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2023.05.29 14:01 spunchy M&B 2023 Lecture 4: The Money View, Micro and Macro

M&B 2023 Lecture 4: The Money View, Micro and Macro
For our schedule and links to other discussions, see the Money and Banking 2023 master post.
This is the discussion thread for Economics of Money and Banking Lecture 4: The Money View, Micro and Macro.
The settlement (survival) constraint says you have to meet your cash commitments as they come due. This lecture explores the settlement constraint from multiple perspectives.
We can disaggregate assets into time patterns of future cash inflows, and liabilities into time patterns of future cash outflows (commitments). If your cash inflows are insufficient to cover your cash commitments at any given moment, then the settlement constraint binds, and you're dead.
The settlement constraint can be relaxed from above but not below. The payment system is a credit system. By relaxing our settlement constraint, economic units (agents) above us in the hierarchy can allow us to expand credit to make otherwise-impossible payments.
Mehrling introduces the "sources and uses" notation, an analytical tool that helps us match up cash flows with different liquidity categories: monetary, funding, and market.
This Lecture connects with Hyman Minsky's cashflow-oriented view of the economy, which we will discuss on Wednesday.
Note: The link to the Fed release in the lecture notes doesn't work anymore. Here's the latest version (Fourth Quarter 2022). The sources and uses matrices are on pages 1 and 2 (color-coded red).

Part 1: FT: Dealer of Last Resort

When I heard the news of another round of quantitative easing in the US last week, my first thought was that Mario Draghi should have done the same. Instead, the president of the European Central Bank opted for a conditional bond purchasing programme with an uncertain start date. In the meantime, the eurozone’s faltering economy needs a much more determined monetary stimulus, and it needs it right now.—QE would be right for Europe, too
The idea with dealer of last resort is that the central bank offers to buy an unlimited quantity of an asset at a particular price. This installs a floor below which the price cannot go—and hence a ceiling on the yield/interest rate. In the fall of 2012, the ECB is announcing its Outright Monetary Transactions (OMT) program, which offers to buy the sovereign debt of European member countries that need help—possibly Italy and Spain.
This is the "monetizing government debt" operation we've seen before.
The problem with the OMT program is that it only backstops sovereign debt if the countries ask for it and if they agree to certain conditions. But it can be problematic to ask for help. So the question is whether the OMT will have its desired effect if it never gets used/activated. Nearly nine years later, I think the answer is: partly.
Although the announcement of the program did help drive down interest rates, as far as I can tell the ECB has still never actually done any OMT purchases. Here's a Bloomberg article from 2020.
As of last year, Mario Draghi is now Prime Minister of Italy.

Part 2: Reading: Hyman Minsky

As we'll see in the reading next week, Minsky thought about the economy in terms of cashflows. His financial instability hypothesis was based on the idea that the financial sector becomes more brittle as it becomes more difficult for everyone to line up their cash inflows with their commitments—the "survival constraint" binds more tightly.
This can all happen without anyone becoming insolvent at any time.

Part 3: Payments: Money and Credit

In a "pure money" system, nobody ever borrows from each other. People make payments only by passing back and forth money assets. Whether that money is represented as physical coins/tokens/notes or merely as entries on a balance sheet, it's something that the people spending the money can't create more of.
Such a system is, of course, impossible. People will always find ways to borrow from each other to introduce elasticity.
On the other end of the spectrum is a "pure credit" system:
The above balance sheet shows payment by issuance. This creates a new IOU from the buyer to the seller of the goods. This expands credit in the economy.
There's also payment by set-off where the buyer crosses off a debt owed to him by the seller. This contracts credit.
And, for completeness, we can imagine the buyer taking on a liability that was previously owed by the seller. Credit neither expands nor contracts. This is payment by novation.
In the credit payment system, the quantity of outstanding credit increases and decreases as payments are made. That means the quantity of assets—and liabilities—expands and contracts. In the real world, there's both money and credit. Holding a buffer of money reserves allows us to make payments without lining them up perfectly against cash inflows.
Money is credit that's issued above you in the money-credit hierarchy. Banks, who sit above you in the hierarchy, create elasticity by swapping their liabilities for your liabilities. What's money to you (bank deposits) is a form of credit from the perspective of the banking system.
Notice that by using a bank as an intermediary, the overall payment system still behaves as a credit system. You pay using something that looks like money to you, but the bank created that money as credit.
On his BU site, Perry links to two helpful YouTube videos by the Bank of England:
The first video explains that money is a special form of generally acceptable IOU. In today's world, instead of being directly redeemable for something like gold, the central bank does other things to ensure the integrity of the monetary standard and to manage the stability (or instability) of the credit superstructure that rests on top of it.
The second video discusses "endogenous" money creation, narrow money versus broad money (hierarchy), and the effects of quantitative easing. Even for the "narrow money" issued by the central bank, they don't get to choose how much of it they issue. It has to endogenously adjust based on what's necessary for stable monetary conditions.

Part 4: Payments: Discipline and Elasticity

In our first example, the discipline came from the limited quantity of money—when either side ran out of money, they could no longer buy and trade stopped. In the second example, the discipline comes from the bilateral credit limit. In the third example the discipline comes from the credit limit and terms imposed by the bank on each borrower, and the elasticity comes from the willingness of the bank to swap its own IOU (which is money) for IOUs farther down the hierarchy (which are credit).—Lecture Notes
Banks can impose discipline from above by refusing to expand their credit, which is your money.
We can imagine credit limits as representing balance sheets' capacity to expand. And that capacity can bounce around depending on how much people trust each other, how much they trust financial conditions, and the capacity/willingness of lenders to expand credit.

Part 5: The Survival Constraint

To analyze the flow of money, we can think of all "economic units" (people, firms, governments, etc.) as banks. Everybody is a "money-flow" operation. Everybody faces a survival (liquidity/reserve/settlement) constraint.
To analyze how financial commitments affect the economy it is necessary to look at economic units in terms of their cash flows. The cash-flow approach looks at all units—be they households, corporations, state and municipal governments, or even national governments—as if they were banks.(Minsky 1986, p. 198)
For an economic agent to remain functional, it must be able to meet its cash commitments as they come due. If you can't make a promised payment, you're in trouble. In terms of day-to-day operations, you don't necessarily have to be solvent (assets > liabilities). You just have to be liquid enough to make your promised payments. You can continue doing business for a long time, even if you're insolvent. But not if you're illiquid.
"Liquidity kills you quick."—Perry Mehrling

Part 6: Sources and Uses Accounts

A key feature of the sources and uses framework is that it allows us to categorize cash flows. Different categories of sources and uses have different properties and represent different constraints. Mehrling breaks sources and uses into four categories: Goods, Financial Assets, Financial Debts, and Money.
Each category's source corresponds to a type of liquidity.
  • Goods: Expenditure/Receipt — Market Liquidity
  • Assets: Accumulate/Liquidate — Market Liquidity
  • Debts: Repay/Borrow — Funding Liquidity
  • Money: Hoard/Dishoard — Monetary Liquidity
For conciseness, I've shortened "Financial Assets" to "Assets" and "Financial Debts" to "Debts." Goods and money are also assets on the balance sheet.
Dishoarding is the only source that requires no counterparty. Separating out assets and liabilities emphasizes that agents manage their gross liabilities, not just their net debts. Each and every cash commitment needs to be fulfilled.
The sources and uses accounts represent payment flows, whereas the balance sheets we're used to represent stocks. Sources and uses can be translated into balance sheet changes.
  • Rule 1: For each agent, every use has a corresponding source, and vice versa.
  • Rule 2: Every agent's use is some other agent's source, and vice versa.
The first rule is just about keeping track of where the money goes when you receive it (or where it comes from when you spend it). The second rule ties every agent in the economy together.
We put the goods and services "above the line." The other three categories of sources and uses are below-the-line financial accounts. What's possible above the line (goods and services) is determined by what happens below the line (financial). This MOOC focuses mostly on what's below the line.
We don't revisit sources and uses much in later lectures, but have a look at this blog post by Daniel Neilson for more intuition on sources and uses.

Part 7: Payment Example: Money and Credit

In this part, we use sources and uses to compare a cash payment to a credit card payment. I've also translated the examples into balance sheets, so we can see how the two notations map onto each other. We can use the Clavero color-coding convention for both.
Here's the simpler cash payment:
And here's the balance-sheet version:
It's just an asset swap. Each party ends up with what the other party started with.
Here's the balance-sheet version of the credit card payment:
And the sources-and-uses version:
The two main parties (Perry and Vareli) ended up with what the other person started with. But more complicated stuff happened along the way.
I've also partitioned the balance into time periods starting from top to bottom. The sources and uses, on the other hand, are partitioned by their categories.
Notice that each issuance is paired up with its eventual set-off. This is possible because the credit expansion that facilitated the payment eventually contracted back down.
Several different credit-related transactions happen "below the line." These transactions don't directly buy goods and services, but they ultimately facilitate payments for goods and services that take place "above the line." Paying attention to what happens below the line can help us understand what happens above the line.
Mehrling's lecture notes further break down the Vareli credit card payment example into separate sources and uses diagrams for the three steps. We can do that here using our payment-type color coding.
First, Perry makes the credit payment to get the dinner.
The Goods line represents a "payment by assignment" of the dinner. The asset and debt lines together represent an "IOU swap."
Vareli settles with Mastercard at the end of the day—and the end of every day.
Perry settles with Mastercard at the end of the month—and the end of every month.
Balance-sheet liabilities (financial debts) only ever represent a specific type of use: repayment. Liabilities represent time patterns of future cash commitments. You have promised to repay at various times in the future. You could also novate the asset to repay it sooner.
If you fail to match your previously committed use with a corresponding source, you've failed to meet your cash commitment with a cash flow. You've defaulted.
Financial assets represent a specific type of source: liquidation. The asset's time pattern of cash flows is a time pattern of liquidation. You could also sell the asset to liquidate it sooner.
Since we haven't seen novation on a sources and uses table, let's do that now. When a payment is made in the banking system, a portfolio transfer happens between banks. Here it is in sources and uses:
For Bank A, the dishoarding of reserves is the source of funds used to repay the deposits. Notice that there's no set-off happening here. The debt still exists. It's just been transferred to Bank B.
For Bank B, the borrowing of deposits is the source of funds, which are hoarded as reserves. Again, the borrowing doesn't happen through the issuance of new debt. It happens through acquiring deposit liabilities that Bank A previously held (novation).
We have yet to see hierarchy/alchemy in a sources and uses table, so let's do that now. Below is an example from Mehrling that's not in the lectures.
Notice that the bank is borrowing as its source of funds. The corresponding use of funds for the borrower is hoarding. Hierarchy is the only case when hoarding and dishoarding are not paired in rule #2. In this case, the bank is above the borrower.

Part 8: Flow of Funds Accounts

In NIPA accounts, the emphasis is on value added and employment, so we focus on final production. But used goods are also exchanged, and also financial assets. These exchanges are shunted off to one side by NIPA but are at the same level of analysis in FoF. Indeed, in FoF the sale of goods and the sale of assets are equivalent ways of achieving a source of funds.—Lecture Notes
In a way the Keynesian framework grows from the quantity theory, with C+I+G+X-M serving as a kind of disaggregation of MV, and Y serving as a specification of a subset of PT. Copeland wanted to go even farther but he did not win out. Actual macroeconomic debate was between Keynesians and monetarists, and FoF remained a specialty interest for those who wanted to track developments in the financial world (below the line).—Lecture Notes
If we pretend that the payment system is a "pure money" system, then an expansion of credit just looks like an increase in the velocity of the fixed amount of money.
The Flow of Funds accounts exhibit statistical discrepancies partly because it's impossible to record all financial promises, agreements, and expectations on balance sheets. And they were designed before financial innovations such as derivatives.
We can still conceptualize any of these things as being on an implicit balance sheet. But to the extent that we regulate what's on firms' explicit balance sheets, it can push financial arrangements off the explicit balance sheet.

Part 9: The Survival Constraint, Redux

The central concern from a banking perspective is not solvency but liquidity, i.e., the survival constraint. Are current cash inflows sufficient to cover current cash outflow commitments? If yes, then we satisfy the survival constraint.—Lecture Notes
Credit allows us to delay the settlement/survival/reserve constraint.
Of the sources of funds, only dishoarding is dependable during a crisis. If you have the money you can always dishoard it to make a payment. To sell an asset (or a good), or to borrow, you need a buyer or a lender. Market liquidity and funding liquidity require counterparties.

Part 10: Liquidity, Long and Short

The key to Minsky is the alignment of cashflows and commitments in time. The economy consists of a web of interconnected agents with patterns of cash inflow and patterns of cash commitments going out into the future. Liquidity constraints anticipated in the future have consequences for today.
Because banks borrow short and lend long, they're always potentially vulnerable to cashflow mismatches (i.e. liquidity problems). In Minsky's terminology, banks are never "hedge units." They can't be. They always have to worry about rolling over their funding.
Agents that are under liquidity stress (i.e. up against the survival constraint) have to borrow. In this case, borrowing has nothing to do with time preferences or information about the market. It's not a choice.

Part 11: Financial Fragility, Flows and Stocks
We're used to balance sheets representing stocks of assets and liabilities. Flows represent changes in those assets and liabilities. Expected future flows tell us how the balance sheets are expected to change in the future.
Stocks represent residuals of past cashflows and promises of future cashflows. The balance between the pattern of cashflows and cash commitments is important for individuals, but also important for the economy as a whole.
Crisis shows up in the money-market rate of interest as agents under liquidity stress become desperate and bid up the price of liquidity.
Solvency problems can become liquidity problems and liquidity problems can become solvency problems.
For our purposes the question of solvency is interesting mainly as an outer bound on the credit limit facing each agent. Intuitively it makes sense that that credit limit will be somehow related to the net worth. Solvent agents have unused borrowing power on their balance sheets which they can potentially mobilize to make payments. Thus we can see how asset price fluctuations can cause fluctuations in borrowing power, which might have consequences for immediate liquidity. Solvency problems can easily become liquidity problems. —Lecture Notes
Please post any questions and comments below. We will have a one-hour live discussion of Lecture 3 and Lecture 4 on Monday May 29th at 2:00pm EDT.
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To save money on swimwear, timing is everything. You could choose to do your shopping towards the end of the summer or around the holidays to save money. Several stores offer huge discounts on older ones to make room for new products. You may save money without sacrificing your sense of style if you plan ahead and buy swimwear during these discounts.
Concern and Quality
Consider the quality and durability of the components while shopping for affordable swimwear in Australia. Try to get swimwear that will last a long time by opting for high-quality fabrics. Before buying, check out user reviews to learn more about the swimwear's fit, materials, and general quality. In addition, washing your swimwear after each use and following the care recommendations may increase its longevity, allowing you to get more usage out of your budget swimwear.


There is no need to choose between style and price while shopping for swimwear. You may locate affordable swimwear that will enable you to make an impact without emptying your bank account by searching online merchants, purchasing during off-season deals, embracing mix-and-match possibilities, thinking about local boutiques, and prioritizing quality and care. Spend less money on sacrificing comfort or elegance at the beach or pool today.
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2023.05.29 13:51 ahwaninterio Elevating Spaces: Design Interiors in Bhubaneswar with Ahwan Interio

Welcome to Ahwan Interio, your trusted partner in crafting exceptional interior designs in Bhubaneswar. With over 5 years of experience in the industry, we take pride in transforming spaces into captivating havens that reflect your unique style and preferences. In this blog, we will explore the art of designing interiors in Bhubaneswar and how Ahwan Interio can help bring your vision to life.
The Essence of Interior Design:
Interior design is more than just arranging furniture and selecting colors; it is the art of creating harmonious and functional spaces that evoke emotions and enhance well-being. At Ahwan Interio, we understand the profound impact that well-designed interiors can have on our daily lives. Our aim is to transform ordinary spaces into extraordinary ones, where every element seamlessly comes together to create a captivating ambiance.
Unveiling the Magic: Ahwan Interio's Approach:
At Ahwan Interio, our approach is centered around our clients' needs and desires. We believe that collaboration is the key to success, and we work closely with our clients to understand their vision, lifestyle, and budget. Our team of experienced designers and craftsmen bring their expertise to the table, ensuring every project is executed to perfection.
Exploring Bhubaneswar's Unique Design Aesthetics:
Bhubaneswar, the temple city of Odisha, boasts a rich cultural heritage and architectural marvels. Our designs pay homage to this heritage while embracing contemporary elements. From intricately carved wooden furniture to traditional motifs and colors, we incorporate Bhubaneswar's unique design aesthetics to create spaces that are both timeless and modern.
Tailored Designs for Every Space:
At Ahwan Interio, we believe that each space has its own personality and purpose. Whether it's a residential home, commercial establishment, office, or restaurant, we tailor our designs to suit the specific requirements of the space. Our portfolio showcases a diverse range of projects, demonstrating our versatility and ability to cater to different design styles and functions.
Materials and Finishes: Elevating Your Interior Style:
The choice of materials and finishes can greatly influence the overall look and feel of a space. At Ahwan Interio, we guide our clients in selecting the right materials, from high-quality woods and metals to eco-friendly and sustainable options. We pay meticulous attention to details, such as colors, textures, and lighting, to create a cohesive and visually pleasing environment that aligns with your style and preferences.
Collaborative Process: Bringing Your Ideas to Life:
We believe that the design process should be an enjoyable and collaborative journey. From the initial consultation to the final execution, we work closely with our clients, ensuring their ideas and aspirations are seamlessly integrated into the design. Our process involves space planning, layout design, selection of furniture, fixtures, and lighting, as well as efficient project management to bring your dream space to life.
Ahwan Interio's Showcase: Success Stories in Bhubaneswar:
Over the years, Ahwan Interio has successfully completed numerous projects in Bhubaneswar, leaving a trail of satisfied clients. Our portfolio showcases stunning residential spaces, functional commercial establishments, and testimonials from clients who have experienced the transformative power of our designs. We take immense pride in our ability to exceed expectations and deliver exceptional results.
Transforming Spaces: The Power of Design:
Designing interiors goes beyond aesthetics; it has the power to impact our lives positively. Well-designed spaces promote productivity, comfort, and a sense of well-being. At Ahwan Interio, we aim to create spaces that truly inspire and delight, spaces where you can thrive and create memories that last a lifetime.
Ahwan Interio is your dedicated partner in design interiors in Bhubaneswar. With our experience of over 5 years in the industry, we have garnered a reputation for excellence and customer satisfaction. Our commitment to creating captivating spaces that reflect your unique style and preferences sets us apart as leaders in the field of interior design.
From conceptualization to execution, we guide you through every step of the design process, ensuring transparency, open communication, and attention to detail. Our team of skilled designers and craftsmen bring creativity, expertise, and meticulous craftsmanship to each project, resulting in spaces that exceed expectations.
Whether you are looking to transform your home into a sanctuary, revamp your office space for increased productivity, or create a welcoming ambiance for your restaurant or retail establishment, Ahwan Interio has the knowledge and creativity to bring your vision to life.
Our designs embrace the cultural heritage and design aesthetics of Bhubaneswar, incorporating traditional elements with contemporary flair. We understand the importance of selecting the right materials, finishes, and colors to elevate your interior style. Sustainability and eco-friendliness are also at the forefront of our design philosophy, as we strive to create spaces that are not only visually stunning but also environmentally conscious.
With a diverse portfolio of successful projects and satisfied clients, we take pride in our ability to transform spaces and create experiences that leave a lasting impression. Your satisfaction is our ultimate goal, and we are dedicated to delivering exceptional results that exceed your expectations.
So, if you are ready to embark on a journey of transforming your space into a masterpiece, trust Ahwan Interio to guide you through the process. Contact us today for a consultation, and let us create interiors in Bhubaneswar that are truly captivating, functional, and reflective of your unique style. Elevate your space with Ahwan Interio and experience the power of exceptional design. For more information visit our website
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2023.05.29 13:49 r3crac BlitzWolf BW-V6 Projector 1080P Netflix Certified for 161.99 USD with coupon (Best price in history: 169.19 USD)

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2023.05.29 13:48 furnitures-dubai Office Furniture Dubai: Redefine Your Workspace with Modern Designs

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