# Soft Currency Economics II  ## Metadata - Author: [[Warren Mosler]] - Full Title: Soft Currency Economics II - Category: #books ## Highlights - a sovereign with its own free trading currency could never default unless it was the government's decision to default. ([Location 138](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=138)) - in the case of nonpayment ([Location 155](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=155)) - Note: What does this mean? - Money is considered an economic resource. ([Location 259](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=259)) - force of logic, ([Location 276](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=276)) - Note: If the premise is false, no matter the soundness of the logic the conclusion will be invalid. - taxed advantaged savings incentives are creating a need for deficit spending. ([Location 283](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=283)) - explanation of fiat money, ([Location 284](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=284)) - Monetary policy sets the price of money, which only indirectly determines the quantity. ([Location 286](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=286)) - overnight interest rate is the primary tool of monetary policy. ([Location 287](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=287)) - Note: A misunderstood tool. And now an obsolete tool. - sets the overnight interest rate, ([Location 288](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=288)) - Changes in the money supply cause changes in bank reserves and the monetary base, not vice versa. ([Location 291](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=291)) - Debt monetization cannot and does not take place. ([Location 293](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=293)) - The imperative behind federal borrowing is to drain excess reserves from the banking system, ([Location 295](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=295)) - (deficit spending) as a matter of course creates an equal amount of excess reserves in the banking system. ([Location 296](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=296)) - deficit spending is the direct creation of new money. ([Location 302](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=302)) - deposit in the form of a treasury security is created. ([Location 303](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=303)) - Note: Deposit? - three categories of money: commodity, credit, and fiat. ([Location 320](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=320)) - Fiat money is a tax credit not backed by any tangible asset. ([Location 324](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=324)) - Note: Tx credi? - Under a fiat monetary system, money is an accepted medium of exchange only because the government requires it for tax payments. ([Location 326](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=326)) - Note: So market exchange has no influence? - Government fiat money necessarily means that federal spending need not be based on revenue. ([Location 328](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=328)) - cards are instantly given value ([Location 338](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=338)) - Value has been given to the business cards ([Location 338](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=338)) - Note: The cards have not been “given” value. The exchange consists of chores for food. The cards only provide a medium of indirect exchange. Also, the kid produce something of value to earn the cards. Unlike government handing out “cards” to the needy. - wealth (measured by the number of cards) of each child. ([Location 351](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=351)) - decide on the overnight interest rate. ([Location 353](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=353)) - Note: Target. - regulates the economy. ([Location 354](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=354)) - the market for reserves. ([Location 366](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=366)) - Note: Which exists only for depositors at The Fed. - Banks for all practical purposes cannot change their current reserve requirements. ([Location 390](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=390)) - Note: Right. But, so what. - The role of reserves may be widely misunderstood because it is confused with the role of capital requirements. ([Location 400](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=400)) - setting the price of reserves. ([Location 404](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=404)) - Bank lending decisions are affected by the price of reserves, not by reserve positions. ([Location 418](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=418)) - Note: Talk about getting it backwards. What can I say? - These banks would actually have negative reserve levels if not for fed funds purchases i.e. borrowing money to be held as reserves. ([Location 421](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=421)) - Note: Name one bank. - the money supply remains unchanged by the Fed's action. ([Location 430](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=430)) - Note: Right conclusion for wrong reason. - The Fed controls only the price. ([Location 436](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=436)) - the federal government borrows money from the Central Bank rather than the public. ([Location 443](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=443)) - Note: Since when does the government borrow directly from the Fed? - the Fed's primary instrument for implementing policy is the federal funds rate. ([Location 466](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=466)) - Tax and Loan accounts because funds flow into them from individual and business tax payments ([Location 482](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=482)) - total number of dollars that have been drained from the banking system to maintain the fed funds rate is called the federal debt. ([Location 518](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=518)) - adding reserves ([Location 531](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=531)) - Note: It is not clear whether he think government borrowing adds directly to reserve. - The financing was made up of $1.3 trillion in tax receipts and $0.2 trillion in borrowing. ([Location 534](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=534)) - Note: Which is it? Spend then borrow (see above)? Or, tax, borrow the spend? - The monetary authority was then committed to keep the mint price of gold fixed by being willing to buy or sell the gold in unlimited amounts. ([Location 560](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=560)) - Note: Should this be referred to as a price? Yes, maybe. - 1934 the Gold Reserve Act ([Location 566](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=566)) - an increase in the gold supply brought about by a major gold ([Location 576](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=576)) - strike could increase prices and disrupt financial markets. ([Location 577](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=577)) - Note: Increase prices of other goods in terms of the quantity of gold. - hold a certain fraction of their deposits in reserve, ([Location 606](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=606)) - Note: They don’t actually hold deposits in reserve. They hold reserves equal to a certain fraction of deposit liabilities. - lender of last resort. ([Location 610](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=610)) - Note: This phrase doesn’t reflect that actual role of the Fed. They will increase reserves, which will allow banks to create more money. - two primary roles associated with reserve requirements: money control and a revenue source for the Treasury. ([Location 611](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=611)) - reservable deposits ([Location 615](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=615)) - Reserve requirements also result in an implicit tax on banks because reserves held at the Fed do not earn interest. ([Location 617](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=617)) - The Monetary Control Act of 1980 mandated universal reserve requirements to be set by the Federal Reserve ([Location 637](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=637)) - "Federal Reserve credit is not a substitute for capital." ([Location 655](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=655)) - When a Federal Reserve Bank made a direct business loan the loan created a new deposit in the banking system. ([Location 665](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=665)) - Small Business Investment Act of 1958. ([Location 668](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=668)) - Money and securities are no more than accounting data. ([Location 699](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=699)) - When banks borrow fed funds they are actually borrowing deposits from other banks. ([Location 700](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=700)) - Note: Confusing or misleading. - The difference between a bank's cost of money and the return on loans determines its willingness to lend. ([Location 709](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=709)) - Note: Again confusing. Does this refer to fed funds? - Since 1969 repurchase agreements have developed into an important source of funds for banks. ([Location 724](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=724)) - By adjusting the composition of the reserves between borrowed and non-borrowed the Fed sets the spread between the fed funds and the discount rate. ([Location 788](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=788)) - Note: I have trouble with the word“sets.” - loan creates a deposit ([Location 812](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=812)) - Note: I don’t think this describes the process. - force repayment of $10 million of loans, ([Location 830](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=830)) - Note: Who’s loans? - lead reserve accounting ([Location 840](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=840)) - Financial intermediation ([Location 846](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=846)) - The Federal Reserve can set the price of reserves ([Location 856](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=856)) - banking system's loan portfolio ([Location 862](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=862)) - Note: The banking system now has one portfolio? - The imperative of borrowing is interest rate support. ([Location 870](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=870)) - By issuing government securities, the government offers banks an opportunity to exchange non-interest bearing reserves for interest bearing securities. ([Location 870](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=870)) - leave the money in a non-interest bearing account at the Fed. ([Location 875](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=875)) - Note: Again and again, that’s not “money.” - One person's savings can become another's pay cut. ([Location 885](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=885)) - Savings equals investment. ([Location 886](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=886)) - increasing output. ([Location 894](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=894)) - Note: With what? - Investment in new capacity is automatically an increase in savings. ([Location 894](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=894)) - Note: Don’t you have this backwards? - If the general demand for goods declines the demand for loans to finance inventories rises. ([Location 904](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=904)) - The reason that government deficit spending has not resulted in more inflation is that it has offset a structurally reduced rate of private spending. ([Location 907](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=907)) - Note: No it’s a matter of how the deficit is financed. - Investment creates its own money. ([Location 914](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=914)) - Note: Egad! - the price around which free market prices in the private sector evolve. ([Location 928](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=928)) - A real estate tax is an interesting alternative. ([Location 949](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=949)) - Fiat money is only a tax credit. ([Location 953](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=953)) - luxury taxes could be levied to prevent excess consumption (not to raise revenue). The success of the luxury tax should be measured by how little money it raises. ([Location 955](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=955)) - exports are the cost of imports. ([Location 959](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=959)) - indifference levels where buyers and sellers meet. ([Location 970](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=970)) - even decades when the CPI grows at, say, 5% without any real inflation. ([Location 981](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=981)) - True overcapacity is an easy problem to solve. We can afford to employ idle resources. ([Location 1003](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=1003)) - misunderstanding of money and accounting ([Location 1010](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=1010)) - For every euro asset there is a euro liability.  The net is always zero. ([Location 1016](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=1016)) - demand leakages ([Location 1032](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=1032)) - Central banks are not revenue constrained in their own currency. ([Location 1047](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=1047)) - deficits are too small, ([Location 1082](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=1082)) - the euro is a simple public monopoly.  And any monopolist is necessarily price setter, not price taker. ([Location 1088](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=1088)) - What this means for the euro zone is that inflation control ultimately comes down to limiting government spending by limiting selected prices member nations are allowed to pay when they spend. ([Location 1095](https://readwise.io/to_kindle?action=open&asin=B009XDGZLI&location=1095))