Regular Features Sandpit February 12, 2018 John Quiggin9 Comments A new sandpit for long side discussions, conspiracy theories, idees fixes and so on. Share this:TwitterFacebookLike this:Like Loading... Related
9 thoughts on “Sandpit”
My day job is to design and build Electronic Complex Adaptive Systems. All systems of communicating autonomous entities can be modelled as Complex Adaptive Systems. We go beyond modelling to build them. When we build economic systems as complex adaptive systems we get some interesting results.
I have been putting up some of the outcomes as we start to implement the complex adaptive economic systems. Here is the latest on Productivity that may interest some readers.
View at Medium.com
Kevin, I almost agree with you completely but for the usage of terminology.
(Productivity increase in terms of production of physical objects (‘produced commodities’):= Increase in the output quantity of at least one produced commodity with the same quantity of input commodities (‘produced or natural). Productivity increase as deduced from monetary transactions data as recorded in the national accounts is an illusion – for reasons you write about – except in very special circumstances.)
I am seeking opinions on the following.
Setting aside the legal definition of ‘money laundering’, can one interpret the ‘quantitative easing’,
as laundering the ‘money’ created by the private banking sector prior to the GFC by means of issuing ‘new money’ (ie buying up the problem securities issued by the private banking system, which caused the debt markets to freeze up, in exchange for securities issued by the central banks)?
Milton Friedman was clear about the practice of increasing of the money supply by central bankers. The quantitative theory of money may be very dated but it was very negative on the ‘quantitative easing’ that occurred during and immediately after the Vietnam War. There may be some helping historical empirical research here that may help your search.
My own opinion of ‘quantitative easing’ is largely a negative one. This means that I support your proposition that it is little more than money laundering. Central bankers were seduced by financial agents that then used quantitative easing to make the rich much richer.
There is a tennet in Economics that says rich units in any economy are very good at protecting their own interests. This was certainly true of those represented by financial agents on Wall Street. Banks were not slow in using ‘zero interest’ new money to increase the wealth of their top customers.
I agree that it may be a form of laundering money. If I understand you correctly, debt money created by private banks was backed by junk securities issued by private banks (not the same banks I guess as it is a kind of “musical chairs” set up.)
To stop the whole thing collapsing, the government did as say by “buying up the problem securities issued by the private banking system in exchange for securities issued by the central banks.”
There is a clear moral hazard issue here. Private banks get the message, “It’s okay to issue junk securities because the government will swap government backed securities for them at some point.”
In the Wikipedia “List of banks acquired or bankrupted during the Great Recession” there appear to be only five institutions which went into Chapter 11 bankruptcy and liquidation. A whole string of others were acquired by other institutions. Were the acquirers “bribed” into acquisition by the security swap? The institutions thus “ended” and some bosses and staff I guess were thus punished. But the institutions “bribed” to make the acquisitions were probably not pure either. Were they simply bigger sharks or less badly behaved sharks? I don’t know.
The whole thing reeks but these are problems of late stage capitalism. Such problems are inherent in the current system of concentrated ownership and power… and inherent in the distortion of policy making by big money, especially but not only in the USA and UK. Germany and Japan are conspicuous by their absence from thislist. China, Russia and India are also absent. This is not necessarily because the political economies of these countries are virtuous or benign.
John Hammond: Don’t worry, I’m not making the same mistakes again.
Dr. Ian Malcolm: No, you’re making all new ones.
(The Lost World : Jurassic Park)
Does my explanation above fit in with this information?
One thing is clear, QE is not “printing money”. But how did QE work in practice? Was it exchanged for junk securities as I alleged above or was it exchanged for safe government bonds? Can anyone tell me?
Ikonoclast @ 7 and @6 .
Starting with your #7. The cnbc article you referenced is not helpful, notwithstanding the practical experience of its author in the ‘finance industry’.
I found a wiki reference which, IMO, is much more helpful:
htpps://en.wikipedia.org/wiki/Quantitative_easing (substitute https for htpps when typing in the address)
The wiki reference is written from the perspective of how things work, given the institutional framework. It also contains some statistics on which types of securities were bought by which central bank and when.
Regarding your #6. I believe the critical question which follows from my post to which you replied is: What is the legal concept and definition of ‘money laundering’? Further, is this concept adequate, given ‘financial innovations’, which preceded the GFC?
This reminds me of the occasionally much abused Russell quote “mathematics may be defined as the subject in which we never know what we are talking about, nor whether what we are saying is true” I’ve seen used online to misrepresent some aspect of applied mathematics relating to a science such as an engineering or hydrodynamic topic under discussion and so disparage someone or others’ work and competency. A piece of striking, and seemingly final authoritative rhetoric that there is no getting round when used out of context. In context within the entire paragraph, let alone the book, lies the rebuttal:
“Pure mathematics consists entirely of assertions to the
effect that, if such and such a proposition is true of any
thing, then such and such another proposition is true of
that thing. It is essential not to discuss whether the first
proposition is really true, and not to mention what the
anything is, of which it is supposed to be true. Both
these points would belong to applied mathematics. We
start, in pure mathematics, from certain rules of infer
ence, by which we can infer that if one proposition is
true, then so is some other proposition. These rules of
inference constitute the major part of the principles of
formal logic. We then take any hypothesis that seems
amusing, and deduce its consequences, //our hypothesis
is about anything, and not about some one or more particular
things, then our deductions constitute mathematics. Thus
mathematics may be defined as the subject in which we
never know what we are talking about, nor whether what
we are saying is true. People who have been puzzled by the
beginnings of mathematics will, I hope, find comfort in
this definition, and will probably agree that it is accurate.”
MATHEMATICS AND THE METAPHYSICIANS essay in MYSTICISM AND LOGIC 1917 p75
Russel is talking of pure maths “assertions” not of the altogether different “indefinables and indemonstrables” of applied maths he mentions in the following paragraph.
“Now the fact is that, though there
are indefinables and indemonstrables in every branch of
applied mathematics, there are none in pure mathematics
except such as belong to general logic…”