First, it overlooks how the vast majority of U.S. bank failures during the 20’s and 30’s were if single-location “unit” banks, which, being severely under-diversified, were inherently vulnerable to both sectoral (especially agricultural) and macroeconomic shocks.
Dec 16 • 13 tweets • 2 min read
An uphead Selgin Bitcoin thread!
Bitcoin's not being, and even never becoming, "money" in most places doesn't mean it can't largely replace fiat. 1/
As recent content on my X feed makes clear, many Bitcoin fans don't like it one bit when I say that throughout most of the world their favorite investment doesn't qualify as "money," defined (as economists have long defined it) as a "generally accepted medium of exchange." 2/
Dec 13 • 6 tweets • 2 min read
File under: Heads We Win; Tails You Lose.
Should the BITCOIN Act providing for a 1-billion coin Strategic Bitcoin Reserve become law, Bitcoin miners and HODLers will certainly benefit. For other Americans, in 20 yrs (the minimum SBR holding period), one of two things can happen.
(1) Bitcoin's price rises by more than 2.5x the gov'ts purchase price. Then IF_the Treasury sells Bitcoin, it can apply any gain to reducing the national debt. Otherwise ordinary taxpayers may not have gained anything.
Dec 13 • 6 tweets • 1 min read
File under: Fine print. The BITCOIN Act's Bitcoin purchase plan, which calls for the US gov't to purchase 1 million Bitcoin and hold them for 20 years, could well end up _adding_ to rather than reducing the US government's debt burden.
Allow me to explain. 1/
For the most part, the legislation has the Treasury financing its Bitcoin purchase w/ what amounts to a gold-collaterilized loan from the Federal Reserve System. As the Tsy buys Bitcoin, bank reserves go up; eventually increasing by full amount Fed-financed coin purchase. 2/
Nov 4 • 32 tweets • 6 min read
In a recent thread, I argued that understanding the consequences of free banking--that is, of free trade in currency and banking--is essential for critically evaluating claims of private-currency-market failure.
The Treasury Borrowing Advisory Committee's recent presentation on digital assets is a perfect example of why that understanding is important: it shows how, between them, shoddy banking history and theory can mislead policymaters. TBACCharge2Q42024.pdf
Oct 30 • 42 tweets • 8 min read
Thread: A "free banker" takes stock. Half-way though my 68th seems late enough to start reflecting upon my carreer amitions, achievements, and failures. So, a thread that's longer--and more personal--than most others I've written.
Economics wasn't my original career choice: in college, and for some time thereafter, that was marine biology. So I majored in zoology and studied at Woods Hole, the Duke Marine lab, and Auburn U.'s freshwater acquaculture program.
Oct 27 • 13 tweets • 3 min read
Thread: Yes, the period in question witnessed much social unrest and periodic crises. But it doesn't follow that the Fed's establishment improved matters, or that either the gold standard or budget surpluses were to blame for the period's problems.
Concerning economic performance then, despite occasional panics and downturns, economic historians agree that it (more precisely, the period from 1873 to 1896) witnessed remarkably rapid total and per capita economic growth--more rapid than for any similar post-Fed span.
Sep 3 • 21 tweets • 5 min read
Thread: When the Fed was contemplating FedNow in Sept. 2019, I warned the Senate that it would take advantage of its privileged status to compete unfairlly with RTP, an already-established rival private-sector real time payments service.
Boy was I right!banking.senate.gov/imo/media/doc/…
The 1980 Depository INstitutions Deregulation and Monetary Control Act (DIDMCA) requires that the Fed charge fees for its services fully covering the direct and indirect costs incurred in providing them "in the long run."
Aug 27 • 16 tweets • 3 min read
Thread: Although Sam's essay contains much that is true, like many libertarians he exaggerates the extent to which Keynes was either an enemy of markets or the reason why government looms so large in modern western economies.
George's comment follows my suggestion that we'd be better off without central banks. Of course it doesn't follow that all monetary systems without central banks worked well! There is more than one way to screw up what might be a good system.
Jul 29 • 5 tweets • 1 min read
As many people, in contemplating the merits of a Stategic Bitcoin Reserve, are citing the Treasury's gold reserve (presently worth about $350 b.) as a precedent, a few observations on it.
First, those reserves only exist as a holdover from the federal gov't's 1934 confiscation of the Fed's gold reserve. As a 2002 CRS report observed, they no longer serve "any important role in the domestic or
international monetary affairs of the nation." everycrsreport.com/reports/RS2120…
Jul 29 • 11 tweets • 2 min read
Soooo...I have just heard from someone in Senator Lummis's office who is familiar with the details of the proposed legislation. It turns out that it has practically nothing to do with "bank reserves" or the $3 trillion in Fed assets backing them. Therefore...another thread!
The plan is in fact the much more modest one of having the gov't acquire 1 million in BTC, or about $64 billion worth. And the Fed would not actually be acquiring any (though it would be involved in the process). The Treasury alone would acquire them.
Jul 29 • 19 tweets • 4 min read
A thread on some issues raised by @SenLummis's proposal, so far as I'm able to understand it.
First, a minor point many others have made: since the Fed abolished reserve requirements in March 2020, there is no longer technically any such thing as "excess" reserves. There are just bank reserves, consisting mainly of banks' account balances at the Fed.
Jun 8 • 19 tweets • 4 min read
Thread: Bank Reserves and Laissez Faire.
In several exchanges now, @BobMurphyEcon has been questioning the claim that fractional reserve banking is consistent with monetary laissez faire. Here I explain why I find the whole discussion frustrating.
Back in 1980, after reading Hayek's _Denationalization of Money_, I became intrigued b the question, "What would banking systems look like, and how would they work, under laissez faire?" I spent much of the next several years, mostly at NYU, seeking answers to those questions.
May 14 • 25 tweets • 5 min read
I've been thinking about this post by @StevenHailAus; and I think that "very, very" is misleading: my opinions about MMT are not so different, I think, from @dandolfo's. So a thread concerning precisely where I do and do not part company with MMTs.
First, functional finance. I have read Lerner's famous article many times, and I find little to disagree with in it; on the contrary, I mostly agree with it. As a long-time proponent of NGDP targeting, why wouldn't I? Lerner here is very much one of us!
May 3 • 7 tweets • 1 min read
Yep, Berstein blows it. But there is a perfectly good answer to Kelton's question. (Short .)
While the U.S. government could finance all its spending without borrowing or collecting taxes, those are two ways for it to get the public to abstain from acquiring real resources.
Mar 16 • 9 tweets • 2 min read
Pre-1914 NBER “recession” (contraction) data are badly flawed. Using Joseph Davis’s revised chronology, the 1st column value drops to just 79. And as I noted previously, months in contraction matter less than months of high unemployment.
So let’s look at unemployment. Here’s the preFed record according J. R. Vernon; not great but not godawful, either:
Dec 28, 2023 • 11 tweets • 3 min read
Follow-up thread: Something many people, economists included, don’t appreciate is the extent to which the roots of historic U.S. financial instability lie in regulations that actually made banks weak snd failure-prone.
I wrote an article long ago proposing and giving evidence for what I called a “legal restrictions” theory of financial crises. citeseerx.ist.psu.edu/document?repid…
Dec 25, 2023 • 7 tweets • 2 min read
This is idiotically reductionist. For starters, the gold standard wasn’t to blame for any pre-1914 U.S. crisis: had it been the problem, Canada, which shared the very sane gold dollar, would have experienced concurrent crises. It didn’t. 1/
Instead, stupid U.S. banking and currency laws made it uniquely crisis-prone during that era. This is common knowledge among U.S. economic and monetary historians. 2/
It happens that I’m in Vilnius now, for the first time in 32 years. Back in 1990 and 1991 I was here putting together, with Kurt Schuler, the first- ever proposal for a post-Soviet eastern European currency board.
Aug 24, 2023 • 18 tweets • 3 min read
Well, I think I have a new record for most frustrating thread! But not being one to give up easily, I am going to try here to clarify some things about NGDP targeting and the ZLB.
First, some preliminaries. Let's set aside the ZLB problem for now, and also abstract for the time being from Aggregate Supply (AS) innovations. Let the equilibrium real GDP growth rate be a steady 2%.
