Examples & Explanations To Do List

I'm putting this here to remind myself, but I might as well make it public in case anybody has some feedback to offer, or an item they'd like to add to my list. Ideally I shouldn't be replicating (too much) examples already covered in places like econviz.org which already has an impressive set of animated, user interactive balance sheets, especially on their macro visualizer page. Econviz is more influenced by MMT than MR, however most of the concepts illustrated there are at such a low level (my level!) that it hardly matters, and I highly recommend it (especially the macro visualizer page). I do have some overlap, but usually in the very simple examples where sometimes it's easier to just have someone spell it out for you rather than using their interactive tool. Plus by having static examples with pre-populated balance sheets it's sometimes easier to discuss with someone what's going on rather than having to tell them "OK, first go to the drop down list. Now select blah and do blah blah blah, and then go select blah and do blah... etc."  I tried directing people like that as a means of explaining, and it never worked out that well. Maybe if there were some means of pre-programming the steps on that page it would work.

So now for my list. I already have one ambitious project that has been left hanging, and which I made into a post. Frankly, I think I bit off a bit more than I can chew with that one right now. It seems there's still a need for much more fundamental and simple examples, so I think I'll focus on those first. So here it goes (in no particular order):

1. Extend Example #4 (QE) to include some percentage of Tsy debt held by the banks. Probably 20% is good. I was hoping to get a feel for how much other entities (foreign CBs, Social Security and other Fed agencies/GSEs, etc.) hold and include them as well, but I don't think getting that complicated will benefit people too much. New post or just edit the old one? Not sure. (I did make an Example #4.1, but it addressed the two kinds of QE rather than this)

2. Illustrate the difference between how electronic Fed deposits, paper reserve notes, and coins are treated by the Fed and Treasury. I have that explained in a paragraph in here, but it could use some visual backup I think. (Partially done in "Money Labels" post)

3. New example focusing explicitly on what happens when loan principal is repaid to the Fed and commercial banks. Also show the what happens with interest payments. Include the Fed remitting to Treasury. This is partly covered by Example #6 (Fed holds Tsy debt to Maturity) but could use some further focus to point out the similarity and differences between how loans are handled by the banks vs the Fed. There was a lot of confusion on this by various commentators at pragcap, especially about what happens when the Fed holds Tsy debt to maturity. (Example 10 covers this for private sector)

4. Illustrate in a block diagram(s) the concept of treating the economy like a feedback control system from the point of view of a central bank using periodic adjustments to their overnight interest rate target as a means of targeting inflation in the longer term (in non-ZLB conditions). I think this gets at the issue of the disagreement between the MMers (and other neo-classicals) and the post-Keynesians regarding the endogeneity of money. Could use some improvement, but a first draft up.

5. New example to illustrate the "accounting identity" I develop in the comments section (and toward the bottom of the post itself) in my "List of...." post. This has to do with identifying which blocks of debt ("loans") correspond with privately held bank deposits. Again, already explained there in words, but it could use a little visual backup I think. Plus the words themselves could use a little cleanup to make them less complicated (and shorter!). Taken care of by Example 11. To do still: Add MBS to the Fed's assets. May or may not require that GSEs be added first (I don't know yet). Also divide the public up in to "Firms" vs "Public" ... and allow the firms to sell stock... Actually this may be taking things too far here. I'm undecided! OK, I think I know what I should do: introduce a new variable IN ADDITION to loans (L) which represents mortgages (M). The public holds M as a liability. Now we need two more variables: Mb and Mf: Mb = mortgages held as assets by the banks and Mf = the same for the Fed. Of course it must be the case that Mb + Mf < M, which means the public itself holds M-Mf-Mb in mortgages in assets (i.e. in the form of real-estate funds, etc.). Now what about the money that M mortgages created? That adds directly to the public's bank deposits, but minus their share of the mortgages hold. i.e. the increase in the public's bank deposits = M - (M-Mf-Mb) = Mf+Mb.

6. Simplify the capital requirements example (with new post?) further... I still find people are reluctant to wade through that one and I end up writing out simplified balance sheets in comments to make it even simpler. I think I can get it down to just two sets of BSs.

7. Read this guy's blog some: http://dismalecon.blogspot.ca/  ... He posted it in this comment at pragcap: http://ask-cullen.com/how-to-build-a-popular-finance-econ-blog/

8. Example showing taxes (see comment below).

9. Build on 5. above (Example 11) to include interactive bar graphs w/ the embedded spreadsheet. Also create a new post with foreign sector and intra-governmental debt and Tsy deposit holders (GSEs, SS, etc.).

10. Add another diagram to demonstrate workings of inner feedback loop to the Feedback control example. Done, but needs a little cleanup.

11. Add an Example #0 to show some really basic concepts: explain double entry accounting, etc.

12. Add some better examples regarding interest rates and spreads!!! This is a very important part of banking that I've been ignoring for the most part!


  1. I would appreciate your doing a T-account balance sheet example of an individual paying taxes to the Federal government. Your examples are very good and interesting.

    1. snowball1205, thanks for the feedback. I'll add that to my list (and I might get to it before the other!... I don't necessary address the list in order). Thanks!