Great talk. Thank you Cameron and Steven. Very clearly explained regarding 'government spending' (and tax) from an MMT (real!) viewpoint. I'm wondering if you could do another talk that also looks at how bank lending creates money. In this case, borrowers spend the money into the economy to meet their needs; while money is withdrawn from the economy as loans are repaid.
You spoke about the impact of rising interest rates leading to increased government spending into the economy (where there is substantial government debt on issue). However, rising rates also lead to a reduction in bank lending. As well, existing borrowers reduce consumption to pay higher interest.
It seems to me, that there is much more money injected into the economy via bank lending than the amount injected via government spending, so it's important to understand the role of banks.
It means that, to keep an economy growing, if the government isn't going into deficit at a sufficient level, the private sector must borrow more via the banks... which is what has happened since the 1980's.
Just a few comments. When Steven talked about QE being needed to provide enough ESA balances to allow for more bonds to then be issued, there was another significant thing occurring at the same time and that was the RBA’s Term Funding Facility TFF of $188 billion. Banks lodged security for that amount, repos as the bankers call them. Almost all were AG bonds. In return the TFF amounts restored banks’ ESA balance to historic highs at over $600b in total. Even if one is not a fervent MMTer most economists accept that banks don’t acquire funds to lend out per se, rather to balance up their balance sheets if and when lending occurs.
From an accounting perspective the bonds sat on the RBA asset side of the balance sheet whilst the ESAs on the liability side were topped up.
In short banks handed back AG bonds as part of QE and topped up their ESAs, then swapped them for new bonds, before handing them over to the RBA as collateral for the TFF.
Steven made a brief mention of interest paid by the government as part of the post 2020 monetary arrangements. For a much better understanding of the numbers which unfortunately wasn’t possible in the one-to-one chat, the best starting point is to look at AG’s consolidated financials, not the half-arsed set we see at Budget time. If you go to 2022-2023-consolidated-financial-statements.pdf (finance.gov.au) on page 39 you will find a revealing worksheet for AG’s consolidated financials. Interest paid by GG in 22/23 was $25.65 billion but $8.84 billion gets eliminated on consolidation because it was paid to its subsidiary the RBA. You can double check this by having a look at rba-annual-report-2023.pdf on page 211 where interest from AUD investments was $9.47billion, most related to AG bonds. With all the talk about how much the GG pays in interest it is almost always forgotten how much the RBA paid in 22/23 to prop up banks’ balance sheets or was it to prop up the economy? The consolidated worksheet shows $15.06 billion was paid by Public Financial Corps PFCs, almost all by the RBA. Of that amount $12.6 billion was paid on ESA balances. This figure is from RBA’s AReport. That’s the interest paid to banks in 2022/23 by the RBA as part of the post pandemic monetary policy shuffle. Perhaps that’s what was needed? Just a thought but if you look at the current state of the balance sheets of the States, they’re in far worse shape than banks’ were in 2020. Why isn’t the AG assisting the States given the enormous and clearly demonstrable power of AG’s consolidated balance sheet?
Just a minor correction to the last comment. Peak ESA balances were $473 billion reached in Feb 23. By June 2024 they were back to $221 billion as banks repaid TFF amounts by swapping ESA balance for a return of the AG bonds.
To reiterate: In 22/23 banks earned roughly 4 % on ESA balances and paid the RBA 0.1% on TFF amounts outstanding. The pattern was largely repeated during the 23/24. Over the 23/24 year ESA balances fell by $185 billion so TFF amounts are now all repaid ? Good while it lasted.
Capitalists don't want a better general standard of living, lower unemployment / underemployment etc. Money that isn't created by government borrowing must be created by private borrowing, and although government can raise money more appropriately and cost-efficiently than households, to imagine that the political agents of capitalism are interested in living standards or efficiency is to miss the point. Household debt is a tool to enforce discipline in the workforce. Not so much what most people might think discipline means- timekeeping, working hard, not being cheeky to the manager etc, but rather the need to keep a steady income stream for the 30 years of one's mortgage, and fear of being made unemployed when finding another job is difficult keeps workers heads down and their minds on the job. It matters not one iota whether the politicians are genuinely ignorant of how the economy actually works (most are tbh) or are cynically feigning belief in Neoliberal tropes. The austerity outcomes of applied Neoliberalism serve ruling class power, and such inefficiencies as are created by the application of those false tropes are a price worth paying for capitalists.
Great talk. Thank you Cameron and Steven. Very clearly explained regarding 'government spending' (and tax) from an MMT (real!) viewpoint. I'm wondering if you could do another talk that also looks at how bank lending creates money. In this case, borrowers spend the money into the economy to meet their needs; while money is withdrawn from the economy as loans are repaid.
You spoke about the impact of rising interest rates leading to increased government spending into the economy (where there is substantial government debt on issue). However, rising rates also lead to a reduction in bank lending. As well, existing borrowers reduce consumption to pay higher interest.
It seems to me, that there is much more money injected into the economy via bank lending than the amount injected via government spending, so it's important to understand the role of banks.
It means that, to keep an economy growing, if the government isn't going into deficit at a sufficient level, the private sector must borrow more via the banks... which is what has happened since the 1980's.
MMT is subversive nonsense.
Specifically?
Cameron, that was terrific.
Just a few comments. When Steven talked about QE being needed to provide enough ESA balances to allow for more bonds to then be issued, there was another significant thing occurring at the same time and that was the RBA’s Term Funding Facility TFF of $188 billion. Banks lodged security for that amount, repos as the bankers call them. Almost all were AG bonds. In return the TFF amounts restored banks’ ESA balance to historic highs at over $600b in total. Even if one is not a fervent MMTer most economists accept that banks don’t acquire funds to lend out per se, rather to balance up their balance sheets if and when lending occurs.
From an accounting perspective the bonds sat on the RBA asset side of the balance sheet whilst the ESAs on the liability side were topped up.
In short banks handed back AG bonds as part of QE and topped up their ESAs, then swapped them for new bonds, before handing them over to the RBA as collateral for the TFF.
Steven made a brief mention of interest paid by the government as part of the post 2020 monetary arrangements. For a much better understanding of the numbers which unfortunately wasn’t possible in the one-to-one chat, the best starting point is to look at AG’s consolidated financials, not the half-arsed set we see at Budget time. If you go to 2022-2023-consolidated-financial-statements.pdf (finance.gov.au) on page 39 you will find a revealing worksheet for AG’s consolidated financials. Interest paid by GG in 22/23 was $25.65 billion but $8.84 billion gets eliminated on consolidation because it was paid to its subsidiary the RBA. You can double check this by having a look at rba-annual-report-2023.pdf on page 211 where interest from AUD investments was $9.47billion, most related to AG bonds. With all the talk about how much the GG pays in interest it is almost always forgotten how much the RBA paid in 22/23 to prop up banks’ balance sheets or was it to prop up the economy? The consolidated worksheet shows $15.06 billion was paid by Public Financial Corps PFCs, almost all by the RBA. Of that amount $12.6 billion was paid on ESA balances. This figure is from RBA’s AReport. That’s the interest paid to banks in 2022/23 by the RBA as part of the post pandemic monetary policy shuffle. Perhaps that’s what was needed? Just a thought but if you look at the current state of the balance sheets of the States, they’re in far worse shape than banks’ were in 2020. Why isn’t the AG assisting the States given the enormous and clearly demonstrable power of AG’s consolidated balance sheet?
Just a minor correction to the last comment. Peak ESA balances were $473 billion reached in Feb 23. By June 2024 they were back to $221 billion as banks repaid TFF amounts by swapping ESA balance for a return of the AG bonds.
To reiterate: In 22/23 banks earned roughly 4 % on ESA balances and paid the RBA 0.1% on TFF amounts outstanding. The pattern was largely repeated during the 23/24. Over the 23/24 year ESA balances fell by $185 billion so TFF amounts are now all repaid ? Good while it lasted.
Capitalists don't want a better general standard of living, lower unemployment / underemployment etc. Money that isn't created by government borrowing must be created by private borrowing, and although government can raise money more appropriately and cost-efficiently than households, to imagine that the political agents of capitalism are interested in living standards or efficiency is to miss the point. Household debt is a tool to enforce discipline in the workforce. Not so much what most people might think discipline means- timekeeping, working hard, not being cheeky to the manager etc, but rather the need to keep a steady income stream for the 30 years of one's mortgage, and fear of being made unemployed when finding another job is difficult keeps workers heads down and their minds on the job. It matters not one iota whether the politicians are genuinely ignorant of how the economy actually works (most are tbh) or are cynically feigning belief in Neoliberal tropes. The austerity outcomes of applied Neoliberalism serve ruling class power, and such inefficiencies as are created by the application of those false tropes are a price worth paying for capitalists.