Pardon two comments magicked-up out of the imagination of an eco-hobbyist. In defence I can only quote Mosler, "As a point of logic," and then, like him say whatever the heck I please:
1. Keen, as well as, Werner, until this past week and only in addressing Selgin's paper, has only ever discussed bank credit creation of money in terms of creating the stuff purely internally within a private bank with the idea for it to just sit there mutually providing value by the same methodology the Treasury thinks it's doing something with its *half trillion* in gold sitting there in the West Point, Colorado, and Kentucky Treasury vaults fifty years after ending support for Breton Woods. In reality, just for instance, when a mortgage is created, the money scarcely touches the borrower's account--if that--and flows straight through to the seller. Keen doesn't in the slightest try to teach--one even guesses he didn't know until he went to go debunk Selgin and had to, sort of, work it out--*how* money is created but just says it is, with a hand wave. Now it may be true that the actual mutual receivables necessary to clear "Keensian" money creation at the NACHA or FedACH is just a bit of grease while the real magic takes place in Professor Keen's loan income tables, yet for us hobbyists/concerned citizens I should say it should be a sticking point at least in trying to sell the whole thing to the unwashed even if we true believers are asked to take it on pure faith. Now clearinghouses, not a government license, is what makes credit creation of money actually clear, but outside of the theoretical, credit creation unbalances the whole payments system and it is only funds intermediation of receivables that brings imbalanced credit into balance such that credit created payments can actually clear the way ordinary payments would. Selgin's contribution.
2. "as otherwise, the central bank would have to intervene and inject excess reserves to the rest of the banking"
-- I think not to "the rest of the banking system," but only to primary dealers and as-needed for tax payments. Since yourself and Selgin are discussing a scarce reserve system and just randomly spreading reserves in a system in which total reserve balances exactly equal the two days of government spending between two Treasury auctions, what good would that do. Reference: Daily Treasury Statement, and FRED Total Reserve Balances.
To be honest, I’m not sure I entirely follow your logic here. If you still have questions, could you break them into numbered points?
My immediate observation is that this is projected to be a section in a book, while my explanation of “bank money creation” is done using my preferred terminology and logic earlier. I just want to cover the debate about intermediation as readers will probably run into it. That is, teach the topic correctly, and then see how other people discuss it. You would have to trawl through my old articles to see if I covered my approach. I may not have, since it will take diagrams and tables, which are something I do not want to deal with until the manuscript is in better shape.
To just cover your point about mortgages, if the buyer and seller are at the same bank, the operation is self-funded - although the holder of the deposit moves, it is still at the same bank. And even if it leaves the bank, that implies injecting an excess of “reserves” into other bank(s), and those banks are stuck with excess reserves that they need to put to work. The entire point of inter-bank and money markets is to allow banks to trade excess reserves, so there is an excess in the rest of the system that matches exactly the outflow of the original bank. Which is why systems with no excess reserves (or an economically insignificant amount of excess reserves) do not seize up all the time. Selgin’s approach is purely literary, which allows him to ignore the injection of new reserves from the overall system.
If you look at how banks operate in the real world - and not economist writings - they have to manage liquidity risk on a statistical basis. Extending loans increases the odds of outflows, but the bank already has to manage outflow risks anyways. Most big banks have large untapped credit lines as contingent liabilities, an extra $500,000 mortgage is not something that will keep the bank treasury desk up all night.
I think I got what you were saying about your book topic, so my main remark (of two) was restricted to the Selgin discussion. Actually, your answer to my comment clarified my thoughts on the topic of "bank money." But as you aren't sure you followed my logic, the whole of my first (of two) comments was:
In trying to compare the question of
1. whether banks are not *only* intermediaries
2. to Selgin's initial stated very limited (he strays) goal of showing that banks are *also* intermediaries:
you are comparing apples with oranges: same question from exact opposite angles: "not only" versus "also."
Indeed, in your reply to me, you amply give examples of such intermediation that banks make use of.
Selgin is largely attempting to make old "loanable funds" theories sound at least roughly correct (by ignoring the parts where they are wrong) and at the same time going after dubious interpretations of heterodox banking theory. To the extent that people are misunderstanding those theories, I have no objection. But he argued that the BoE paper used the same definition of intermediary as him, which is transparently wrong, as his comments about physical money admit.
I am currently working on my version of how to look at this. It is an example that overlaps earlier texts that I have written. I have no idea how the various articles will be merged. Should be ready by tomorrow, or maybe Thursday.
Pardon two comments magicked-up out of the imagination of an eco-hobbyist. In defence I can only quote Mosler, "As a point of logic," and then, like him say whatever the heck I please:
1. Keen, as well as, Werner, until this past week and only in addressing Selgin's paper, has only ever discussed bank credit creation of money in terms of creating the stuff purely internally within a private bank with the idea for it to just sit there mutually providing value by the same methodology the Treasury thinks it's doing something with its *half trillion* in gold sitting there in the West Point, Colorado, and Kentucky Treasury vaults fifty years after ending support for Breton Woods. In reality, just for instance, when a mortgage is created, the money scarcely touches the borrower's account--if that--and flows straight through to the seller. Keen doesn't in the slightest try to teach--one even guesses he didn't know until he went to go debunk Selgin and had to, sort of, work it out--*how* money is created but just says it is, with a hand wave. Now it may be true that the actual mutual receivables necessary to clear "Keensian" money creation at the NACHA or FedACH is just a bit of grease while the real magic takes place in Professor Keen's loan income tables, yet for us hobbyists/concerned citizens I should say it should be a sticking point at least in trying to sell the whole thing to the unwashed even if we true believers are asked to take it on pure faith. Now clearinghouses, not a government license, is what makes credit creation of money actually clear, but outside of the theoretical, credit creation unbalances the whole payments system and it is only funds intermediation of receivables that brings imbalanced credit into balance such that credit created payments can actually clear the way ordinary payments would. Selgin's contribution.
2. "as otherwise, the central bank would have to intervene and inject excess reserves to the rest of the banking"
-- I think not to "the rest of the banking system," but only to primary dealers and as-needed for tax payments. Since yourself and Selgin are discussing a scarce reserve system and just randomly spreading reserves in a system in which total reserve balances exactly equal the two days of government spending between two Treasury auctions, what good would that do. Reference: Daily Treasury Statement, and FRED Total Reserve Balances.
To be honest, I’m not sure I entirely follow your logic here. If you still have questions, could you break them into numbered points?
My immediate observation is that this is projected to be a section in a book, while my explanation of “bank money creation” is done using my preferred terminology and logic earlier. I just want to cover the debate about intermediation as readers will probably run into it. That is, teach the topic correctly, and then see how other people discuss it. You would have to trawl through my old articles to see if I covered my approach. I may not have, since it will take diagrams and tables, which are something I do not want to deal with until the manuscript is in better shape.
To just cover your point about mortgages, if the buyer and seller are at the same bank, the operation is self-funded - although the holder of the deposit moves, it is still at the same bank. And even if it leaves the bank, that implies injecting an excess of “reserves” into other bank(s), and those banks are stuck with excess reserves that they need to put to work. The entire point of inter-bank and money markets is to allow banks to trade excess reserves, so there is an excess in the rest of the system that matches exactly the outflow of the original bank. Which is why systems with no excess reserves (or an economically insignificant amount of excess reserves) do not seize up all the time. Selgin’s approach is purely literary, which allows him to ignore the injection of new reserves from the overall system.
If you look at how banks operate in the real world - and not economist writings - they have to manage liquidity risk on a statistical basis. Extending loans increases the odds of outflows, but the bank already has to manage outflow risks anyways. Most big banks have large untapped credit lines as contingent liabilities, an extra $500,000 mortgage is not something that will keep the bank treasury desk up all night.
I think I got what you were saying about your book topic, so my main remark (of two) was restricted to the Selgin discussion. Actually, your answer to my comment clarified my thoughts on the topic of "bank money." But as you aren't sure you followed my logic, the whole of my first (of two) comments was:
In trying to compare the question of
1. whether banks are not *only* intermediaries
2. to Selgin's initial stated very limited (he strays) goal of showing that banks are *also* intermediaries:
you are comparing apples with oranges: same question from exact opposite angles: "not only" versus "also."
Indeed, in your reply to me, you amply give examples of such intermediation that banks make use of.
Selgin is largely attempting to make old "loanable funds" theories sound at least roughly correct (by ignoring the parts where they are wrong) and at the same time going after dubious interpretations of heterodox banking theory. To the extent that people are misunderstanding those theories, I have no objection. But he argued that the BoE paper used the same definition of intermediary as him, which is transparently wrong, as his comments about physical money admit.
I am currently working on my version of how to look at this. It is an example that overlaps earlier texts that I have written. I have no idea how the various articles will be merged. Should be ready by tomorrow, or maybe Thursday.
Thanks for a brilliant read !