Thursday, August 22, 2013

Banking Example #11.2: Macro Balance Sheets: Even More Details

Update 1 2013.08.26: Changed the role of variable "G": it no longer contributes to public's money stock.
Update 2 2013.08.26: Changed the role of variable "Mg": it no longer contributes to the public's money stock. (more below)
Update 3 2013.08.31: Removed M, Mb, Mf, Mg and replaced with Lb, Lf, Lg as in Ex #11.1

This post is just a more detailed version of Example #11.1 which in turn was a more detailed example of Example #11. Please refer to those prior posts for explanations of the assumptions made and the independent variables I adopt here from them. Here I'm adding three new independent variables to describe the non-Tsy governmental sector (intra-governmental). This includes agencies like Social Security that have their own tax revenue stream and government sponsored enterprises (GSEs) like Fannie, Freddie and Ginnie Mae. I'm lumping these all on one balance sheet that I call "Non-Tsy Gov." The three new variables are: G = intra-governmental held Tsy debt (this is a very large percentage of Tsy debt in the USA), Ug = unspent intra-governmental Fed balances and Lg = intra-governmental held MBS. Note that T, unlike in Example #11, now explicitly includes the component from the non-Tsy government sector, but still excludes the foreign sector. However, overall this post is still not really complete:
  1. I have to find out if my non-Tsy Gov sector sells its own debt (I'm assuming no for now)
  2. Ditto for 2. but equity (I think this is true, but I'm not taking this into account: i.e. I think the public can hold shares of Ginnie Mae, etc, but I'm not sure!)
  3. Just generally check it over and make sure there are no errors. I'm still finding errors in the much simpler Example #11 (I haven't yet for #11.1, but it hasn't been up that long!)
In light of the incompleteness of this post, please don't take it as the gospel truth! Also, if you see where I'm making an error (mathematical or otherwise) PLEASE let me know! Thanks! (I'm putting this out there early in the hopes I get some good feedback).

BTW, I know this is getting more and more ridiculously complicated, but I hope to puff it all up, and then carve it back down again, just leaving in place what I think are the really important pieces: for example maybe it makes sense (somewhere down the road) to aggregate the foreign sector and the intra-governmental sectors together. After I "puff it up" I want to find some good realistic numbers to substitute in and then take a look at what we've got. 

UPDATES: As of Aug. 31, 2013, I've made an important correction to the following tables: This correction has to do with how G & Lg affect the bank reserve and public's bank deposits expressions: previously I erroneously had them entering into these expressions, but it no longer does. Re: G: This is because G really just represents an imbalance in spending between the intra-gov (non-Tsy gov) agencies (which have their own revenue streams (e.g. SS)) and the Tsy. Imagine we draw a line around both Tsy and non-Tsy gov and look at it as one entity: if non-Tsy gov takes in $X in taxes, and Tsy takes in $0, but non-Tsy gov spends $X on Tsy-bonds and Tsy spends $X, then the public sees $X into the government and $X back out. This does not contribute to the public's money stock. The resultant $X in Tsy debt now held by non-Tsy gov simply represents the fact that non-Tsy gov collected the revenue and Tsy spent it. Now suppose that in the next reporting period the tables are turned and Tsy collects $X in revenue and the non-Tsy gov collects $0, but non-Tsy spends $X. But where did non-Tsy get the $X? Tsy will end up spending their $X paying the principal back on the Tsy debt purchased by non-Tsy in the previous period, and rather than using the proceeds to buy more Tsy debt, non-Tsy spends it (supposing the next period is enough time for that debt to mature). Again, the public sees $X in and $X out. The fact that the accumulated intra-gov Tsy debt disappears has no effect on the public's stock of money or equity. Re: Lg, the argument is similar to that of G, but in this case you can think of it like this: The public first loses Lg in tax money to the non-Tsy gov (which results in the banks needing to borrow Lg in Fed deposits from the CB to send to the non-Tsy gov). The non-Tsy gov exchanges its Lg in Fed deposits for Lg of MBS from the banks. The banks use the Lg in Fed deposits received in the exchange to pay off the loan of reserves from the CB.

Proceeding directly to the variables and balance sheets we have:

Independent Variables
Name  Range  Description
T 0 < T  Total Tsy debt outstanding**
B 0 < B < T-F-G  Tsy debt held by banks
F 0 < F < T-B-G  Tsy debt held by the Central Bank
L 0 < L  Bank loans & mortgages to public
C  0 < C < Lb+Lf+B+F-Ut-Ug-  Cash in circulation in public
Ut 0 < Ut < Lb+Lf+B+F-C-Ug-D  Unspent Tsy funds (TGA balance)*
D D < Lb+Lf+B+F-C-Ut-Ug  Bank income net of expenditures
Lb 0 < Lb < L-Lf-Lg  Bank held loans to public
Lf 0 < Lf < L-Lb-Lg  Fed held loans to public (MBS)
G 0 < G < T-B-F  Tsy debt held intra-governmentally
Ug 0 < Ug < Lb+Lf+B+F-C-Ut-D Unspent non-Tsy government funds
Lg 0 < Lg < L-Lb-Lf  Inter-governmental held MBS


Case 1: Excess Reserves: (ER > $0 or C+Ut+Ug < F+Lf)

Tsy
Assets Liabilities
$Ut Fed deposit (TGA) $T t-debt
Negative Equity Equity
$(T-Ut) -----------

Non-Tsy Gov
Assets Liabilities
$Ug Fed deposit -----------------
$G t-debt -----------------
$Lg MBS -----------------
Total Assets Total Liabilities
$(G+Lg+Ug) $0
Negative Equity Equity
------------------ $(G+Lg+Ug)

CB
Assets Liabilities
$F t-debt $(F+Lf-C-Ut-Ug) reserves (Fed deposit for banks)
$Lf MBS $(Ut+Ug) other Fed deposits
-------------- $C cash
Total Assets Total Liabilities
$(F+Lf) $(F+Lf)

Banks
Assets Liabilities
$Lb loans $(Lb+Lf+B+F-C-Ut-Ug-D) deposits for public
$B t-debt ------------------------------------------------
$(Lf+F-C-Ut-Ug) reserves ------------------------------------------------
Total Assets Total Liabilities
$(Lb+Lf+B+F-C-Ut-Ug) $(Lb+Lf+B+F-C-Ut-Ug-D)
Negative Equity Equity
---------------------------- $D

Public
Assets Liabilities
$(Lb+Lf+B+F-C-Ut-Ug-D) deposits $L borrowing
$(T-B-F-G) t-debt ---------------------
$C cash ---------------------
$(L-Lb-Lf-Lg) loans & MBS ---------------------
Total Assets Total Liabilities
$(T+L-Lg-G-Ut-Ug-D) $L
Negative Equity Equity
-------------------------------------- $(T-Lg-G-Ut-Ug-D)


Case 2:  No Excess Reserves: (ER = $0 or F < C+Ut+Ug-Lf < Lb+B+F-D)

Note: Only the CB and Banks balance sheets change for this case:

CB
Assets Liabilities
$F t-debt $(Ut+Ug) Fed deposits
$(C+Ut+Ug-Lf-F) reserve loans to banks
$C cash
$Lf MBS ------------------------
Total Assets Total Liabilities
$(C+Ut+Ug) $(C+Ut+Ug)

Banks
Assets Liabilities
$Lb loans to public $(Lb+Lf+B+F-C-Ut-Ug-D) deposits for public
$B t-debt $(C+Ut+Ug-Lf-F) reserve borrowings
Total Assets Total Liabilities
$(Lb+B) $(Lb+B-D)
Negative Equity Equity
------------------- $D


Again note the unique way G (non-Tsy gov held Tsy debt) is treated here in relation to F and B. G does not contribute to the public's money stock or to bank reserves as do the others. It does contribute in a similar way to the Tsy debt held by the public. See the paragraph in italics at the top for an explanation for why G does not contribute to the public's money stock. The implication of this is that my previous examples, #11 and #11.1 were justified in ignoring the non-Tsy governmental holding of Tsy debt PROVIDED we adjust T (the total Tsy debt issued) in this cases by first subtracting off the intra-governmental (non-Tsy) held debt. A similar argument can be made for foreign held debt I think (still have to work out the details here!). Fed held Tsy debt must be counted in the total as before. So for instance if Fed, bank and public held Tsy debt only amount to 36% of all Tsy debt issued, then we should set T = to 36% of all Tsy debt issued in Examples #11 and #11.1. For this example we can include the intragovernmental held debt, but we still must exclude the foreign held debt. 

Other planned additions to these balance sheets (that I'll save for future posts) include foreign sector (foreign central banks, international organizations (e.g. IMF), etc.), and required reserve ratios.

So in the spirit of simplifying these overly complex looking balance sheets and trying to uncover the most interesting point to be made about them, I'll do the same here as at the bottom of the Example #11 post, and show the public's balance sheet under simplified circumstances: Lb = L and D = Ug = Ut = 0:

Public (simplified)
Assets Liabilities
$(L+B+F-C) deposits $L borrowing
$(T-B-F-G) t-debt ------------------
$C cash ------------------
Total Assets Total Liabilities
$(T+L-G) $L
Negative Equity Equity
-------------------------- $(T-G)

Now it's very clear how G contributes (or doesn't contribute) to the public's equity and money stock, specifically, just as in Example #11, the expression for the public's money stock is still:

public's money stock = L + B + F

with no dependence on G. The equity, however, is modified here (as T-G instead of T) to represent that T now includes this non-Tsy government sector, which must be subtracted out. Note again that T (like in Examples #11 and #11.1) still does not include the foreign sector, which I'm still ignoring.

You might wonder "But does this have to do with non-Tsy gov buying directly from Tsy? What happens if they buy Tsy-debt from the public?" Well, that would imply that Ug > 0 (i.e. that unspent non-Tsy gov funds existed) which violates my simplifying assumptions. But if we go back and let Ug > 0, then you can see that it (Ug) directly subtracts from the public's money stock (in the more complex public balance sheet presented earlier), and thus trading Ug for G  does increase the public's money stock, but that's taken care of by the decreasing Ug term, and so G still doesn't enter into it.

Notes:

* Ut > T means that the resulting "Negative Equity" for Tsy in both cases (which is normally represented with a positive number on the left here) would actually take on a negative value. Normally when that happens I null out "Negative Equity" and put positive equity on the right under "Equity" but it doesn't really matter too much: the balance sheets will balance with either method (and I kind of had to choose one since I can't have a balance with entries under both!). A similar note applies to Ug. Also to D, but in this case I've nominally entered a positive expression on the "Equity" side of the banks' balance sheet. 

** T is total Tsy debt in this world, which includes that owned by the non-Tsy gov, the Fed, the banks & the public. Specifically excluded here are foreign holdings. 

Below is a PREVIEW of a coming post (perhaps just this one redone). In it I'm proposing to wrap both intra-governmental and foreign up in one big new entity called "X-org" (I'm putting it here in case somebody has some feedback for me about my plans!):

So what I'm proposing to do here is to create a new "X-org" balance sheet representing the aggregated effects of both the non-Tsy intra-governmental and the foreign sectors. This new balance sheet will thus incorporate Federal worker retirement funds, Social Security (SS), GSEs (Fannie, Freddie, and Ginnie Mae), and all other such government agencies AS WELL AS all foreign governments, central banks, international organizations (both legal and criminal: e.g. the IMF and Mexican drug cartels), etc. The reason for this is:
  1. To try to keep the number of balance sheets and variables from getting out of control
  2. Aggregated together all such organizations have one super-set of common traits
Looking at point 2 above in more detail, such an aggregate organization will be able to:
  1. Hold US Tsy debt
  2. Hold Fed deposits
  3. Hold MBS
  4. Hold cash (still assuming only reserve notes here: not coins or US notes)
  5. Sell its own obligations: debt, currency, central-bank liabilities, bonds, whatever.
Perhaps this is a bad idea. I guess I'll just jump right in and find out! The new variables required will be Tx = X-org held Tsy debt, Ux = unspent X-org held Fed deposits, Lx = X-org held MBS, Cx = X-org held cash, X = X-org generated obligations (central bank liabilities, bonds, notes etc). Now since X is meant to describe the total amount of this obligation/debt/note issued by X-org, now I'll unfortunately need more "X" variables to describe the amount of X held by each of the other players. I'll assume Tsy can't hold any, but the rest can. Thus Xf = central bank held X notes and Xb = bank held X notes. Thus X-Xf-Xb represents the public held X notes. Here's how the balance sheet would look for entity X-org:


X-org
Assets Liabilities
$Ux CB deposit $X debt
$Tx T-debt ----------------------
$Lx loans & MBS ----------------------
$Cx cash ----------------------
Total Assets Total Liabilities
$(Ux+Tx+Lx+Cx) $X
Negative Equity Equity
--------------------- $(Ux+Tx+Lx+Cx-X)

 

45 comments:

  1. "Public equity = T-G"

    I don't think that is correct. The social security trust fund for example 'belongs to the population', it's part of the non-government's savings. Same goes for the Medicare trust fund and other intra-governmental debt.

    "The trust fund represents a legal obligation [of the federal government] to Social Security program recipients"

    http://en.wikipedia.org/wiki/Social_Security_Trust_Fund

    The government collects payroll taxes, and if there is a surplus of payroll taxes over current Social Security expenditures, the Treasury spends that amount on something else, and a bond is placed in the SS trust fund.

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    1. Hi phil,

      "The government collects payroll taxes, and if there is a surplus of payroll taxes over current Social Security expenditures, the Treasury spends that amount on something else, and a bond is placed in the SS trust fund."

      I agree! ... that's precisely why I wrote "T-G." I see what you're saying about it 'belonging to the population' and maybe I need to rethink that a bit, or at least re-word it. But do you otherwise see the logic of what I'm saying? I certainly wasn't thinking of the "belongs to the population" phrase when I wrote that. Perhaps I need to make clear that it's the public's equity regarding what the public has direct control over w/o having to convince their politicians to release the funding, etc.

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    2. Thanks for the feedback BTW, and for the quote.

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    3. BTW, I simplified #11.1 last night slightly by eliminating the M, Mf, and Mb variables and replacing them with Lf and Lb: net change: 1 variable less and I don't have to distinguish between mortgage debt and other kinds generated by lending to the public. I think I'll make those changes here as well.

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    4. Social Security is a form of obligatory saving. It's still saving nonetheless, and the trust fund is part of the non-government's savings.

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    5. these examples are getting very complicated! Is the purpose to determine what the 'public's money stock' is equal to?

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    6. Also, I'm struggling a bit with the "D" variable I introduced to #11 conceptually: obviously it represents the banks' equity (and thus should perhaps be called "Eb") but presumably the public owns the banks' equity. I'm pretty sure that the result should not increase overall banks+public equity... but I'm wondering if I need to account for this equity ownership somehow. I think for that reason, it's absolutely fine to imagine this equity has been distributed to the public as dividends, salaries, interest payments, etc (in other words to set D = 0). Alternatively or in addition to D I could add another Li variable indicating the increase in loan balances the public has had on their debt. Li and D are different things, but pretty much have the same effect... except that Li could potentially be unbounded (making us all debt peons!... and making possible negative public equities!).

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    7. "these examples are getting very complicated! Is the purpose to determine what the 'public's money stock' is equal to?"

      I'm not really clear on the purpose actually! That's an embarrassing admission, but it's true. Yes, I think determining the public's balance sheet in general is more like it. I started making them more complex to try and fold in the shortcomings of Example #11: T there I call "total Tsy debt" but it's clear that it excludes intra-gov and foreign and those are LARGE slices of the pie and you pointed out to me. Also, MBS is a large piece that I wanted to capture. I could probably simplify again and get rid of the "U" variables and the "D" one as well. But for a first stab I wanted to include them. I think I might put up another interactive spreadsheet (like in #11... maybe I put that up after you last looked... you should check it out!... it's now fully interactive and embedded and two users won't stomp on each other or leave permanent changes... like was the problem with the link to the Google one I had previously).

      Also check this out:

      http://www.fms.treas.gov/bulletin/index.html

      It seems to indicate that the "B" variable (bank held Tsy debt) amounts to no more than a few $100M (like $350M at the most perhaps).

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    8. "presumably the public owns the banks' equity"

      yeah that's a bit complicated as then 'non-banks' essentially become 'banks!

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    9. BTW, were you the "phil" that was letting Frances Coppola know how to widen the text part of her blog?

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    10. How do you like my new blog banner (quote from JKH... with both a link to his articles ("JKH"), and to the convo that came from... explaining a little about the quote (click on the quote itself)?

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    11. For a blog about 'endogenous or inside creation of money by banks" it's a bit strange that your background is full of federal reserve notes!

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    12. Good point!... I just looked for whatever Blogger had pre-canned that looked best. I told Cullen he should use the following picture (as if it exists!) for an article sometime, but he didn't respond, so maybe I will... or maybe I'll find something close and use it for my background:

      Imagine a set of Russian nesting dolls, opened up... with the bottom halves still nested. Ideally each doll would just be the rough shape of a human, but the painting on each would be different: all mosaics:

      Most inside doll: bank statements showing deposits

      Next out: reserve notes mixed w/ Fed BSs showing Fed deposit liabilities

      Next out: (perhaps I'd skip this one, due to it's insignificance): old fashioned US notes, being a direct and explicit liability of the Tsy

      Most outside: coins

      (perhaps one more layer out?): gold bars?

      and then on the other end, perhaps one more layer in (one more doll) or perhaps simply being shown as the stuffing for the inner most doll: handwritten IOUs.

      If I can't find that, then maybe a set painted to resemble Ben Bernanke (which will be dated, unfortuantely!)

      Failing that... just any old set of Russian nesting dolls. (This is the most likely one to be available... by about 99.999%)

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    13. I see it the other way around, the "outside money" is at the core and the "inside money" (private debt) expands outwards, becoming less and less "money-like" the further you get from the core.

      I don't see coins as being more "outside" money than Federal Reserve notes or deposits.

      I'd see gold as a real asset in a different category.

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    14. Sure, I figured you wouldn't like the gold thing. The reason for coins being more outside than US notes (in my logic) is that as far as I can figure, they are not an official liability to anyone. US Notes are considered to be an official liability of the Tsy, but in a special category that does not contribute to the debt limit calculation. JKH calls coins a "contingent liability" of Tsy, but that's his own nomenclature as far as I can tell. (I like that description, BTW).

      Regarding the inside outside thing... just using the usual definitions there: to you and me "outside" money is "outside" because it's a liability to an entity outside of our economy. In fact, bank deposits themselves are outside (more outside than personal IOUs) because they require this outside entity (the bank, with it's official charter and all) to create the money and hold it as a liability, when we could create our own money (if only someone would accept it!... think "Ithaca Hours.")

      I like the way this fed paper puts it (in the 1st paragraph or so):

      http://www.minneapolisfed.org/research/sr/sr374.pdf

      So that's the sense in which it's outside... but then you already knew that since you explained it to me once. In fact I got the idea for this doll thing from something you wrote me one time... about the relative nature of "inside" vs "outside."

      I understand that you see it the other way around in terms of what's "core."

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    15. that's a good point. It's a bit confusing as it could be seen either way I suppose. The problem is that outside money is not a promise to pay inside money. A $10 note is not a promise to pay you a private debt... that wouldn't make much sense.

      If I give you my own personal IOU, unless its a barter IOU (i.e. "I owe you fifteen oranges"), it's normally a promise to pay you with money at some point in the future. If I write "IOU $10" I can discharge that debt by giving you a $10 federal reserve note in the future.

      On the other hand, if I give you a $10 federal reserve note, that's not a promise by me to pay you with my own personal IOU at some point in the future. You don't come to me in a week's time and demand to redeem your $10 federal reserve note for my personal IOU written on paper.

      So that's why it seems to make more sense to have the 'outside money' at the core, because 'inside money' is a debt denominated in outside money. Not the other way around.

      So for example the outer layer in your example could be something like a long-tem private bond, the next layer in is a savings deposit at a bank, the next layer in is a demand deposit, then the next layer in is central bank money or treasury money.


      Ithaca hours are interesting. Unlike a bank deposit or a personal IOU an Ithaca Hour isn't any one individual's liability (or individual organization's liability). An Ithaca Hour isn't a promise by someone to pay you dollars on demand. It's also not a promise by a particular person to provide you with goods or services. It's a shared thing, maybe more like a form of equity? This differentiates it from forms of inside money that are debts.

      In fact it might make sense to divide the inside money category into debt-based and 'equity'-based. Bitcoin is another type of money-thing created in the private sector which isn't anyone's debt.

      I don't have a problem with gold I just see it as a real asset rather than a financial asset or 'money'. I tend to think of a gold coin as a financial asset printed on a lump of gold rather than on paper (if the coin is actually currently a form of money, rather than a collector's item).

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  2. "The reason for coins being more outside than US notes (in my logic) is that as far as I can figure, they are not an official liability to anyone"

    In the US they're apparently treated as a form of government 'equity'. I read that in 'the Chicago Plan Revisited' by Benes and Kumhof. Have you read that paper?

    But these definitions are a bit arbitrary when it comes to floating-exchange-rate government fiat money. There's no real difference in that case between a fiat coin and a fiat note. If the US was on a gold standard and the coins were made of gold then there would be a difference.

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    1. phil, JKH just got back to me on a question about this:

      http://monetaryrealism.com/krugman-and-tobin-on-banking/#comment-42807

      I also asked JP Koning a week or so ago:

      http://jpkoning.blogspot.com/2012/03/money-as-liability.html?showComment=1377008622528#c7712446343746320628

      Thanks for you thoughts... I'll mull them over a bit more when I get a chance.

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    2. Re JKH's comment. Coins are an asset on the Fed's balance sheet, like Treasury securities.

      You can see this here:

      http://www.federalreserve.gov/releases/h41/Current/

      Scroll down to "8. Consolidated Statement of Condition of All Federal Reserve Banks" and you'll see Coin under assets.

      Also if you scroll down further and look at the Fed's liabilities, you can see that the TGA balance is most definitely not zero!

      And if you scroll down to section 10: "Collateral Held against Federal Reserve Notes", you can see that the collateral held against existing FR notes is as follows:

      Gold certificates, Special drawing rights certificates, U.S. Treasury debt, agency debt, mortgage-backed securities.

      No commercial bank loans or anything like that.

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    3. Here's the bit from 'The Chicago Plan Revisited' (2012):

      "In this context it is critical to realize that the stock of reserves, or money, newly issued by the government is not a debt of the government. The reason is that fiat money is not redeemable, in that holders of money cannot claim repayment in something other than money. Money is therefore properly treated as government equity rather than government debt, which is exactly how treasury coin is currently treated under U.S. accounting conventions (Federal Accounting Standards Advisory Board (2012)."

      (p.6)

      http://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf

      I recommend reading the paper by the way as it gives another view, coming from the 'monetary reform' perspective.

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    4. phil, I'm supposing the coins as assets (rather than liabilities) represents coins that have been purchased at face value from the Mint but not yet distributed, right? Because they certainly would be an asset of the Fed in that case.

      Phil, much thanks for the link! ... so about $25B in the TGA when that was made... well that is a chunk of change... I'm glad I included Ut.

      "No commercial bank loans or anything like that."... ah, but what are MBS (which is on the list)? Aren't those basically mortgages bundled or tranched up somehow?

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    5. ... so an asset of the Fed... then to the Fed coins are "outside money" ... whereas reserve notes are not!

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    6. BTW, I wonder if there's a chart somewhere that shows the TGA balance as a function of time?

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    7. "equity rather than government debt" ... thanks for that link too. Well, either way, it would be on the right hand side (Cr side) of the BS (since that's where Equity appears). Although I have yet to see a gov balance sheet w/ coins expressed this way. Assets (the way the Fed treats them) are on the Dr side (left side) as you'd expect any outside money to be to its holder: although they are explicitly "Assets" (as is outside money) and not a negative equity!

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    8. I was just thinking, if you define inside and outside money in the way Ricardo Lagos does in that paper, which is the common definition, then Bitcoin is outside money, not inside money. I'm not sure about Ithaca Hours.

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    9. "TGA balance as a function of time?"

      You can see Fed balance sheets going back to 1996 here:

      http://www.federalreserve.gov/releases/h41/

      Page 2 of this article has some charts going back to 2005:

      http://www.newyorkfed.org/research/current_issues/ci18-3.pdf

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    10. phil, awesome! Thanks again. By "Cash" I'm sure they don't mean paper notes and coins, right?

      So the 1st figure (in your second link) appear to show the sum of the TT&L balances and the TGA. The 2nd figure breaks them out into two distinct things and plots them together. Right?

      So why the interesting shapes there? It seems TT&L's have been emptied immediately since Sept. 2008 into the TGA, whereas prior to that time it was the TGA that was running near 0 and the TT&L's that had a large balance. Does the text address that? I don't think that's any kind of accident... it must have had to do with the crash in Sept 2008 and the ongoing recession, etc.

      I was expecting it to have kind of a saw tooth pattern (the TGA balance... er.. I guess the combined balance) if Fed auctions were held at discrete times... in other words a rapid rise in the balance... and then a more gradual decline due to spending. But then I thought I don't really know how the auctions are timed... maybe there's one going on nearly all the time. But it does have a bit of a lumpy pattern (not so much a classic saw tooth). Very interesting! I wonder what that data would look likes smoothed with a running average ... say 6 or 8 month filter. I guess I can dig into your 1st link and find out for myself, huh! Haha. ... Just eyeballing it, it appears that prior to 9/08, the mean amount was about $30B or so, and then after 9/08 it looks like about $50B or $60B.

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    11. prior to 2008 the TGA maintained a balance of around $5 billion. On the chart it looks like it's near zero but its actually in the region of $5 billion. You can see this by looking at the Fed balance sheets.

      They stopped using TT&L accounts in 2008, the text explains why. It's worth reading in full.

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  3. "I'm supposing the coins as assets (rather than liabilities) represents coins that have been purchased at face value from the Mint"

    Possibly, probably. Though if banks deposit coins at the Fed then the Fed might keep them rather than sending them back to the Treasury. There's no real reason for it to send them back to the Tsy unless they are old and need to be replaced or just destroyed.

    "ah, but what are MBS"

    They're agency MBS, i.e. issued by govt-sponsored enterprises like Fannie Mae.

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    1. OK, I figured that, but does that mean they're liabilities of the GSEs or does it mean they are actually a bunch of mortgages bundled up somehow?

      And if they are liabilities of the GSEs... are they somehow "backed by" mortgages that the GSEs hold?

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    2. Mortage-backed security (MBS): A security that is collateralized by a discrete pool of mortgage loans and that makes payments that are based primarily on the performance of those loans.

      Agency MBS: Mortgage-backed securities issued or guaranteed by federal agencies and government sponsored enterprises.

      http://www.federalreserve.gov/newsevents/reform_glossary.htm#

      Agency MBS are issued by GSEs, which are backed by the federal government.

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    3. So how does it work? Say a GSE obtains a mortgage as an asset from a bank paying the bank in borrowed Fed funds

      GSE:
      A: 100 mortgage
      L: 100 borrowing FF

      Now the GSE wants to make a MBS out of this mortgage and sell it to the Fed. How does that look on the balance sheets?

      Delete
    4. btw that is me you're arguing with over at Worthwhile! I would have thought you'd recognise 'philippe' from the email I sent you? lol

      Delete
    5. I have no idea how MBS or Agency MBS work in practice. Try googling it.

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    6. "btw that is me you're arguing with over at Worthwhile! I would have thought you'd recognise 'philippe' from the email I sent you? lol"

      Hahaha... you got me! I forgot that's how you spelled it. I did ask yesterday... and got more suspicious when you didn't answer.

      "googling it" ... shoot, I guess I have to hunt that one down myself.

      Delete
  4. Hey Tom, what do you think... if Bitcoin is money, is it outside money or inside money?

    "Outside money is money that is either of a fiat nature (unbacked) or backed by some asset that is not in zero net supply within the private sector of the economy. Thus, outside money is a net asset for the private sector".

    "Inside money is an asset representing, or backed by, any form of private credit that circulates as a medium of exchange. Since it is one private agent’s liability and at the same time some other agent’s asset, inside money is in zero net supply within the private sector".

    http://www.minneapolisfed.org/research/sr/sr374.pdf

    ReplyDelete
  5. My first thought is outside, since you have to "mine" it like gold, right? (to create new money). The amount of it is determined limited by it's nature from what I understand.

    But I haven't thought a lot about it. If I'll have more thoughts I'll update this or email you.

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  6. Tom,

    "Now it's very clear how G contributes (or doesn't contribute) to the public's equity and money stock, specifically, just as in Example #11, the expression for the public's money stock is still:

    public's money stock = L + B + F"

    You're mixing up self-defined accounting identities and causation, I think.

    Also what is your definition of the 'public's money stock'?

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    Replies
    1. I'm not saying anything about causation. Money stock here is bank deposits + cash currently held by the public.

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    2. 'contributes to the public's money stock' looks like a statement about causation..

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    3. Well if X = Y + Z it's fare to say that Y contributes to summation which is X without implying that Y causes X.

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  7. I'm confident that once you read this again you come to read these articles and blogs. monument capital group

    ReplyDelete