Lecture 08 Unconventional Monetary Policy: The Fallacies underlying Quantitative Easing
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- Опубликовано: 16 ноя 2024
- Conventional and unconventional monetary policy both suffer from the same flaw: they are based on unrealistic models of how a market economy operates. I give a very fast overview of the (de-)evolution of macroeconomic policy from the Post-War "Keynesian" period through to the Neoclassical ascendancy, before the Global Financial Crisis ushered in both zero reserve interest rates and Quantitative Easing.
Thank you very much sir for all these rich explanations
I am Moroccan, researcher in the field of monetary economy, and I would like to know please, can we consider the evaluation of ZLB a pre-condition in the adoption of this type of measure unconventional monetary policy and especially at the Moroccan level?
What is the cause of stagflation?I didn't understand
@1:01:55 "I wish he had the courage to _think."_ lmao. To be fair though to Bernanke, he had to do a helluva lot of odd thinking to bend the neoclassical framework into a pretzel to "explain" the Great Depression. Maybe if he just thought to think straight and simple with no fuss? Like: "Hmmmm, capitalism runs on sales, so let me see, give people who work more income. Yep. That'll do the trick."
Thanks for posting all these video's and sharing your work!! Looking forward to stealing some more knowledge in the future.
@ 1:24:00 I feel that the Loan line is only half complete? ie where is this loan recorded on the banks balance sheet? When the excess reserve is lent, it will decrease the reserve account but increase the Loan asset at the same time, whilst simultaneously increasing the borrowers 'deposit' account (liability for the bank) but this deposit then remains as a cash asset for the bank until the borrower withdraws the funds?
A = L + E
Reserves Loans Deposits
1. -9 +9
2. +9 -9
I'm not defending the "money multiplier" model, just looking for further clarification behind the accounting of this process.
+Nikolai Valge +ProfSteveKeen I agree with Nikolai. Prof.Steve Keen, could you explain it for us, thank you.
when a cheque written to u as payee is deposited into ur account for say 100 units ...what increases the reserve on the asset side by 100 units ...when i deposit cash for 100 ..the notes are the reserves and the liabilty ie deposit goes up by 100 ..how does it work with a cheque deposit
@@kdcruz75 most cheques are payments, so it is only a swap from one account to another. If that occurs between different banks the corresponding reserve position may change, but only if all other transactions that day net to zero. So the reserve positions cannot really be predicted until the end of a maintenance period.
If the cheque came form the central bank then it is really just as good as cash, and for all intents and purposes is cash, a liability of the CB. When drawn the bank can use it to claim the reserves from the CB.
Just one point in a hundred I disagree with. 1:24 into presentation.
As deposits come in, CR deposit Account (Liability) and DR Interbank clearing reserves with other banks (Asset) £10. Reserves have now gone up. Dues from other banks. Then to raise the loan on the new found reserves. CR savers Deposit account with 9 and Increase Loans as assets via DR entry for 9 also. Money supply has now gone up.
When this punter now moves his new deposits to another Bank, the inter-bank reserve account is adjusted also, and this is where banks start looking for reserves as per Steve Keen and BoE. Borrowed at a cheaper rate than the loan or via the sale of a treasury or reluctantly loan from Central Bank to maintain reserve ratio I believe to the best of my understanding.
Your point is not clear at all (to me). The Reserves _could_ be loaned out _if_ the accounting rules are allowed to be violated. What Keen shows @1:24:00 is only that Reserves cannot be loaned without violating the rules. But a fraudster can violate the rules and loan out his banks reserves. Usually what prevents this is the software! To get their software licensed (usually software developed by a third party IT firm) the payments system software must pass the rules testing. That is _in a practical sense_ why banks "cannot" loan out their reserves or deposits.
It seems that I'm more Keensian than Keynesian.😁
49:54 Indeed, when you look at a car, you don't really know how it works. Automotive engineers don't really know how a car engine actually performs; they just have a model that seems to fit more or less (less it seems, given the latest turmoil).
If I understand correctly there is no multiplier effect, Banks don't need "reserves" to lend, so the increasing reserves by any means won't increase lending by itself and this was never a constraint ?
Can someone advise me what then does control the amount and quality of bank lending (debt/money creation) ?
Also if a Bank has a bad loan thats written off how is this treated in accounting terms is this a hit to the Profit and Loss ?
There must be some mechanisms to control the amount of loans if its not the reserve requirement ?
Also how is the current housing bubble maintained if incomes are stagnant but prices increasing, then surely the difference is debt and why is that able to be continually increased. Do Banks not have loan to value or and loan to income levels to consider.
If so much money and investing is in property then surely it needs to be taxed properly and some social laws to limit the exploitation and unproductive investing. Its clearing a non productive asset test its soaking up the vast amount of capital.
+James Lovering Try reading www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf
+John Cribb Thank you very much I will read that very careful.
+James Lovering
"what then does control the amount and quality of bank lending (debt/money creation)?"
Demand for loans by credit worthy borrowers. Loan demand is driven by expectations of future profits as Keen quotes from Keynes in the video
"Also if a Bank has a bad loan that's written off how is this treated in accounting terms is this a hit to the Profit and Loss?"
The loan is an asset as it's an expectation of an income stream. So writing it off you have a decline in assets and also a decline in equity. A decline in equity shows up as a loss on your P&L.
"mechanisms to control the amount of loans if its not the reserve requirement ?"
Banks lending is capped by Capital ratios. Capital is part of Equity. So you can think of it as a risky-assets to equity ratio (I'm being overly simplistic here).
"how is the current housing bubble maintained..?"
At least here in the US, real estate prices are being driven up by institutional investors buying and/or building multi-family units. Loan rate are at all-time lows but the only people able to take advantage are the already well-off. So you don't see an increase and Joe and Jane buying a new home, you see them renting from the developer who just built a new apartment complex. This phenomenon is also driving up rents.
+TheBoogerJames
Thanks for the reply.
Doesn't make any sense to me that Banks would continue lending on the ridiculous multiples we have now. Surely its a risk for them ?
Are you able to advise where I may find out more detail on the "Capital Ratio's" ? be interested to know what they are.
+James Lovering
Banks don't lend on multiples of reserves. They make the lending decision first and then acquire any necessary reserves after the fact. The lending decision is based on the creditworthiness of the borrower and/or the business plan presented. Creditworthiness is subjective and therefore flexible and is the source of instability pointed out by Minksy (watch the Minsky video if you haven't already. I think it's Lecture 4 or 5).
What constrains banks on the upper limit of loan-able funds is a Capital Ratio. It's basically an Equity requirement as opposed to reserves which are an Asset on the balance sheet. So banks are not Asset constrained, they are Equity constrained. You can read more on them here: en.wikipedia.org/wiki/Capital_requirement
No. Overloaded powerpoints and no concise arguments.