Ep140 [1/3]: Scott Fullwiler: Modern Central Bank Operations: The General Principles [principles 1-2 of 10]

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Welcome to episode 140 of Activist #MMT. Today I talk with Scott Fullwiler on his 2008 paper, . Today's part one of a three-part conversation. Today in part one we discuss some generic but related topics, and then principles one and two. Next time in part two we cover principles three to six, and then in part three, principles seven to ten. My full and detailed question and summary list can be found at the bottom of these show notes (look below!). Also, be sure to check out the list of audio chapters to find precisely where each principle, and otherwise, can be found. (Here are links to parts two and three. A list of the audio chapters in this episode can be found right below the resources section in this post.) Today's principles one and two. Principle one is that reserves can only be used for two purposes: Settling payments between banks, and meeting reserve requirements. (There's actually a third purpose, which is it's the only thing that can ultimately settle tax obligations to the state.) Knowing these are its only possible uses, when you hear, for example, that more reserves somehow increase a bank's liquidity, and that this in turn encourages banks to lend more to customers, which then in turn increases economic activity in general… you know they're wrong. The same is true with the reverse: that less reserves somehow discourages lending and reduces economic activity. Principal two says that, because the central bank is the only entity capable of creating and deleting reserves, it has "a fundamental, legal obligation to promote the smooth functioning of the national payment system." Without a functioning payment system, society would, without exaggeration, break down. If a bank can't settle its payments with another bank, then everyone expecting a payment won't receive it, and everyone expecting payment from them also won't receive it. And on and on. Trillions of dollars go through the federal reserve system every day. More goes through this system in the United States each week then an entire year's worth of GDP. Not to mention, the US payment system is central to most of the payments for the entire world, and so the US payment system breaking down would have global implications. (As a brief side note, this latter point is leveraged by the United States to surveil and manipulate most nations around the globe. One example is how, when Iraq threaten to eject all US troops, the US responded by threatening to forbid Iraq from using its payment system, thereby potentially disconnecting it from the entire world. This is the big story that lurks behind the so-called petrodollar. Here is a fascinating .) And now, onto my conversation with Scott Fullwiler. Enjoy. Resources () 2017 paper by Rohan Grey, 2015 paper by Perry Mehrling, 2000 paper by Stephanie Bell (now Kelton), The updated version of this paper, from 2009, consolidates the original ten principles into around seven, and then adds some more. It's much longer, and is a chapter in the book (as co-edited by Scott) called . Audio chapters 5:06 - Hellos 6:55 - My boys 8:49 - Our meeting, and Twitter 11:27 - The plan 12:17 - The Federal Reserve and the banks are in charge of the government (not) 16:58 - How do you know what you know? 19:52 - How the paper came to be 23:08 - What would change about your paper if you could write it again? 25:25 - The horizontalists versus structuralists debate (plus circuitists and chartalism) 27:54 - MMT agrees more with horizontalists, but Randy Wray had one unexpected element of agreement with structuralists. 30:34 - Steve Keen's Debunking Economics opens with the false labor supply-demand curve 31:37 - Principle 1: Reserves can only be used for settling payments and meeting reserve requirements. 35:57 - Aside from banks and other central banks what other institutions and entities have reserve accounts? 38:24 - Principle 2: The primary directive of central banks is to preserve the stability of the payment system (which is...