Transcript: MMT economist L. Randall Wray on monetary reform: “The balance sheets don’t balance”

Link to video

In 2017, Modern Monetary Theory (MMT) economist L. Randall Wray was interviewed by Steve Grumbine on Real Progressives, to “debunk AMI.” AMI stands for the American Monetary Institute, which is the United States proponent of monetary reform. The UK version of monetary reform is called positive money. here is the unabridged transcript of this video, from the 43 minute mark through the 50 minute mark. Wray is asked to describe his research and findings on positive money in general.

I’m trying to finish up with a co-author an extended study of what positive money is. It’s actually very difficult to pin it down. Because the people who are promoting positive money, for the most part, are not out of academic economics. Now, I’m not saying that you have be an academic economist to have a good idea. I’m not saying that at all.

I’m just saying that it’s very hard to figure out what theory is behind what they’re stating. And then also to try to fit their statements into accounting. We’re taking about one kind of accounting, sectoral balance accounting, to make sure that what they’re saying is actually coherent. There’s another kind of accounting which is just a normal balance sheets of banks, the central bank, the Treasury. Trying to run all of this through balance sheets to see, is it coherent, does it makes any sense?

The problem is, they haven’t done it and I’m not sure they’re capable of doing it. So you have to try to reconstruct what must be a coherent way of presenting what they’re presenting in a non-coherent way. So that’s what we’ve been trying to do. A lot of it is not coherent. The balance sheets don’t balance. They’re saying a lot of nonsensical things that just aren’t possible – you can’t do this.

That said, we agree that the banks are completely runaway. There’s just so much excess, so much fraudulent behavior, “too big to fail.” They engaged in risky and fraudulent practices before the [2008] crisis. The Fed and Treasury bailed them out, patted them on their little behinds, [and] said go back to doing what you been doing because you’ve been doing such a great job. This has to be stopped. They’re absolutely right about that.

We want to constrain the banks, too. They think that they can constrain them by making them narrow banks. Some of the proponents of positive money. What’s called narrow banking, or full reserve banking, or 100% money banking. They want to prevent the banks from just “creating money out of thin air.”

Remember what I said before. Hyman Minsky said anyone can create money, all you have to do is write, “IOU five dollars.” How are you going to prevent that? You can’t prevent people or institutions from creating money. So what they’re going to do is take a part of the financial system, say the commercial banks, and tell them that if they can’t make loans. Okay, well you can do that. Is that going to constrain the financial system? No, it’s not. Because most of our problems were in the shadow banks, anyway. They were not in the commercial banks.

Now, the commercial banks are tied to the shadow banks. That is true. And you could take some of the commercial banks, separate them, [and] say, “you can’t do any business whatsoever with shadow banks.” Okay, fine, you make them safer. But you still have a shadow banking system. They will crash us again. They are bigger than they were into 2007. They are just as interlinked as they were, and they’re engaged in, for the most part, the same kind of crazy activities.

Outside of mortgage-backed securities, everything else has returned. Things like auto related debt is actually much worse than it was in 2007. Student loan debt, much worse than it was in 2007. So, we’ve got all the makings of another crash. Taking part of the banking system [and] making them really safe is not going to protect that at all.

The other thing that positive money shares with what in the US is called “greenbackers,” they say that, right now, the government has to borrow from the private banks and pay them interest. They think this in someways is immoral (that the government is paying interest to private bankers) when it could just print money. So what they want to do is have the government print the money to make the payments.

Do they literally mean that we’re going to move to a completely cash-based economy? When the government wants to order $4 billion bomber it’s going to deliver wheelbarrows of cash to Boeing or something? That would be pretty crazy. I hope that’s not what they mean. It’s hard to tell because they never get us the balance sheets.

Or do they mean it’s electronic money. If it’s electronic money, that’s the way we already do it. The bond sales to the banks are not a borrowing operation. They have to do with monetary policy (we didn’t get into that). That’s all about hitting your interest rate target. It has nothing to do with the government needs bank money to make payments. Because all government payments are made by the government’s bank, which is called the Fed. It has nothing to do with the private banks, except you and I have accounts with the private banks. So when the government wants to pay us our Social Security, the Fed is going to have to make the payment to our private bank for the Treasury. So the private banks are involved that way.

It’s not that our government needs power banks money, it needs to make payments to us in the bank money. So it runs through the Fed to our private banks. So they completely misunderstand how the government spends, and the reality is it already does what they want. Except without delivering the wheelbarrows. It does it all electronically.

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