tag:blogger.com,1999:blog-6704573462403312459.post4177146020828196461..comments2024-03-28T06:53:23.473-04:00Comments on Moneyness: Corporations are currency issuers, governments are notJP Koninghttp://www.blogger.com/profile/02559687323828006535noreply@blogger.comBlogger17125tag:blogger.com,1999:blog-6704573462403312459.post-68874212044590506832013-01-03T12:16:38.758-05:002013-01-03T12:16:38.758-05:00I'm not interested in debating whether governm...I'm not interested in debating whether governments *should* be able to issue greenbacks.<br /><br />Issuing government equity is a far more interesting topic. How do you think government should go about issuing equity? Do you think the prohibition on people issuing perpetually irredeemable equity should be overridden too? Everyone should have the ability to be a currency issuer, no?JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-79334599859118865382013-01-03T11:00:12.382-05:002013-01-03T11:00:12.382-05:00"the practice of independent central banking ..."the practice of independent central banking puts a strict divide between state and central bank"..."Governments and households, on the other hand, are prohibited from issuing these instruments" <br />Governments can easily override the silly "strict" divide, as well they should. We can't owe ourselves money, greenbacks are a very workable concept. <br />I only saw this post after the metallist v chartalist post, or I would have mentioned these related posts there <a href="http://clintballinger.edublogs.org/2012/12/28/mmt-full-reserve-banking-connected-by-fiat/" rel="nofollow">Modern Monetary Theory & Full Reserve Banking: Connected by Fiat</a><br /><br /><a href="http://clintballinger.edublogs.org/2013/01/03/mmt-can-address-operational-realities-or-analyze-a-chartalist-system-but-it-cannot-do-both/" rel="nofollow"> MMT can address operational realities or analyze a Chartalist system. But it cannot do both </a><br />Headed over to the Chartalism=McDonalds coupons post now, should be interesting<br />Clint Ballingerhttps://www.blogger.com/profile/16484643778860969972noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-11834245425182825602012-12-28T15:26:38.369-05:002012-12-28T15:26:38.369-05:00On that I'd agree. MMTers are often guilty of ...On that I'd agree. MMTers are often guilty of peddling their brand as if it were a panacea. The main point of my post was to re-purpose MMT language to show how the word "currency-issuer" also applies to corporations. One would hope that this forces MMTers to confront the fact that there's nothing magical about a central bank and the instruments it issues. We are all subject to the same grinding market forces, and the ability to issue perpetually inconvertible instruments only delays the inevitable.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-56846833097465078132012-12-28T11:20:43.924-05:002012-12-28T11:20:43.924-05:00I put my point in a rhetorical way; I don't se...I put my point in a rhetorical way; I don't see why anyone else would accept them either.<br /><br />What is really behind my questioning is that I believe that there is not enough recognition that central banks cannot just force money into circulation. In an OMO system, they have to pay up. Many of the peddlers of monetary magic like MMT or NGDPLT ignore this point.RebelEconomisthttps://www.blogger.com/profile/13241098878248190971noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-5264266553354226002012-12-28T01:34:34.524-05:002012-12-28T01:34:34.524-05:00It's more of an ideal than a reality. If the C...It's more of an ideal than a reality. If the CB has priority, then it can maintain price stability regardless of fiscal policy. If money and bonds are equal obligations (in other words, if bond default is impossible), then fiscal policy can override monetary policy, which is contrary to the ideal of an 'independent' central bank.<br />Maxnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-51440935549454480092012-12-27T23:57:23.584-05:002012-12-27T23:57:23.584-05:00You don't have to accept them directly. Say yo...You don't have to accept them directly. Say you only accept some liquid item x. All I have to do is sell my equity on an organized equity exchange for x and then we can trade. We can trade as long as my equity has some value on the equity exchange. JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-53414000417862502792012-12-27T23:53:10.628-05:002012-12-27T23:53:10.628-05:00It's tough to find a ranking of government deb...It's tough to find a ranking of government debts in terms of seniority. I know that notes are a <a href="http://jpkoning.blogspot.ca/2012/10/would-warren-buffet-buy-green-pieces-of.html" rel="nofollow">first claim</a> on the Federal Reserve, I've never read anywhere that they are (or are not) a first claim on the government. I'd be interested to read any evidence you have.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-42232777116272853452012-12-27T19:13:05.578-05:002012-12-27T19:13:05.578-05:00"as long as I constantly issue only perpetual..."as long as I constantly issue only perpetually inconvertible equity/currency, there's no way for me to default on my promises since the instruments I've issued don't provide any sort of immediate or binding promise that I must fulfill"<br /><br />Why would I accept (ie buy) them then?RebelEconomisthttps://www.blogger.com/profile/13241098878248190971noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-62261710541272496442012-12-27T15:07:07.029-05:002012-12-27T15:07:07.029-05:00The next question is, if money is debt, what's...The next question is, if money is debt, what's the difference between central bank money and government bonds?<br /><br />My answer is that money is senior government debt; bonds are junior government debt. At least, that's how it ought to be. Government insolvency should trigger a bond default, not hyperinflation. Government bonds shouldn't be riskless.<br />Maxnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-21155176431063166702012-12-27T14:49:17.834-05:002012-12-27T14:49:17.834-05:00Nah, I don't think central bank liabilities ar...Nah, I don't think central bank liabilities are equity either - they're perpetually inconvertible debt claims. By promising price stability, a central bank creates a pseudo form of redemption... its liabilities are no longer truly inconvertible. JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-30299325131557044122012-12-27T14:10:18.748-05:002012-12-27T14:10:18.748-05:00Central banks promise price stability, which depen...Central banks promise price stability, which depends on solvency. Money isn't an equity claim on the assets of the central bank. Nobody cares what the assets are, as long as the CB is able to keep its promise. Just like buyers of AAA corporate bonds don't care about the company's assets.<br /><br />One can imagine a system where money is equity, but it's not the current system.<br />Maxnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-25276240305379768802012-12-27T14:07:06.607-05:002012-12-27T14:07:06.607-05:00You're right that I'm ignoring laws on ins...You're right that I'm ignoring laws on insolvency. That adds a whole new level of complexity, especially in the realm of banking.<br /><br />But say we abstract from the laws. I still think that as long as I constantly issue only perpetually inconvertible equity/currency, there's no way for me to default on my promises since the instruments I've issued don't provide any sort of immediate or binding promise that I must fulfill. When my assets are all gone, the embedded call option that my shares carry are worth nothing, at which point my shares are worthless and I go bust.<br /><br />I agree that in a lawless free-banking world, you or I could set ourselves up as rivals to an irresponsible central bank by issuing our own currency and stealing most of its business. Currency competition <i>should</i> be one of the greatest constraints on currency issuers. Unfortunately, it's a muted constraint these days.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-42693217902437249972012-12-27T08:53:02.073-05:002012-12-27T08:53:02.073-05:00"Modern corporation can also issue perpetual ..."Modern corporation can also issue perpetual inconvertible liabilities. This is called equity. Much like a central bank, modern corporations face no solvency constraint because they can always meet their obligations with new equity issuance. Only when a corporation's equity has inflated away to nothing i.e. the price of the stock they issue is worth zero, have corporations finally hit the wall."<br /><br />Sorry, but I think you need to read some firm theory and insolvency law. A firm's shares can never be worthless, because they have an embedded call option on the firm's assets. The existing shareholders and creditors can be expected to object, and I am pretty sure that it would be illegal to issue shares if your liabilities exceed your assets.<br /><br />There are I think some really silly things written by people who should know better about currency issuers being defined by not being able to go bust, which provides false hopes. If I had enough net worth, there is no theoretical reason why I could not set myself up as a rival to an official central bank that was abusing its trust - I'd love to do that in the UK. But if so I could certainly go bust. If I tried to continue trading with negative net worth, the "fraudulent conveyance laws would get me. Of course a curreny issuer can go bust.<br /><br />If official central banks cannot go bust it is because the laws are rigged in their favour - ie, as you know, in Canada you can't issue money, and I am pretty sure that you could have a hard time suing the central bank for fraudulent conveyance. But it does not help the existing issuer that much, because the punters vote with their feet - as you know many economies are practically dollarised.RebelEconomisthttps://www.blogger.com/profile/13241098878248190971noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-91914201651001345282012-12-27T01:38:23.717-05:002012-12-27T01:38:23.717-05:00"He could issue up to 1000 of those IOU's..."He could issue up to 1000 of those IOU's without becoming insolvent..."<br /><br />It seems that the landlord in your first paragraph only faces an inflation constraint.<br /><br />By insolvent, I mean unable to meet promises. So if the landlord only has 1000 oz worth of land he can keep on issuing IOUs without having to worry about insolvency since these IOUs are not directly convertible into underlying land or gold. (You point out that these IOUs can be used to discharge a rent obligation, but because only 50 are accepted a year, IOU holders are prevented from putting the IOU back to the landlord on demand. They are pretty much perpetually inconvertible.) Therefore the landlord can keep spending IOUs at the grocery store until they're worth 0. JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-49673482913962938242012-12-26T23:42:35.011-05:002012-12-26T23:42:35.011-05:00A landlord whose land is worth 1000 oz can spend h...A landlord whose land is worth 1000 oz can spend his own 1 oz. IOU's at the grocery store, as long as he agrees to accept them for rent. He could issue up to 1000 of those IOU's without becoming insolvent, and then (assuming R=5%) he could accept 50 of those IOU's in rent each year, which he immediately re-spends. He can do this forever, so there is a perpetual float of 1000 oz of his IOU's in circulation. He could even issue another 2000 oz of IOU's, use them to buy new land worth 2000 oz, and thereby triple both sides of his balance sheet, with no effect on his net worth.<br /><br />This looks like an exception to the "line" in the first sentence of your last paragraph. <br /><br />But it gets worse, because what if the land loses 40% of its value? Maybe the landlord can be forced to liquidate, in which case his creditors get 60% of what was promised to them, or maybe for some reason it is not practical to force him to liquidate, in which case his IOU's trade at 60% of their old value. Now he resembles a central bank facing only an inflation constraint. Mike Sproulhttp://www.csun.edu/~hceco008/realbills.htmnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-31523121383209125062012-12-26T16:57:21.828-05:002012-12-26T16:57:21.828-05:00As long as the government is amalgamated with a ce...As long as the government is amalgamated with a central bank that issues inconvertible paper, I'd agree with that.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-16988170580326543702012-12-26T15:00:36.236-05:002012-12-26T15:00:36.236-05:00Hmmm. I would say that a corporation that issues b...Hmmm. I would say that a corporation that issues both debt and equity is like a government that issues both domestic currency bonds and foreign currency bonds.Nick Rowehttps://www.blogger.com/profile/04982579343160429422noreply@blogger.com