Comment by fbonetti | Hacker News Reader

Comment by fbonetti | Hacker News Reader

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You also seem to be arguing that centrals banks don't create new money, which is an odd assertion, especially for a proponent of MMT. From the article you posted:

> "QE involves a shift in the focus of monetary policy to the quantity of money: the central bank purchases a quantity of assets, financed by the creation of broad money and a corresponding increase in the amount of central bank reserves. The sellers of the assets will be left holding the newly created deposits in place of government bonds."

> "QE has a direct effect on the quantities of both base and broad money because of the way in which the Bank carries out its asset purchases. The policy aims to buy assets, government bonds, mainly from non-bank financial companies, such as pension funds or insurance companies. Consider, for example, the purchase of £1 billion of government bonds from a pension fund. One way in which the Bank could carry out the purchase would be to print £1 billion of banknotes and swap these directly with the pension fund. But transacting in such large quantities of banknotes is impractical. These sorts of transactions are therefore carried out using electronic forms of money."

>>"You also seem to be arguing that centrals banks don't create new money"

Not exactly. My undernstanding is that all money comes from the government. That is clear with banknotes for instance, it comes only from one place, but the same is true for bank reserves. Reserves originates in the Central Bank that is part of the government.

Now, if the government want to spend into something, let's say to pay a service to a private company, it tells the central bank to credit the appropriate account of the private company bank with the appropriate quantity. Money was effectively spent into existence, and, this will have inflationary effects.

On the other hand, if, for instance, in order to finance a crazy QE program, new reserves are created in the banking system, that money is available for banks to make loans, but that doesn't mean that a loan will be made. It's not until that loan is fulfilled that the new reserves will have an inflationary effect.

That's the reason why the QE programs were not inflationary. They affected the interest rate, but that was not enough because there were not appetite for loans in the economy. I think this has been calling "pushing a string". The MMT perspective would say "those QE programs are not going to be inflationary but they are not the proper tool. If you want to create demand (and some inflation) you need the government to spend, because the private sector obviously doesn't want to".

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