Monetary Sausage

Do you need slides to explain how financial systems work? Try these! Covers money creation & destruction, bank payments, tiered settlement, taxation, deficit spending, gov borrowing, and savings! docs.google.com/presentation/d…

@mean_field_zane @econ_robinson (just don't forget it's loan repayment and use the model).

@mean_field_zane @econ_robinson Sure, I'll transfer it from my bank to your bank. You could even use that as an example, just modify it a bit.

The intellectual dishonesty of MMTers is more infinite than their plans for the inflation rate.

@mean_field_zane @econ_robinson One transaction, all phases. Start, transfer, balance, ...

@monetarysausage @econ_robinson of a loan maturing?

@mean_field_zane @econ_robinson Can you walk me through an example?

You are wrong because you are looking for a separate “principal repayment” line in the balancing/transfer stage, but in Bianchi-Bigio that is not where principal repayment occurs. The model uses one-period nominal claims. Old loans, deposits, reserves, bonds, fed-funds positions, and discount-window positions mature at the beginning of the next lending stage; new positions are then chosen. The “principal” is the 1 in 1+i. Ignoring that is the whole error.

@mean_field_zane @econ_robinson I don't see the principal payments, if you can find it, let us know. Until then, it certainly doesn't look stock-flow consistent. It appears to violate double entry accouning standards. It's you model--it's own you to show us that it's consistent. Show us in the math!

@mean_field_zane @econ_robinson This might be why they put the wealth tax. They are forcing the bank to disburse all +equity per period. They don't want to show changes to equity (principal repayments). You could hide this by forcing equity down--but they would still need to create new loans = P * c...

@mean_field_zane @econ_robinson The model is suggesting that there is an account which is feeding interest payments, but it doesn't seem to explicitly show that account. It's a "math account", it makes the math work.

@mean_field_zane @econ_robinson We are in the reserve layer--the central bank creates reserves the exact same way as the layer below in commercial banks: reserve loans. Some proportion of transfers in the interbank transfer phase *must* be loan repayments to the central bank. Both layers have this effect.

@mean_field_zane @econ_robinson Then why does the paper say the balance doesn't change in the transfer phase?

@monetarysausage @econ_robinson They change the balance.

@mean_field_zane @econ_robinson Bank_A: Pc + b + m - d + g Transfer of 50 principal, 50 interest. The loan was 100, reduced -> 50, the deposits were 50 -> 0. The level of deposits has been reduced. The paper says they stay constant.

@monetarysausage @econ_robinson In the budget constraint.

Honestly, these guys take my pictures then tell me to look at them. It's great.

@mean_field_zane @econ_robinson Where in the math are they recording the change? Love the picture.

@monetarysausage @econ_robinson They are explicitly recording a change in their liabilities! Again! Look at the fucking picture!

@mean_field_zane @econ_robinson You have to explain how a bank can record a transfer without changing the balance of its account. Can you do that? A quick example?

I’ve tried to explain to you multiple times that you’ve just completely missed most of the model, and do not understand whatsoever what the variables are. These are basic accounting equations and should not be difficult. Instead you seem to not have an understanding of the accounting yourself.

@mean_field_zane @econ_robinson If you record *in the transer phase* no change to your reserve liabilities, then there was no transfer!

@mean_field_zane @econ_robinson This is the transfer phase, isn't it? The payment is the transfer. You record -25 reserve liabilities, + 25 equity. The transfer phase is a change of quantity, by definition. Because the thing being transferred is being erased.

@mean_field_zane @econ_robinson At the moment the reserve is "transferred" the record actually has a reverse sign, it's negative! The balance must reduce in order to satisfy the source/use, debit/credit logic. You cannot say you record my transfer as positive, and I record it as positive. The balance changes.

@mean_field_zane @econ_robinson *This* is the issue! Let's focus on this for just a moment. Think about your logic--how can the level of reserves remain constant through the transfer phase, unless the transfer is of a token, and not an accounting entry?

@mean_field_zane @econ_robinson The person writing actually studied with Lavoie. I think the authors may have meant the budget constraint in flow terms, but it reads as mixed. The more important issue is principal repayment. Can you show me where principal repayment occurs in the model?

@monetarysausage @econ_robinson The model is explicitly stock-flow consistent. You should actually read Godley and Laboie.

@mean_field_zane @econ_robinson However, I do not see an equation which specifies the principal payment reduction, and they explicitly write in words that the transfer phase *maintains reserve deposits at the current level*. This appears to be a violation of double entry accounting standards.

@mean_field_zane @econ_robinson Ok, @mean_field_zane, as far as I can tell, the paper is not stock-flow consistent. The model is not explicitly capturing the reduction of reserves or deposits which must occur for some transfers. Some proportion of transfers must be principal repayment...