March 2012

Is Paul Krugman A Verticalist?

31 March 2012

24 years back, Basil Moore wrote a book Horizontalists And Verticalists: The Macroeconomics Of Credit Money (Cambridge University Press, 1988) which begins like this: The central message of this book is that members of the economics profession, all the way from professors to students, are currently operating with a basically incorrect paradigm of the way modern […]


More National Accounts: Consumption Of Fixed Capital

29 March 2012

In one of my recent posts, Saving Net Of Investment, I went into gross saving versus saving net of consumption of fixed capital. I showed how depreciation – or more appropriately, consumption of fixed capital – is treated in the flow of funds accounts. Since the transactions flow matrix is a powerful tool for visualizing […]


Debt Sustainability

29 March 2012

In a recent paper, Bradford DeLong and Lawrence Summers suggest that a fiscal expansion can be useful to bring an economy from a depressed state (!). The rough idea being that a relaxation of fiscal policy leads to a higher output and the increase in economic activity leads to a stabilization of public debt/gdp ratio. […]


Some Monetary Facts

24 March 2012

Money is endogenous and is created as a byproduct of the production process. I came across this reference which supposedly shows that there is supposedly a one-to-one relationship between money and inflation and hence as a consequence – if we were to believe this – if the Bureau of Engraving and Printing were to work […]


Deutsche Bundesbank’s TARGET2 Claims: Again!

22 March 2012

At the risk of boring readers, here’s Bundesbank’s TARGET2 claims again from its March 2012 Monthly Report. Cannot find the English version but the translation is below the first figure (with old data). This increased to almost €560bn at the end of February despite ease in financial market conditions in the Euro Area! (click to […]


Saving Versus Saving Net Of Investment

20 March 2012

The commenter JKH has an outstanding post here at Cullen Roche’s blog criticizing the Neochartalists’ mixing up of saving and saving net of investment. JKH quoting Randy Wray: Then, this is telling: “To briefly summarize, at NEP we prefer to use the Godley sectoral balance approach, where he defined private sector saving as “net accumulation of financial assets” […]


Banco de España’s TARGET2 Liabilities: Again

19 March 2012

I had a post a month ago Banco de España’s TARGET2 Liabilities and this gets more interesting a month later. The bank released numbers for February and it seems capital flight is continuing from Spain and Spanish banks’ borrowing from the ECB rose in February. The following is from BdE (click to enlarge) The Spanish general government […]


Exorbitant Privilege

18 March 2012

My last post was on U.S. net income payments from abroad and how it continues to be in the favour of the United States. The late Wynne Godley had been analyzing this since 1994. In an article titled U.S. Trade Deficits: The Recovery’s Dark Side?, written with William Milberg, he had a section called “Foreign indebtedness and the […]


The Curious Case Of U.S. Net Income Payments From Abroad

14 March 2012

The world economy has grown over the last so many years with the United States acting as the importer of the last resort. However, the U.S. current account deficit acts to bleed the circular flow of national income and weakens demand in the States. The nation still grew because of a huge lending boom. Today, […]


Kalecki’s Profit Equation

12 March 2012

In my post The Transactions Flow Matrix, I went into how a full transactions flow matrix can be constructed using a simplified national income matrix. Let us reanalyze the latter. The following is the same matrix with some modifications – firms retain earnings and there are interest payments. FU is the undistributed profits of firms. […]