The conventional circular flow and endogenous money
Once again a report in the Livemint of 27-11-2014 caught my attention;
“Perhaps the reason we have been so willing to protect the borrower against the creditor is that the hated moneylender looms large in our collective psyche. But the large borrower today is not a helpless illiterate peasant and the lender today is typically not the sahukar but the public sector bank. In other words, we are the lender,” said Rajan in his speech on Tuesday, adding that when the large promoter defaults wilfully, he is essentially robbing the taxpayer and making it costlier to fund new investment in the economy.*
This sounds so much like the conventional circular flow reasoning - that deposits come before lending. Endogenous money questions this view; loans create deposits.
I am not questioning the fact that growing NPAs are a cause of concern but simply raising the point that economists still cling to the conventional view that banks use savings to lend just like the moneylender.
* Read more at: http://www.livemint.com/Money/TaNyxECKa6pbuWYuS7vAaN/RBI-ready-to-give-more-flexibility-in-recasting-distressed-l.html?utm_source=copy
Thursday, November 27, 2014
Friday, November 7, 2014
Here is some conventional macroeconomic rhetoric, extracted from an article in the Livemint of Friday, Nov.7, 2014. MMTers can obviously see through the anxiety that is being raised here.
... “Given the sluggish growth of tax revenues in (the) first half of 2014/15, meeting the disinvestment target would be crucial to ensure that the fiscal deficit remains in line with the budgeted level,” said Aditi Nayar, an economist at ICRA, the Indian arm of rating agency Moody’s.
... Officials worry that a shortfall in proceeds from share sales and lower tax collections due to the weak economic recovery could force them to cut budgeted spending again.
... “The situation is not as bad as last year, but we may need expenditure cuts, maybe of Rs20,000-25,000 crore,” said the first source, adding there could be savings in capital spending as some ministries were unable to spend allocated funds.
Read more at: http://www.livemint.com/Politics/fUvEGpLThR9rVAtYvpDinN/Govt-may-fall-short-of-its-95-billion-privatisation-target.html?utm_source=copy
... “Given the sluggish growth of tax revenues in (the) first half of 2014/15, meeting the disinvestment target would be crucial to ensure that the fiscal deficit remains in line with the budgeted level,” said Aditi Nayar, an economist at ICRA, the Indian arm of rating agency Moody’s.
... Officials worry that a shortfall in proceeds from share sales and lower tax collections due to the weak economic recovery could force them to cut budgeted spending again.
... “The situation is not as bad as last year, but we may need expenditure cuts, maybe of Rs20,000-25,000 crore,” said the first source, adding there could be savings in capital spending as some ministries were unable to spend allocated funds.
Read more at: http://www.livemint.com/Politics/fUvEGpLThR9rVAtYvpDinN/Govt-may-fall-short-of-its-95-billion-privatisation-target.html?utm_source=copy
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