Do monetary statistics take account of securitisation

… (meta, 1 graph)? – Published on RWER Blog, by merijnknibbe, December 3, 2012.

… And none of these two bloggers seem to be even remotely aware of the role of debt and individual behaviour… talk about fiction!

To the point:

  • 1. Monetary statistics are based upon the ‘loan create deposits’ idea. Yes, the core concept of monetary statistics is the idea that money is born from debt.
  • 2. Some banks (the Monetary Financial Institutions,  MFI’s) have the remarkable right to create legal tender and (can) do so whenever somebody borrows (mortgages, overdraft, whatever). Aside: in my view this makes the borrower the active participant, the main role of the banks (though they seem to have forgotten this for some time) is to restrict borrowing to sound projects!  
  • 3. Central banks, like the ECB, basically estimate money(growth) by looking at the amount of loans on the (monthly) balance sheets of the MFI’s (shifts between posts on the liability side also do play a role).
  • 4. However, MFI’s have sold quite some amount of (securitized) loans to Special Purpose Vehicles, a kind of banks without the right to create legal tender (though they do create a kind of interbank monies). This means that comparing (monthly) balance sheets leads to an understatement of money- and debtcreation. This is no trivial amount of money, as shown by the example of the Netherlands (at present I do not have data on other countries, it’s about 250 billion Euro) … (full text and chart).

Links:

Krugman vs. Koo on macroeconomic policy in a balance sheet recession, on RWER Blog, by Lars Syll, Dec. 2, 2012;

Morsi’s way ‘out’, on Al-Ahram weekly online, by Dina Ezzat, Nov. 29, 2012;

How Much Did We Know? on ZNet, by Irene Gendzier, Dec. 2, 2012.

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