Canada – MMT poster child?
On August 10, 2015, the Library of the Canadian Parliament released one of their In Brief research publications – How the Bank of Canada Creates Money for the Federal Government: Operational and Legal Aspects – which described the operational interactions between the Bank and the Canadian Treasury that facilitate government spending in some detail. It allows ordinary citizens to come to terms with some of the essential capacities of the currency-issuing Canadian government, which Modern Monetary Theory (MMT) highlights as a starting point towards achieving an understanding of how the monetary system operates. The description is in contradistinction to the way the mainstream macroeconomics text discuss this part of the economy. It leads to an analysis where we learn that the Bank of Canada holds a significant stock of government debt which it is allocated at auction time on an non-competitive basis. And that this capacity is unlimited and entirely within historical practice. In other words, we learn the operational way in which the government is free of financial constraints.
The background for the Library Paper was a decision made by the Canadian government in June 2011 to introduce a “prudential liquidity plan”, which would was designed to increase the deposits held by the Treasury at the Bank and other financial institutions, to provide for a buffer “to meet payment obligations in situations where normal access to funding markets may be disrupted or delayed”.
The decision was accompanied by a Bank of Canada announcement that it would:
… increase from 15% to 20% its minimum purchases of federal government bonds … the Bank of Canada’s purchase of federal government bonds is a means by which the Bank creates money for the Government of Canada.
We learn that:
1. “The Bank of Canada helps the Government of Canada to borrow money by holding auctions throughout the year at which new federal securities (bonds and treasury bills) are sold to government securities distributors, such as banks, brokers and investment dealers.”
2. “the Bank of Canada itself typically purchases 20% of newly issued bonds and a sufficient amount of treasury bills to meet the Bank’s needs at the time of each auction.”
3. “These purchases are made on a non-competitive basis … it is allocated a specific amount of securities …” by the Government.
4. The bonds are recorded as assets by the Bank and creates a deposit entry in the Government’s account at the Bank.
5. “the transactions consist entirely of digital accounting entries.”
6. “Since the Bank of Canada is … wholly owned by the federal government, the Bank’s purchase of newly issued securities from the federal government can be considered an internal transaction. By recording new and equal amounts on the asset and liability sides of its balance sheet, the Bank of Canada creates money through a few keystrokes. The federal government can spend the newly created bank deposits in the Canadian economy if it wishes.”
7. Private banks also create ‘money’ – “every time the banks extend a new loan, such as a home mortgage or a business loan. Whenever a bank makes a loan, it simultaneously creates a matching deposit in the borrower’s bank account, thereby creating new money.”
8. Importantly:
One difference between the two types of money creation is that there is no external limit to the total amount of money that the Bank of Canada may create for the federal government … In contrast, the amount of money that a private commercial bank is permitted to create depends on the amount of the bank’s equity relative to its assets. The limiting rules, known as “capital constraints,” are set by the banking regulator in guidelines … Another difference is that the creditworthiness of the borrower is the key factor in the decision by a private commercial bank to provide a loan to a private entity, while this is not a factor in the Bank of Canada’s decision to lend money to the government.
They do note that the Government might voluntarily impose “internal government constraints” to limit the Bank’s capacity to create ‘money’ but there are no intrinsic financial constraints.
So what does this mean?
The institutional structure of Canadian public finances sets out that if the government wants to spend beyond its tax revenue then it borrows through auctions where the ‘primary dealers’, who make the market (in the jargon) put in bids (quantity of bonds they want and the yield they expect).
This makes it look as though the bond auctions are providing the funds that enable the government to spend.
While the accounting structure set up might require funds to go in via the auctions before the spending can occur, this imagery is somewhat fictional given that the funds to purchase the bonds ultimately reflect untaxed past government deficits anyway.
But, moreover, the Bank of Canada
The following area graph shows the breakdown of the Bank’s total assets from January 1960 to November 2019.
The next graph shows the proportion of total Bank of Canada assets that are held as government bonds.
The Bank’s reporting (August 21, 2019) – Background information on the Bank of Canada’s Balance Sheet – tell us that:
1. “Almost all the assets held on the Bank’s balance sheet consist of Government of Canada bonds and bills, acquired on a non-competitive basis at auctions”.
2. “Interest revenue generated from the assets backing the bank notes in circulation … provides a stable source of funding for the Bank’s operations, ensuring the Bank’s operational independence and supporting the execution of its responsibilities … the Bank remits its surplus to the Receiver General for Canada and does not hold retained earnings.”
In other words, they play a sort of fictional game where the Finance Department pays interest on debt Government debt that the Bank holds which covers its costs of operation and the Bank sends bank any surpluses to the Finance Department.
Imagine you are just transferrring cash from one pocket to another and declaring the pockets to be independent of each other.
In terms of the components:
1. Canada Mortgage Bonds are self explanatory.
2. Advances aremade “under its Standing Liquidity Facility as collateralized loans to LVTS participants to cover a negative end-of-day cash position.” LVTS stands for the – Large Value Transfer System – which is the core of the Canadian payments system and banks settle with each other on a daily basis via this structure.
If there is a shortage of reserves in the system on any day, the Bank of Canada provides the funds to individual banks at the so-called “Bank Rate”.
3. Repos are “Securities purchased under resale agreements” so the Bank of Canada will buy assets from the bank’s in return for reserves under an agreement to reverse the transaction at some future date.
They can be overnight arrangements – designed “to reinforce the Bank’s target for the overnight rate” – which means to ensure there are sufficient (and only sufficient) reserves in the system to clear all inter-bank transactions and provide for desired reserve holdings.
Further, the Bank of Canada conducts “bi-weekly operations … to acquire assets on a temporary basis for its balance sheet”.
You will notice a major hump during the GFC in purchases of repos by the Bank of Canada. They say that “repos may be used to inject extraordinary amounts of liquidity into the financial system and support funding conditions for financial institutions, as seen during the global financial crisis.”
There was a recent article in the Canadian Money Saver magazine (January 2020 edition) – Modern Monetary Theory In Canada – by Brian Chang under the broad heading of “Debunking Economics”. The magazine is behind a paywall and I don’t intend to promote it.
The Magazine sells itself as providing “Independent Financial Advice for Everyday Use” and the fact that it runs articles on MMT tells us how far the ideas we have developed are now penetrating the everyday discourse among citizens.
We have escaped the ‘lofty’ heights of the ivory tower!
But recognising that the Bank of Canada has been purchasing an increasing and significant portion of the government debt in Canada, the article concludes that:
What few people realize is that no country currently engages in MMT-like operations quite to the extent that Canada does, with “monetary financing” routinely conducted by the Government of Canada and the Bank of Canada as part of regularly scheduled bond auctions.
I don’t intend to eviscerate the article for its rather inaccurate depiction of MMT.
For example, in the introduction it talks about “MMT’s liberal advocacy of unrestrained government spending” but then a few paragraphs later says that under an MMT understanding “only real limitation on government spending is inflation”.
A simple proof read should have picked up that inconsistency.
But whatever.
The point is the article recognises that:
1. “the Bank of Canada is currently a large and regular buyer at government bond auctions” and has no limits on how much “money” it can produce.
2. There is a fundamental difference between the Bank of Canada recording the debt as an asset and crediting the Government’s bank account (which it spends out of) and selling debt to the private markets:
… as a crown corporation of the federal government, the Bank of Canada is required to return its revenue (including all interest payments on the assets it holds) to the Government of Canada. Effectively, the government pays interest to the Bank of Canada on its loan, and the Bank of Canada simply turns around and returns the interest to the government.
One pocket to the other!
The article suggests that Canada is unique because it “operates without a fence around its Central Bank”, unlike other nations where the governments have laws that “explicitly forbid their central banks from directly financing government spending”.
However, this is also somewhat of a smokescreen.
The ECB, for example, is prohibited from directly purchasing Member State bonds, but it purchases massive quantities in the ‘secondary’ markets once they have been issued.
The impact is the same – government deficits persist.
The article infers that this means that:
Canada is effectively the poster child for MMT-like operations in the developed world, with no current barrier preventing the Bank of Canada from effectively funding one hundred percent of government spending if it so chooses.
And that these monetary operations have been “taking place in Canada for the better part of a century”.
Canadian Money Saver magazine (January 2020 edition) article notes, in relation to Canada, that:
What few Canadians realize is that monetary financing of government spending has essentially been occurring continuously since the establishment of the Bank of Canada in 1934. While the level of monetary financing currently undertaken in Canada is a far cry from the peaks of the 1950s and 1970s, the Bank of Canada nevertheless continues to fund a considerable proportion of government spending today.
The following graph shows the proportion of total government debt outstanding held by the Bank of Canada.
It is somewhat misleading to refer to this component of government spending as “monetary financing”, given that all spending enters the economy in the same manner – the Department of Finance instructing the central bank to credit bank accounts in its favour (whether via digital adjustments or cheques working through the system).
The operations that might accompany this spending – taxation adjustments, bond sales to the non-government sector, bond sales to the central bank – do not fundamentally alter that reality.
Mainstream macroeconomics makes the distinction because it claims the inflation risk associated with the central bank purchasing bonds from the Finance department to match the spending injection is more inflationary than if debt is issued to the non-government sector.
They are wrong about that.
Please read my blog post – Building bank reserves is not inflationary (December 14, 2009) – for more discussion on this point.
In an historical sense, the practice via which the central bank would swap debt for credits with the government treasuries was widespread as nations rebuilt their economies after the Great Depression and then WW2.
The claims that such practices were inflationary are not backed by the evidence.
There were inflationary episodes but there was never a systematic relationship between these episodes and the way in which deficit spending was made operational.
The article asks the question in this context: “what exactly is the concern over MMT?” given the long-standing practice of central bank bond purchasing and “relatively benign inflation problems.”
Why should the Government restrict provision of essential “social programs” which improve the lives of its citizens on the basis that it doesn’t have enough spending capacity?
MMT tells us that the actual questions that need to be asked are:
1. Are there available productive resources that can be brought back into use through government spending? If Yes, then increased government spending is unconstrained and will improve societal welfare.
If No, then:
2. Who is currently using the desired productive resources and what means will be best to deprive them of that use so the government can deploy them for its programs, without generating inflationary pressures?
The PLMP program proved beyond doubt that the Bank of Canada can instantly create liquidity for the Government with a keystroke:
… the Bank of Canada simply acquired an extra $20 billion of government bonds with newly-created money, deposited the $20 billion payment into the government’s account at the Bank of Canada, and returned all interest payments made by the government back to the treasury … all essentially with zero cost of funds to government.
But, like all critics trying to deny the benefit of governments moving to operate more explicitly in this way, the Canadian Money Saver magazine article introduces a the “slippery slope of MMT” – as if MMT is a regime that Canada might increasingly shift to.
The reality is that MMT provides the framework for understanding what happens already on a daily basis in Canada. An MMT understanding tells us that government spending matched by central bank direct bond purchases if not likely to be inflationary if the spending growth is calibrated to the growth in non-government overall saving.
So this “slippery slope” is just the usual mainstream hype.
Arguments like – if government was to stop issuing debt to the non-government sector and instructed the Bank of Canada to credit accounts after receiving government debt as assets – then it might start “using the money for various social programs like health care, education, or employment insurance”.
What stops them doing this:
… self-imposed discipline of our elected government officials and the voting public they ultimately answer to.
The article cannot really get over the tension it creates with the reader – it argues that the Bank of Canada is already buying large quantities of government debt and this has not caused inflation but then the scale of this long-standing practice:
… has never been utilized in Canada even close to the extent that MMT proponents advocate.
But earlier, the article acknowledges that MMT economists are clear that the constraints on government spending are the real productive resources available (and the possibility of a demand-pull inflation occurring).
So we have a very strange, implicit sort of sociology and psychology being entertained.
That government officials know all this but will still go crazy with the ‘free money’.
Why would they do that?
Conclusion
The interesting aspect of the article was that it was published in a fairly low-level financial magazine that small investors are likely to read.
That tells us how far our work is now penetrating the public debate.
That is enough for today!
(c) Copyright 2020 William Mitchell. All Rights Reserved.
銀行はまた、人々がクレジットカードを使用するときにドルを作成しないでください。 銀行は、帳簿上の同じ口座から金額を差し引いて支払いをしないので、他のローンと同じですよね？
誰かが私のためにこれを確認してください。
これらの段落内に未完成の文があります（未完成の部分を強調します）。
ところで、カナダ銀行の声明には次のように書かれています。
「手段」ではなく「手段」、通知。 政府（または政府に代わってBoC） が 他の手段でお金を生み出すことができることを思い出させてください。たとえば、政府の購入が行われたときにサプライヤーの口座をキーストロークでクレジットすることで、債券の発行や購入。
また、「In Brief」研究出版物が商業銀行について「お金を生み出す」ことについて述べている場合、MMTが民間企業と別の企業との間の「水平取引」（最終的にゼロになる）を区別しないことにも注意してください。 、およびCB /政府による通貨の作成に関わる「垂直取引」。これにより、非政府部門の純金融資産がもたらされます。
http://neweconomicperspectives.org/2009/06/dont-fear-rise-in-feds-reserve-balances.html
カナダでは、カーニーがいた10年以上の間、準備残高は事実上ゼロであり、銀行貸付は他の場所と同様に継続しました。
男は生活のためにあります。 彼は最終的にメダルを獲得します。
'これは使用するのに非常に適切な画像です。 英国でのQEエピソード中に、政府とE銀行が同じポケットのズボンからお金を移動することに従事していることが明らかになりました。
イングランド銀行は、財務省に対し、保有する特定の政府債務から得た利益を財務省に与えると述べています。
当行は、経済を後押しするために債務を買い取るという量的緩和（QE）政策により、3,750億ポンドの金を保有しています。
この譲渡により、政府の借り入れニーズと、金融口座に報告される純負債が削減されます。
昨年3月現在、世銀は政府の利払いから受け取った現金240億ポンドを保有しており、来年3月までに350億ポンドに達する見込みです。
世銀は、2009年3月から量的緩和政策の一環として、新たに作成した資金で市場から政府債務を購入しています 。」（ https://www.bbc.co.uk/news/business-20268679 ）
もちろん、彼らは政府のお金をそれ自体に戻すことはそれが借りるコストを下げることのふりをします！ そしてこれは、地方自治体を不自由にし、福祉請求者に計り知れない苦痛（そしておそらくは死）を引き起こした、非常に破壊的な緊縮の始まりの間にあった。
しかし、それは猫を袋から出すべきでした！
「民間の商業銀行は、新たに発行された政府証券をオークションでプライマリーディーラーとして購入する際に、独自の貸借対照表にデジタル会計エントリを作成することでお金を生み出します。 資産側は、新しい証券の購入を反映するように拡張され、負債側は、連邦政府の銀行口座への新しい預金を反映するように拡張されます。
BoCによる政府債務の購入は、民間銀行がそれを行うのと同じだと考えているようです。 確かに後者は資産スワップであり、前者は実際の純資産作成ですか？
マイク・エルウッドが指摘するように、垂直および水平はそれらから逃れています。
（今日のsmh）
「準備銀行は、気候変動に起因する金融災害から経済を救うための特別な行動の一環として、炭鉱と化石燃料発電所を買わなければならないかもしれないと警告されています。」
なぜ民間部門の失敗した商業活動に対して州が支払う必要があるのか、残念です。 （この古くなったゴミの山は最近民営化されました）
ジョブ保証はありません。 Mates保証のための石炭へのリスク投資はありません。
ハンターバレーの地球にある有害な穴は、ポンプで汲み上げられた水力発電の一部としてブルドーザーになり、水で満たされるために、政府が購入する必要はありません。 料理法が禁止されているのと同じ方法で、炭素税を課すか、単に石炭の採掘を禁止するだけで十分です。 両方の経済活動は、社会的な観点から有害です。 警察が閉鎖し、「資本」を失っているという理由だけで、メタラボの所有者を救済しますか？
現在の企業の所有者は、死んだ馬に賭けていたため破産するに値します。 投資と呼ばれる強制退職年金のために私が会社の株式を所有している（おそらく所有していない）という事実は重要ではありません。 しかし、これはまさに社会が脅迫されている方法です。 「資産」の価値を維持したいので、生物圏を破壊します。
「現在の企業の所有者は、死んだ馬に賭けていたため破産に値する」
たぶん、しかし
1. CO2問題が問題として認識される前に多くの投資が行われました（そして多くの否定者は、「シャツを失う」と見られるまさにその理由でAGW気候変動の現実を理解したくないかもしれません（投資）。
2.不潔な化石産業の労働者は罰せられるべきではありません。だからこそ、仕事ごとに仕事をするだけで、移行の中央銀行資金（ex nihilo）が必要です。
BISが中央銀行が化石産業を買わなければならないかもしれないと警告していることを報告している最近のSMHの記事はどれほどタイムリーであるか…
ニュートンフィンのように、この問題に対するエレガントなMMTソリューションが大好きです。クリーングリーンへの移行を完了するためのリソースが利用可能であれば、その目標を達成するための純粋な経済的障壁はありません。
物事が実際にどのように機能するかを理解する必要があります。 公的および民間部門の支出の合計が以下を超えないように、「お金の買いだめ」（国内通貨建てのお金と準通貨資産の節約）を差し引いた後、民間部門の需要から残るものを部分的に抑制するために税が必要です経済の総生産能力。 これは閉鎖された経済のためです。 （実際、個々のセクターを検討する必要がありますが、私は過度に複雑にしたくありません）。
反対方向から見ています。 GDPの5％の消費ギャップがあり、摩擦レベル2％を超える2.5％の失業率（Okunの係数= 2）があり、完全雇用に近い時点で賃金需要を調整する方法があると仮定します。 （これは単純化しすぎです。労働市場のその他の緩みなどは含みません）。 政府の純支出が2％増加し、短期支出乗数が1.5である場合、GDPは参照軌道と比較して3％増加します。 これは、支出を増やす余地があまりないことを示しています。 しかし、余分な支出をドル単位で「事前」に相殺することは、Loanable Funds Theoryが私たちに何を教えるかということは、明らかに愚かです。 これは、支出ギャップ、乗数、動的効果の存在のために物事がどのように機能するかではありません。
米国で1兆/年の需要ギャップがある場合、グリーンニューディールの1兆/年の追加支出でこれを埋めることはできないことを認識すべきです。 これは、支出乗数効果の存在によりシステムを爆破します。 税金を増やさずに、6667億/年を費やすことができます。 これは理にかなっていますか？
富裕層による富の貯蓄プロセスを抑制し、同じ金額を使うと、限界消費傾向の異なるグループ間での国民所得の再分配により、システム全体が再均衡し、支出がなくなる可能性がありますまったくギャップ。
実体経済、エネルギー使用、CO2排出などへの影響については言及していません。これはそもそも考慮に入れなければなりません。 また、富裕層の支出に対する富の蓄積の長期的な影響と、輸出入に対する影響があります。
必要以上に物を汚したくないのですが、金銭的な制約がないという事実は、本当の制約がないという意味ではありません。 最終的に調整するのは数パーセントだけかもしれませんが、最も不利な点と環境フットプリントの長期的な軌道にとっては、これは大きな意味を持つかもしれません。
まず、すべてのフレーバー、これらすべての自然利子率、NAIRUアーティファクトなどで融資可能な資金理論の壊れた論理を捨てなければなりません。かなりの数の中央銀行がすでにこれについて知っていると主張します。誰にも言って。
どうして鉱山労働者を罰したいと思うのですか？ 鉱業会社が破産するのを許すことは別の話です。 企業が資本主義で保護種になったときから？ 「創造的破壊」の余地はどこですか？ 炭素税を課す場合にのみ、外部性を考慮しています。 これは気違いの中央計画者のランダムな決定ではなく、これは石炭を発掘することの真の社会的および環境的コストの単なる承認です。
ハンターバレーに再生可能エネルギーインフラストラクチャを構築することについて言及しましたが、これは労働者の一部またはすべてを雇用することになります。 Billは移行の詳細な計画を公開したことを覚えています。利用可能な技術の変更のため、これを更新する必要があるかもしれません。
スティーブン・ポロズが現代の金融理論家に冷水を投げかける、ケビン・カーマイケル、2019年12月20日
https://business.financialpost.com/news/economy/stephen-poloz-throws-some-cold-water-on-the-modern-monetary-theorists#comments-area
「我々は、炭素税を課す場合にのみ外部性を会計処理しています。 これは、狂った中央計画者のランダムな決定ではありません」。
気候変動科学が本物である場合、中央銀行による化石産業全体の購入、およびグローバルなグリーンベースの経済（ASAP）の資金調達が必要です（最新のBIS声明による）。狂った中央計画者」。
もちろん、これはおそらく非現実的です。 科学が正しければ、惑星は調理されることを意味します。
したがって、「市場経済」を維持するために炭素税が採用されると思います。 問題は、移行を実現するために税金をどれだけ高くする必要があるか、そして移行中のエネルギー価格の上昇に対して貧困者にどのように補償するか、そしてインド（世界人口の6分の1）がどのように管理するかです。
注：MMTを活用した中央銀行業務で可能な「狂った中央計画」の下では、これらの価格に関する考慮事項は必要ありません。