Of Bitcoins and Balance Sheets: The Real Lesson From Bitcoin

The monetary systems of nations operate on two types of balance sheet expansion:

  1. National, where the government spends into the economy expanding a national balance sheet
  2. (The sum of) banks’ balance sheet expansions, where bank loans create deposits

The asset side of both of the above are traded around as “money”.

The national government creates the numeraire for the system (the “Dollar” in the US, the “Pound” in the UK etc.) and in addition to spending directly in to the economy in that numeraire, the government allows a public/private system (publicly regulated private banking system) to operate with the same numeraire. This creates a single system for the public but in fact arises from two separate but linked balance sheet expansions.

But why do the tokens from either of these balance sheet expansions have and maintain value?

The government maintains the value of its balance sheet tokens by demanding that some of its tokens, once a year, must be paid back to the government. This guarantees that everyone in that nation will accept and value the tokens from the national balance-sheet expansion.

The tokens that arise from the public/private bank balance-sheet expansion maintain their value analogously – by the obligation to repay bank loans.

Together, the obligation to pay taxes and the obligation to repay bank loans maintain the value of a currency. Note that both of these rest on the government/legal system of a nation.

An organized, effective government with a sound legal system that does not use foreign currencies can always maintain the value of its currency. (Hyperinflations are always the result of governments and their legal systems becoming corrupted or destroyed in some way, and never the result of runaway money creation).

What does this mean for Bitcoin and other cryptocurrencies?

Bitcoin is not the result of a balance sheet expansion. There is no inherent obligation for repayment of bitcoin to any government (taxes) or to extinguish private debt (banking system). There is no in-built demand for bitcoin (or any cryptocurrency).

Bitcoin is worth zero dollars (or Yen or Pounds etc).

National currencies will always do two things 1) extinguish tax obligations and 2) extinguish private debt obligations. Even if you have neither, there are always enough people with tax and bank debts that you can be sure that your money will be voraciously sought after by merchants of all types. Unless we are in Mad Max territory, they will give you a loaf of bread for it.

Bitcoin is not part of a balance sheet. It does not inherently extinguish debt of any kind – neither a tax obligation nor a bank debt. Nor do other cryptocurrencies. Once the fad for them subsides, the realization that you can’t pay taxes or repay a debt with them will become evident and their true value of 0 will become evident.

Because they don’t understand money or balance sheets, bitcoin collectors and cryptocurrency creators don’t understand why their tokens are inherently worthless. They won’t understand why, when the fad passes, no one will be willing to take their play tokens for real goods.

The only benefit from the bitcoin fad may be a better understanding of the balance-sheet nature of national economies, and the relationship of this to the real resources of a nation. This will prove to be the real lesson from bitcoin. The sooner it is learned the sooner nations can get on with the real work of using their national balance sheets and good legal environments to improve the real economy.

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P.S.  A common refrain is that yes, Bitcoin and cryptocurrencies are worthless, but Blockchain is really a big deal.

Well, not so much…

The blockchain paradox: Why distributed ledger technologies may do little to transform the economy

Ten years in, nobody has come up with a use for blockchain

As I have said before – blockchain is going to turn out to be the Wankel engine of the finance world. Interesting concept but not that useful in real life, never quite filling a real need.


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Endogenous money, MMT, Positive Money, & financial reform

Among the Post-Keynesian groups concerned with understanding and fixing problems that lead to the 2007/8 Global Financial Crisis (GFC) and other ongoing economic problems there are different areas of focus by circuit theorists, Modern Monetary Theory (MMT), Steve Keen’s approach to private debt, and other Post-Keynesians. (MMT, while often with a focus on other aspects of the economy [as L. Randall Wray writes, leading from neo-Chartalist and functional finance insights to fiscal policy] is nevertheless firmly grounded in endogenous money theory). Despite these various approaches having important disagreements and areas of interest all are grounded in reality & therefore their discussions on policy options are coherent and useful, unlike orthodox policy discussions.

There is another perhaps small but dedicated and often visible group of reformers that focus on the monetary system. Broadly these are the various groups that want to change the monetary system such as The American Monetary Institute (AMI), Positive Money (PM), economists associated with the New Chicago Plan and others. Their relation with the Post-Keynesian groups mentioned above is somewhat complicated, and the key reason involves endogenous money. Before continuing, it helps to divide these diverse money reforming groups into two broad categories:

I. A significant number of monetary reformers focus on a money multiplier (and often on fractional reserves). They are still stuck in a loanable funds world, probably because orthodox economics has been so successful in teaching their delusion that we live in a loanable funds world, so these reformers, despite being heterodox in their goals, learn their economics from orthodox sources. Of course, we are not in a loanable funds world, so there is no money multiplier (and here). This means this significant section of monetary reformers is (rightfully) dismissed by those who understand how banking works. 

II. There is another group of monetary reformers that do understand that we are in an endogenous money – not a loanable funds – world. Their proposals do not focus on a (non-existent) money multiplier. Their proposals are aimed at actually making the current endogenous money system into a true loanable funds system. This would be a “no reserves” system. (Positive Money and related proposals are examples of this group).

For the second group above, this leads to a somewhat difficult intellectual position. Post-Keynesian economists have been trying to get orthodox economists to understand the way the economy actually works (with endogenous money) in the real world for decades, and have looked on in dismay as orthodox economists have spent whole careers writing about a non-existent loanable funds system and in turn giving terrible, indeed dangerous, policy advice. Thus it is natural to view holders of the loanable funds view as enemies who do real harm to the economy and the public. But it is different to be frighteningly delusional about reality (as orthodox economists are about loanable funds) than to understand that the current system is an endogenous money system and want to make it a loanable funds system (as PM-type proposals do. There are other main reasons many Post-Keynesians reject PM-type proposals. At times, though, it seems mere association with the muddled orthodox view of banking does influence how/whether some Post-Keynesians really weigh the details of PM-type proposals).

I think several points follow from making the above distinctions into two groups. Primarily they concern the possibility for PM type money reformers to strongly support some key MMT proposals for financial reform, and in turn good reasons for Post-Keynesians to be in dialogue with both types of monetary reformers, rather than seeing them as some misguided offshoot of the loanable funds mainstream.

On the AMI, PM, monetary reform side –

  1. Realize the danger of being thought “not to get” endogenous money (or of actually not getting it for those in group I above). Educate those who still talk about “full/fractional reserves” and a money multiplier that these are just not the issue. Irrelevant terms such as full/100%/fractional reserves immediately suggest that the banking system is simply not understood. The loanable funds system PM and others propose is a “no reserves” system, not a full reserve system. PM type proposals are about changing the endogenous money banking system to a (no reserves) loanable funds system.
  2. Strongly support MMT proposals that get part of the way to your goals, even if you ultimately want further changes. Warren Mosler’s proposals go a significant way towards reducing negative aspects of the current endogenous money system and are in accordance with PM type views; two in particular:

“Banks should only be allowed to lend directly to borrowers and then service and keep those loans on their own balance sheets.”

“Banks should not be allowed to accept financial assets as collateral for loans.” (Mosler)

Both of these would significantly alter and restrict the current endogenous money system in ways that move the system towards PM and similar plans’ goals. Indeed, PM itself lays out what their ultimate goals (brief version here) are and separately shorter-term goals that in part are similar to what many MMT and similar proposals for bank reform want.

Also – some MMT (and other Post-Keynesian) proponents are in favor of nationalizing banks, and/or of creating an additional system of narrow banking for those who want it. PM recognizes this as an important step towards their ultimate goals. Creating postal banks or any other narrow banking system as at least an option for the public is a logical and do-able goal that many sides could unite behind.

In other words, if PM type proposals want to move from “A” (today’s system) eventually to “D” (a loanable funds system), and Mosler-type proposals move the system to “B” (significant restrictions on the way endogenous money is currently created; the existence of a parallel narrow banking system for those who want it) then PM should be very much on board.

For Post-Keyenesians:

  1. Try (even) harder to teach monetary reformers that are erroneously still worried about a money multiplier (group I) that there simply is not one in the current system (I know – it seems they just won’t listen to good advice). If they understood endogenous money and that loans create deposits they would see that reforming a “money multiplier” is a waste of time. This might then lead them to see the logic of and support reform proposals such as Warren Mosler’s. Another possibility is that they would become part of group II above and at least understand the issues more clearly. This would make coherent discussions possible, and take one more group out of the spell of orthodox nonsense.
  2. Regarding group “II” above – Post-Keynesians should recognize that group II monetary reformers are different from orthodox economists in a crucial way – they get endogenous money – they just don’t believe it serves the public purpose. They truly believe that a real loanable funds model is possible to create and serves the public purpose better than the existing system. Recognize that real dialogue is possible with them unlike with the vast majority of orthodox economists. If a loanable funds model would not work or would be worse for the public, clearer statements of why could be made. I know there are essays by Post-Keynesians about some of these proposals; I think they could be better (more on this below). For example, usually one of the more conscientious writers of the MMT economists, Bill Mitchell, compares some of these proposals to the gold standard (although he seems to be considering some of the Austrian type proposals in part of the essay). Mitchell writes “There would be the equivalent of a gold standard imposed on private banking which could invoke harsh deflationary forces.” While under a true loanable funds system such as PM proposes endogenous private credit-money would not be created, it is obviously still a fiat system, and neo-Chartalist and functional finance insights hold: limitless (except by inflation) money could be pumped into the economy as needed through fiscal policy, tax decreases, and citizens dividends. The gold standard comparison simply does not make sense.* Ditto concerns about PM proposals being deflationary (not in the long run for the reasons mentioned, nor in the short run since the changeover would be portfolio neutral – I think the New Chicago Plan has a good explanation of this, page 49 ).

Although PM and similar proposals are not necessarily among the largest or most influential groups (compared to orthodox economists and their policy groups) they do have some visibility and any additional organized, visible support for much needed reforms, and any addition to coherent discussions of our endogenous money system should be welcome.

Rather than arguing among themselves, Post-Keynesians and PM-type groups should focus on the important overlaps of their bank/finance reform proposals. If those are achieved, then the further changes that PM type groups want can be discussed. And despite seeming to have radically different end goals (a fair, stable endogenous system versus a true loanable funds system) the most pressing immediate bank reforms are agreed on by most sides.

Both MMT and PM-type proposals are to use state money for public purpose. The real contention between MMT and PM lies in whether or not endogenous private credit-money creation also serves the public purpose.

The key issues:

Many of the concerns with the PM proposal I have seen brought up are actually discussed in some detail in the PM literature (and/or related points usefully discussed in the new Chicago Plan) and it often seems that critics of the plan simply do not closely read PM explanations of the details of the plan. However, of course there are serious concerns, perhaps the most consistent being:

Would the new system of exclusively state money be able to create a fair system for large business loans? How would that system differ from the current system?

Concerns with the current endogenous money system:

Does the fact that endogenously created private credit-money dwarfs state money restrict the ability of the government to act in the public purpose in the way MMT believes? (possibly through the inflation limitation – can the government really contain inflation while using state money for public purpose when such huge amounts of private credit-money are created?)  Does this render MMT ideas on the role of the state in the economy unworkable? (An example of these worries is Cullen Roche’s criticism of MMT here). 

Does the inherent instability and procyclical nature of endogenous money have too many social costs?

Does the endogenous money system stealthily but inexorably lead to regulatory capture? Relatedly – Does the endogenous money system have a systemic tendency to funnel wealth upwards & into the FIRE sector? Lead to unsustainable levels of private debt? To highly inequitable wealth distributions? [related post]

On these latter questions, Steve Keen’s work seems especially relevant, suggestive of the way in which in the current system of private credit-money seems to ratchet up private debt and credit-money and create crises and inflate the FIRE sector. (e.g., “Are We It Yet?“, “Deleveraging with a Twist” and others; also see important work towards reconciling MMT & Keen’s work).

There are plenty of critiques of MMT – most of which are completely misguided and due to fundamental misunderstandings of the economy due to orthodox economic blinders. I see the most important debate concerning the balance of state and private credit money in a state theory of money and what follows from a state theory of money. These are a few more discussions that touch on that area:

A debate on Endogenous Money and Effective Demand: Keen, Fiebiger, Lavoie and Palley

Modern Money Theory and New Currency Theory  (book length version: Modern Money and Sovereign Currency) (the historical discussion of why MMT and PM-type proposals differ on banking is very enlightening; I disagree with Huber on important aspects of the second part of the paper, especially where he still falls into the household analogy trap, and his unfortunate and confusing use of the term “fractional reserve system” when that is just not the issue. He clearly knows the difference between a no reserves system and “full reserves” although I think there are simpler ways of explaining it).

The Credit Money, State Money, And Endogenous Money Approaches: A Survey And Attempted Integration L. Randall Wray

__________________________________________

[Postscript – A few bits I cut from above for readability]

*On Mitchell’s comparison of creating a loanable funds model to a gold standard – Ralph Musgrave makes similar points concerning Warren Mosler’s light dismissal of Martin Wolf’s article on banking reform. (But please Ralph – quit talking about “Full/Fractional reserve! : ) The PM loanable funds model will be a “no reserves” system!)

PM-type proposals & MMT are in essential agreement that the state can and should just spend state money for public purpose, with inflation the limiting factor. This is sometimes unclear because of the operational peculiarities of various countries, not least of the US. Whether this is just through continued deficit spending, or a 60 trillion dollar coin or similar, circulating treasury notes (the same thing really), or whatever, ultimately makes little difference. PM-type proposals have long used the US Greenback – circulating (mostly digital) treasury notes, as a key example, and MMT economists have the same view.

A final note – sometimes in comments here and elsewhere a criticism is made that “there are more technical papers that do deal with ____, since you don’t have them here you don’t know what you are talking about!” and/or “this post only relies on other blog posts and simple sources, it is not useful/serious/informed! etc.” I do try to read more “official” and/or technical papers when relevant. Two points though – 1) If bits and pieces of answers to some of these points are buried in technical papers somewhere, that doesn’t help anyone too much – cite them specifically (& better yet – summarize them and why precisely they matter) and 2) I think when good economists like Keen, Wray, Fullwiler and Mitchell with technical work write their views in plain English those writings reflect – and quite often best reflect – what their technical work tells them is right.

 

Small c chartalism, sovereign money, & public policy space v. private profit space

There is a high degree of disagreement, even within heterodox economics,  on the meaning and relations between monetary terms such as exogenous, endogenous, vertical, horizontal, chartal, monetarism, state, fiat, inside, outside, what money things are, is money debt, whether state money can be considered exogenous and on and on.

Part of the problem is that some try to define concepts through identifying historical examples, others through defining “ideal types” of the concepts and then relaxing or mixing these pure definitions to match real world systems, while still others define concepts based on the use of the words by past writers.

The degree of disagreement is so great as to pose a seemingly insuperable barrier to discussion between anything larger than the smallest of in-groups.

Not only is there immense disagreement on definitions of terms between schools of thought (understandable) but significant divergence of definitions and usage within heterodox and Post-Keynesianism (circuitiste, horizontalists, structuralists, Basil Moore, etc etc) and even within the various branches of these.

Just one example from comments on the last post: Ralph Musgrave writes

“First, I’m bothered about your use of the words fiat (as is Tom Hickey)…My Oxford Dictionary of Economics starts its definition of ‘fiat’ as follows. ‘Money which has no intrinsic value, but has exchange value because it is generally accepted.’ On that definition, central bank created and commercial bank created money is fiat. Thus your claim that ‘we do not have a true fiat currency’ is not correct: our existing system is 100% fiat.”

Yet Wray clearly distinguishes between fiat and bank credit-money, the latter of which

“can be thought as a type of ‘leveraging’ of fiat money” (Wray 1998, 111)

(Later Wray doesn’t even see modern money as fiat at all apparently;  he writes that

“The state’s money is not ‘fiat,’ but rather is ‘driven’ by the sovereign ability to impose tax liabilities…”

{Wray 2007; note, however, that the state imposes taxes by fiat}).

 The Way Forward

I think the only way to even begin discussing these issues is to agree on stipulative definitions that are based on ideal types rather than hagiographic discussions of past works. The latter is a prescription for factionalization; the former is a path to consensus and clarity. In such a complex and contested realm,  stipulative rather than descriptive and etymological definitions are needed. Define pure examples of a concept (even if they never existed) and when discussing mixed systems, just say so.

Example

A pure idea of a state theory of money would be to define it as a system where there is only intrinsically worthless currency decreed to be of value by the state, backed by its power to tax.

Alternatively, there can be commodity money.

Either commodity money or state money can be leveraged by private entities.

Separate names could be given to each type of mixed system (leveraged commodity money, leveraged state money).
If you want to call the latter mix “Chartalism” instead of reserving that term for a pure state theory of money, fine.

But then there should be some name for a system where the only money that circulates is state money.

A Pure State Theory of Money

Wray writes

“Modern money is state money…There is a pyramid of these liabilities, with nonsovereign money liabilities leveraging the sovereign’s currency.”    http://www.levyinstitute.org/pubs/Wray_Understanding_Modern.pdf

In this context Wray is calling private credit-money “nonsovereign money”.  Now Wray on sovereign government currency:

“In the US, the dollar is our state money of account and high powered money (HPM or coins, green paper money, and bank reserves) is our state monopolized currency. I prefer to expand the conventional definition of currency…[to] include HPM plus Treasuries as the government currency monopoly.” (Ibid.)

So “sovereign currency” is HPM plus Treasuries.

If you want to reserve the word “Chartalism” for a hybrid system of sovereign and nonsovereign money (sort of confusing to have a “State Theory of Money” that includes a massive amount of “nonsovereign money”, but whatever) then a system of “state money only” can be called a sovereign money system.

~~~

On private leveraging: In a commodity money system this may be useful.

However, there is no operational reason why state money needs to be leveraged.

A pure state money system is feasible.

MMT and Bank Credit-Money

I think part of the lack of emphasis in MMT on the (negative) role of private bank credit-money in our leveraged state money system stems from earlier bouts with non chartalists, especially metallists, who wanted to prove that money arose privately, and not from the state. As a result, chartalists have a natural tendency to downplay the role of private money in general, including privately created credit-money. Chartalist literature frequently (and often gratuitously, almost a tic)  turns to discussions of metallism. Simultaneously, in highlighting a state theory of money, chartalists needlessly minimize the utterly dominant role of private banks and private credit-money creation for many centuries, leveraging for private gain both commodity and state money in different places and times  (A pernicious dominance that I think vestigial in the current system, and should be excised). With stipulative rather than historical,descriptive definitions of a state money theory, one can recognize the role of private money both now and historically, without weakening a State Theory of Money in the least.

Note – A similar dynamic is evident in Bill Mitchell’s rejection of Full Reserve Banking, where he associates FullRB with the gold standard and Austrians (and says it would be deflationary, a peculiar thing to think considering a sovereign government can always issue currency, and would simply replace existing credit-money with state money with keyboard strokes), when there are plenty of arguments for stopping private credit-money creation that have nothing whatsoever to do with the gold standard or Austrian beliefs.

Sovereign money and public policy space versus private profit space 

There are good reasons to want to remove vestigial private-money creation from state money that have nothing to do with past state money v. private money discussions, debates on metallism etc.

It is hard to understand why a state system of money with private leveraging (a “leveraged state money system”) is somehow more desirable than a system of state money only, a true monopoly by sovereign money. MMT never tires of (correctly) saying that a currency issuer is always solvent. So why is there a need for private leveraging, when the state can always fulfill the money-creating role directly rather than expansion by private leveraging? (the investment and credit purposes of banks are easily carried out with no new credit-money creation).

Éric Tymoigne, in “Chartalism, Stage of Banking, and Liquidity Preference,” writes

“The demand for money-things…ultimately rests, because money-things are debts, on the capacity of their issuers to make them scarce. For the private sector money-things, this means the capacity of the issuers of money-things to make profit…” (Tymoigne 2005, 12).

What purpose is served by letting private entities profit from the public good that is sovereign money? The sovereign cedes policy space for public purpose to private space for private gain. Needlessly and inequitably.

___________________________________________________________

Tymoigne, Éric, 2005 “Chartalism, Stage of Banking, and Liquidity Preference”

Wray, L. Randall, 1998, Understanding Modern Money

Wray, L. Randall 2007 “Endogenous Money: Structuralist and Horizontalist” Levy Institute Working Paper No. 512

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[This post is written partly in response to comments on http://clintballinger.edublogs.org/2013/01/03/mmt-can-address-operational-realities-or-analyze-a-chartalist-system-but-it-cannot-do-both/]

 

Modern Monetary Theory & Full Reserve Banking: Connected by Fiat

[The fourth of a series of posts on MMT, ‘The Chicago Plan Revisited’, and related issues; see also part 1, part 2, & part 3]

Summary: MMT understands the monetary system in depth, particularly a fiat monetary system. “Full Reservers”, because they have not always fully grasped the significance of the fact there is no money multiplier and that the loanable funds model is wrong, often have a misplaced emphasis on the reserve ratio and sight deposits. Nevertheless, they can be understood ultimately to be worried about endogenous money, and in effect are arguing for a pure fiat money system. Steve Keen shows the magnitude of the negative effects of endogenous money on the economy. If Keen is properly understood, and what are in effect the anti-endogenous money policies of Full Reserve plans implemented, the end point is a pure fiat money system. And the starting point of a true chartalist system, the natural home for neo-chartalism.

There are actually two concerns most advocates of Full Reserves have

1. Solvency – there are few solvency issues with full reserves; not surprisingly a major concern in the 1930s for Simons, Fisher, The Chicago Plan etc.

2. (Endogenous) money creation

The second is much the more important, but the two are often confusingly conflated.
Partly this is because the significance of the fact that the loanable funds model is wrong and there is no money multiplier is not always fully appreciated by Full Reservers.

Banks do not make loans based on reserves or loanable funds but based on demand, perceived profitability, and the capital they hold. The government covers reserve requirements later. Raising reserve requirements can raise costs but does not stop money creation. Even the focus on sight deposits (i.e., PositiveMoney) misses the point – not only do reserve requirements not stop money creation, neither does stopping lending based on sight deposits. Banks loans pull money from the central bank, with the limit being the ratio of capital to risk-weighted assets.

So, unless Full Reservers are only worried about bank solvency, which is doubtful, they are really addressing concerns that have their root in endogenous money.

Anti endogenous  money, pro- true chartalism proposals

The main benefits of plans such as AMI, PositiveMoney, Kotlikoff, the Chicago Plan, Werner etc are, or would be with any needed tweaking, that:

Issuing fiat would be rightfully reserved for the issuer of the fiat decree: the government. A monopoly on money (but not on banks; entities that invest people’s money and distribute the gains would exist much the same as now). As L. Randall Wray notes, “money is a social creation. The private credit system leverages state money, which in turn is supported by the state’s ability to impose social obligations mostly in the form of taxes.” (Wray, 35)*. As the system stands, a public good is leveraged for narrow private gain, in a process that entails public costs through intrinsic systemic instability.

Implementing restrictions on the type of lending that leads to endogenous money creation would be “no big deal” according to Warren Mosler. (The details of how this would work, and why credit, investment in capital, and instruments for earning interest would still exist are in the various plans; Mosler suggests they would only be allowed to invest their equity capital. Some details are here).

The effect of this, however, would be a very big deal indeed. It would be the creation of a true fiat system of money, instead of the mixed state-credit financial system (as Steve Keen calls it) we have now. All money would be outside, exogenous, vertical, HPM.

Endogenous money creation is a vestige left over from older systems, where either banks were powerful enough to challenge sovereigns, or rich enough to buy off lawmakers, or where commodities actually were leveraged with bank notes. And before digital accounts, weakening banking regulation and related developments completely untethered credit-money creation from reality.

Whatever the past utility of endogenous money, in the modern economy it serves no socially useful purpose that could not be retained under a true chartalist,  pure fiat money system. Worse, endogenous money is increasingly understood to be extremely socially costly (especially in the work of Steve Keen).

Pro Full Reserve advocates, if the goals of their proposals and root of their worries are reviewed carefully and in light of the fact that loanable fund and money multiplier models are incorrect, are most concerned with the same problems Keen has also so clearly shown, that endogenous money is destabilizing and harmful.

It is evident that (neo)chartalist policies would work better under (true) chartalism than under the mixed state-credit financial system we operate under now.

That is why I say that Modern Monetary Theory & Full Reserve Banking are Connected by Fiat.

_______________
*L. Randall Wray “The Credit Money, State Money, and Endogenous Money Approaches: A Survey and Attempted Integration” Link

Although the simplifying assumptions are not perfect, Endogenous Supply of Fiat Money highlights some incentive problems with bank credit-money creation.

P.S. This post was partly inspired by a perceived lack of interest on the part of MMTers in full reserves, and vice versa (and downright hostility to MMT from the AMI Full Reservers). Good discussion here.

I see MMT, the aims of Full Reservers, and followers of the enlightening work of Steve Keen as natural allies.

Bob Mitchell (MMT), and Ralph Musgrave (pro-Full Reserve), both explicitly disagree, stating that MMT and Full Reserve have little in common. I will consider Bill Mitchell’s objections  in another post. In a nutshell though, Mitchell’s proposals (besides his analysis needlessly wading into the bogs that are Austrian thought) for banking are all very good, needed under any system, and I very much agree with him. However, they are to a large extent trying to undo the damage caused by an inherently flawed pseudo-chartalist system that has all the incentives wrong, a system that creates bank-credit-money bubbles that are the fundamental enablers of much bad activity in the financial sector. You might say that endogenous money adds fuel to the “FIRE” that Mitchell wants to extinguish. Excising endogenous money creation from our fiat money is needed to truly effect the changes Mitchell wants.

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