Jamie Smith

31, Physicist, Engineer, amateur economist.

Constantly in a superposition of disappointment and pride with the world.

[Jamie Smith @JGS952]

Too much of our politics today dimminishes the costs of inaction and perpetuates fictions about not being able to afford action.

I've written this to explore this false economy and why we really need to break away from such thinking.

https://t.co/xDJHa9zQa3

[Jamie Smith @JGS952]

Also.. water nationalisation is a *one time adjustment*!! At most it reflects a one time transitory dislocation in asset markets and prices.

The sys will reconfigure & the result will be public ownership of our water for centuries! Please let's think bigger and realistically.

[Jamie Smith @JGS952]

Burnham has been convinced by a broken Tsy model that water nationalisation is unaffordable within their fiscal rules (forgetting ideological commitment to privatisation).

The Green Party is the only party that recognises that, actually, water nationalisation is intrinsically..

[Ashok Kumar @comrade_kumar_]

Burnham opposes water renationalisation. Only the Green Party supports bringing water back into public ownership.

Breaking down the economics of water privatisation and renationalisation:

[Jamie Smith @JGS952]

An overall "affordability" assessment would look at these actual behavioural responses and real world functional effects of nationalisation. It wouldn't care whether a narrow balance sheet rule is breached.

[Jamie Smith @JGS952]

@Econgrad5143 @foscaecon Well we'd agree that QE induced portfolio rebalancing and asset price inflation rather than increased C or I. But M2 wasn't "sterilised", it remained elevated post QE. Portfolio rebalancing between non-bank actors just shuffled M2 deposits around, it didn't redeem them.

[Jamie Smith @JGS952]

@Econgrad5143 @foscaecon The original quote tweet said QE doesn't necessarily increase M2 if the bonds purchased by the CB are owned by banks. This is true. But all I was saying is most bonds purchased via QE were owned by non-banks and so M2 does increase. So I'm not sure why you waded in?

[Jamie Smith @JGS952]

@Econgrad5143 @foscaecon My point is QE results in M2 increasing

[Jamie Smith @JGS952]

@mikewinddale @MaMoMVPY That's possible under that identity ofc but in reality a price shock, particularly from abroad, can feed directly into firm cost and financing structures, followed by a fight over margins and nom wages, all requiring/inducing an endogenous upward flux in money deposits

[Jamie Smith @JGS952]

@mikewinddale @MaMoMVPY Well obviously I'm assuming fixed V and constant Q here. It's one possible causation dynamic and the likely dominant one in supply shock dominant inflation.

M = M(P,V,Q) = PQ/V. I.e. δM/δP = 1 assuming constant Q and V. Causation can run either way

[Jamie Smith @JGS952]

@pbw15204825 @MaMoMVPY Or one that reflexively reacts to the mon. needs of the prod. and consumption sectors in the real economy, facilitating stable output growth etc etc. Inflation isn't inherent but can ofc be a side effect. The alternative is a rigid and poorly functioning payment and credit sys

[Jamie Smith @JGS952]

@Econgrad5143 @foscaecon Yes, duration debt is swapped out for *both* overnight reserves and overnight bank deposits when the CB purchases gov bonds from non-bank actors via QE. Banking sector balance sheet expands as a result.

[Jamie Smith @JGS952]

@Econgrad5143 @foscaecon It means they have been purchased by the state sector (CB) and despite them being accounted for on the CB balance sheet they are no longer macroeconomically relevant unless and until they are re-issued / sold back into the economy via QT.

[Jamie Smith @JGS952]

@Econgrad5143 @foscaecon Transactions with or between nonbank actors are *mediated* by reserves, but they very much cause shuffling or flctuations in broad bank deposits. QE resulted in an increase in broad money deposits, swapped in for longer duration state debt being functionally redeemed (held by CB)

[Jamie Smith @JGS952]

@foscaecon Yep, V is also an implicit dependent function of the composition of duration held by the non-gov, given that M is narrowly defined as more or less overnight liabilities of the state and banking sector. Hence, QE mechanically pulled V down (residually) to compensate for higher M

[Jamie Smith @JGS952]

@PatriciaNPino Does BoE paying interest on reserves get accounted for under changes in PSNFL? I assume it was only the loosely coupled higher interest on refinanced Tsy debt that is counted. Ofc in practical terms, a BoE rate hike does rachet up state spending all else equal

[Jamie Smith @JGS952]

@SHunter98846947 @GeorgeSelgin That's all well and gd, but there's still a difference between the quantity of reserves/deposits ex ante *causes* lending capacity and it being the *effect* of lending activity. Reserves are supplied on tap at a ~fixed price ex post to decision to lend and expand credit structure