transport one.
July 23rd, 2010 at 4:14 pm
Sorry Ned,
But furthmore, these people do seem to make reasonable money, but not millions. And the risks are high (both from lawful people and unlawful). They are constantly at risk of being caught, losing everything as well as doing jail time(and this happened to my friend’s partner). I think they would take a regular, not-to-demanding job over selling drugs everyday
July 23rd, 2010 at 4:22 pm
Ned
Elements of MMT are used everyday by real economies and it is not a new theory.
Having been reading and trying to gain as much knowledge of what is occuring around me, I can see that there are countries such as the Swiss and Norwegians that seemed to have their act together.
The Swiss via the SNB are not afraid to increase the supply of money via printing more of it, however they wont debase their currency to point that they risk losing their soveriegnity.
Currently the Swiss Franc has been increasing in value due to its perceived worth agaisnt the Euro. The SNB lost about 4 billion earlier this year trying to manipulate the currency via increasing the amount on issue so that they were competitive with Europe.
There approach now is to use using the strength of their currency to purchase income producing assets or manufacturing assets that are outside their own country that are going to be available due to loan defaults.
The Swiss SNB is 60% owned by the swiss banking system. That is Credit Suisse, UBS etc.
Food is expensive is Swiss due to subsidises, however they do not want to destroy their independance purely to cater for free market theories.
They use what works from Marx, Adam Smith, MMT to better their own nation.
It must work as they are among the worlds richest nations.
Increasing the supply of credit is not an issue if your country is perceived as credit worthy.