Ritchie’s monetary macroeconomics

No, still not doing any better:

This has two consequences in this context. In the first instance any limitation on borrowing might mean that there could be a credit crisis in the economy and the government will be unable to deal with it because it would have announced in advance that it could not : that would be ridiculous. But more important, what being borrower of last resort means is that the government actually has no choice but to meet the demand for cash in the economy: that is its role, as I have explained in this paper and elsewhere. What this means is that government borrowing takes a residual position: in other words the government has to lend what borrowers demand because it is the creator of cash but what that also means is that to say that it will limit its borrowing is to state a tautological impossibility: it denies the reality of the governments position in the economy as it is pretending it will not create money when in truth that is exactly what it has to do, come what may.

“Money” and “credit” are two different things. “Money creation” and “borrowing” are two different things.

What’s happening here is that Ritchie is very taken with the idea that we can just replace the credit creation system of the banks with the direct issuance of money by the government/central bank. It’s central to his reading of Modern Monetary Theory and thus to PQE. But this is where this all ends up….the contradictions of those views appear elsewhere in the “thinking”.

Sure, of the Bank of England stops issuing pound notes of M0 then we’ve a problem. But that’s completely different from Ritchie’s insistence that if the government stops pissing away the cash then issuing gilts that the economy will seize up. And he really does mean that latter. He says that paying down the national debt is destroying money. And that will inevitably causes disaster.

He’s just not able to see that it’s that first set of assumptions about MMT which is leading him into the subsequent error.

4 thoughts on “Ritchie’s monetary macroeconomics”

  1. Bloke in North Dorset

    “as I have explained in this paper”

    Did he miss out “peer reviewed” or is it another peice of useless bog paper?

  2. “But more important, what being borrower of last resort means is that the government actually has no choice but to meet the demand for cash in the economy”

    Isn’t the Government (Bank of England) the lender of last resort?

    What is a ‘borrower’ of last resort? What does it even mean?

  3. Bloke in North Dorset

    BF,

    But as Ritchie always uses his own definition of whatever he is discussing he always wins as he just shifts the definition.

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