@Kevin Carney “Others insist they are franchisees of the Federal Reserve and the Federal Reserve is not public” Public = meaning Government owned? Or public meaning non-Government privately owned? It sounds like your argument here is public = government. I understand the arguments for and against the Fed being publicly owned ur Gov, and some of my friends like to say ‘quasi-governmental’ …I stay clear of that argument for now. This is another ongoing issue of the language around money, similar to the multiple meanings of the word ‘Reserves.’

@Alwyn Lewis “Re. banks, I tend to see 'reserves' as the bank's founding deposit at the CB.” @Kevin Carney and I have discussed this prior, we all use this word reserve or reserves in banking, which has multiple meanings and thus creates enormous confusion. Yes, you are absolutely right Reserves are swapped for bank assets as founding capital. This is important because this is all reserves are, credit entries in a bank’s account on the Federal reserve’s ledger (or CB ledger), which as an institution has assets it holds against these credits. Same as bank’s crediting deposit accounts. But, the CB had no assets of its own from the Gov, no founding capital other than the assets banks contributed or deposited with it, same for Bank of England, so every Fed asset is acquired by issuing new Liabilities, or settlement balances, these reserve account credits, which are called ‘Reserves.’ This is reserves as CB Liabilities, and also bank Assets. That says, banks hold Assets in excess of their Liabilities, just as the CB does, which is excess capital, owner’s equity and in an annual basis profits. These profits or excess assets are hold ‘on reserve’ in case they are needed to fund bank liabilities. That’s not a monetary unit, that’s a measure of excess assets being held on reserve. A bank’s tier one capital ratio or CAR/capital adequacy ratio is defined by excess assets held on reserve, which can be multiple types of assets, not only reserve account credits themselves, so this is a different meaning. “So reserves in that sense are its own money, used to provide a buffer of bank-equity held in reserve against a loss of bank-equity due to borrower-default.” Yes! “I prefer the term 'settlement-balance' (which Canadians seem to use) for the bank assets that balance the bank's 'customer-deposit' book.” These same assets held at the CB are account credits and reserve account credits, true settlement balances. But assets held in reserve are not settlement balances, even though they can be liquidated to settle outstanding balances!

Well @Alwyn Lewis …to the degree that any of this came from interactions with me, some wires definitely got crossed… Not sure where to start, but here us as good as any: “State money is now an idea.” No, it’s more like a coat check ticket, it represents an Asset that the private sector provided to the central bank. EVERY single unit of currency/reserve account credit created by the central bank was a High Quality Liquid Asset Swap for a reserve account credit the bank that provided the initial Asset. Bank Equity neutral Asset Swap: -Assets (HQLA) +Assets (Reserve account credit) Central Bank Equity neutral Balance Sheet Expansion: +Assets (+HQLA) +Liabilities (+Reserve account credits) Nothing nefarious, nothing magical, and nothing for free. No change to anyone’s Equity. That means 100% of new and existing Reserves account credits or ‘reserves,’ aka ‘Government Money,’ are backed by private sector Assets. This is easily confirmed. The Fed has $3T in reserve account Liabilities, 6.7T in total Liabilities, and $6.74 in Assets. That leaves $40b in Equity, and any more Equity or profits flows to Treasury. Bank of England, 645m in reserves, 682 in total Liabilities against 683 in total assets (14.6m pounds in equity). That means if the BoE sold every asset, they would pay if every reserve account liability and reserves would be no more… Banks do not ‘need’ Reserves, but they are the most convenient way fir banks to settle payments with each other, which the BoE accommodates via Liability Swap: Bank A pays Bank B BoE Liability Swap -Liabilities (-reserves bank A) +Liabilities (+reserves bank B) Banks are exploring other ways to settle, such as by using tokenized Treasury bonds, and if they find a quicker, more secure less expensive way to settle, they very will may abandon reserve account credits. Reserve comments by Christine Lagard hinted at such, stating central banks may go away, stunning many central bankers in the audience.

I see that AI infrastructure is being financed on the balance sheets of tech companies, who are promising long term rents from their vibrant significant revenue streams, and they can absorb these costs. Oracle is the exception, and they likely have to restructure in chapter 7 if there is a crash, but it seems like banks have learned and are largely insulated. This matters because banks create money when they lend, but AI is aggregating existing capital. Banks should be fine, but there may be a liquidity crises, and the mood at central banks currently would be to let it play out rather than intervene. Steve points out in a credit crises the shortest distance to normalcy, and the one that reduces both the magnitude and duration of the disturb, if for the Gov to deficit spend and inject more spending power into the economy. That’s going to be a big lift. Therefore, an AI crash will likely cause pain, but It’s unlikely they crash the banks directly. The indirect threat is Commercial Real Estate crashing, which regional banks exposed to many overpriced zombie loans in empty or under utilized buildings, and pulling the banks down with them. So we’re not insulated, but an AI crash should not immediately and directly threaten the banking system.

@Oliver Williams Great video, thx! I earned a ‘Green’ MBA, and we took inventory of the oceans. On the positive, we studied how the fisheries would have already been wiped out except countries came together voluntarily to cooperate to save them. On the negative we studied the literature of edification if the oceans, which was stunning because they hold 100x more carbon dioxide than anywhere else, and this gets released as the oceans warmed, game over. It was really depressing. We didn’t really understand that in so many systems, Al Gore was saying the decisions that determine the future are right now. That was 20 years ago, and sadly we have long passed the point of no return on many biological ecosystems. The data I have reviewed yes, the ocean currents are going to stop, and life on earth will be fundamentally changed forever because of it.

Thank you! I think most people will enjoy reading it, if they yake the time to start it. Have you read the UCL paper the 'self financing state by Berkely et al? https://www.ucl.ac.uk/bartlett/publications/2022/may/self-financing-state-institutional-analysis It's the paper MMT quotes as 'proof' they follow double entry bookkeeping (DEBK), and yet the authors mistaken a Central Bank Liabiltiy Swap with new money issuance by only tracking the reserve account crediting, and not the Treasury debiting. They state that EVERY expenditure is new money creation, not just deficit spending (which is alo not true unless Treasury borrows from the BoE). Richard Murphy follows the same belief, and even though he was a chartered accountant and teaches/taught accounting, he somehow does not track the accounting! He will not listen to anyone else, stuck in his own mind, so I wanted to check the data. Under model 1, all Treasury spending results in new Fiat, so we only need to check the BoE data to see if Treasury spending increases total reserve account liabilities. The data says nah... Also, under model 1gilt sales de-issues fiat and reduces the supply of reserve account credits, so we only need to check the supply of reserves to see if that's true. The data says nah... The last time HM Treasury borrowed from the BoE, and thus through balance sheet expansion both the Treasury and the BoE, new reserves were created to finance the defict, was in 2008 (20b pounds). Therefore, neither Treasury spending nor deficit spending have been financed by new money creation since 2008, meaning 100% of defict spending is, and has been, financed by borrowing exisitng money from the public. MMT is not tracking the DEBK or accounting nor the actual numbers in the BoE online database. . The data don't lie!