How does Stephen know Trump is the richest president ever elected? Because Trump said so with no evidence?

So, I guess when Russia invades more Balkan countries Trump is going to take Putin's word that they aren't, just like they weren't in Crimea.

It's going to be an interesting 4 years. It's probably a good time to invest in Russian currency.

(oops, missed a few)

I guess there's no channel for protectionism, isolationsim, or fascism is there. How about appeals to ego, racism, and hatred? Is there a channel for Trump already? *Fear is good enough. It's the currency he trades with.

I know it's Colbert's shtick and I never really got into it, but still...

"I have friends who live and work in London. They said "don't worry,we're very sensible people."

What's sensible for people in London might not be sensible for people in Salford. Or Boston. Or Wolverhampton. London, or the South-East in general, is as representative of the UK as the East/West Coast is of the US.

The hinterland has been drained at the expense of the center, on both a global and a national scale. If you live and work in the City of London, things might look quite ok, and whatever issues there are only need some reforms to no longer be an issue. But if your factory, the factory that provided jobs for the people in your home town, closed down ten, twenty years ago and now the best you can get is zero-hour contracts, then no, things are not ok.

People up top keep telling you that the economy is growing, that everyone's gonna be better off, that it's ok for multinational corporations and rich individuals to optimise their taxes, while they cut your welfare. Banks get a bailout, you get to pay the bedroom tax.

So no, your sensible friends, if they exist, live in a different universe than many of their countrymen. That's the disconnect we've been talking about.

-----
"The British economy is tanking. The pound has plunged to its lowest level since 1985... The Dow lost 611 points."

Again, so what? If the economy is growing and it has no effect on you, why should you give a jar of cold piss about the value of the pound or the stock exchange? Arguably, a drop in the exchange rate of the pound makes it easier for you to export your goods and raises the prices for imports, thereby encouraging you to produce the shit yourself. The UK does have a sovereign currency, unlike the Spanish, the Greeks, the Portuguese or the Italians who have to suffer internal devaluations, because Wolfgang Schäuble says so.

"Equity losses over $2 trillion"

Why should that matter? QE has pushed up stock prices beyond any resonable level, so what meaning do these book values hold? Not to mention that a lot of people made a shitload of money by shorting these stocks, including George Soros against Deutsche.

"There'll be no more money"

QE never trickled down anyway, makes no difference. Corbyn's people call their version "QE for the People" and "Green QE" for a reason: the previous version was only meant to prop up banks and stock values.

--------------

On a more general note, the hatred, the racism, the xenophobia... in most cases, it's a pressure valve. You leash out against someone else, you need someone to blame. The narrative is that we're living in a meritocracy, which makes it your fault that you didn't inherit an investment portfolio. So you start blaming yourself. You're a fuck-up. You worked hard and not only didn't climb the ladder, you actually went down. There's depression for ya. Guess what happens if someone, a person of perceived authority, then comes along and tells you it's not your fault, it's the fault of the immigrants. That narrative is very appealing if history is any indication. Even the supposedly most prosperous country in the EU, Germany, has the very same issue in the eastern parts, where there is no hope for a meaningful job.

People need work, meaningful work. Wanna guess how many of those "xenophobes" would be out in the street protesting against immigrants if they had a meaningful job with decent pay? Not to many would be my guess.

So the likes of Nigel Farage and Boris Johnson are providing the narrative. But the lack of social cohesion is a result of market fundamentalism, of Thatcherism, of Third Way social-democrats leaving the lower half of the income distribution to the wolves. You can't exclude large swaths of the population from the benefits of increased productivity, etc. Social dividend, they called it. It's what keeps the torches and pitchforks locked away in the barn.

smashing rebound...

http://www.tradingeconomics.com/united-kingdom/currency

set dates from 1st of month to today

quite obvious they did the right thing as you see their markets tanking and their currency devalued; no brainer (literally)

*Canadian currency on the bar says no...

Correct me if I'm wrong, but the referendum is not legally binding, is it?

So what happens if the plebs vote in favor of Brexit?

Brussels dispatches men in finely-tailored suits to London, with goodies in their suitcases. Politicians become supremely motivated to convince the plebs of the wrongness of their views -- or they take their continental brethren as an example and just ignore the plebs altogether.

Jokes aside, it might very well be a vote to leave a sinking ship.

Anyone here really think the EU can survive the groupthink-induced fixation on austerity? Anyone seen the economics data coming from Italy lately? Greece? Spain? France? Anyone think Italy can be in a single currency with Germany under German control? Anyone think the EU can survive the fall of the Euro or the departure of significant member countries?

The way I see it, the EU cannot survive economic orthodoxy. Greece is dying, Italy is bleeding from every orifice. Even as a strong supporter of a unified Europe, including Russia(!), I cannot support the EU in its current form -- it's rotten to the core and dominated by groupthink.

And with all that in mind, the fact still remains that the EU kept the Tories somewhat in check in many regards. What a disheartening situation...

Hmm... Democrat failure of 8 years? I seem to recall the Republicans have controlled the budget, more or less for 6 of those 8 years, and solidly for the last 2. I seem to recall we were in a budget surplus before Bush Jr took us out of it for an unjust war built on, at best misinformation, and very possibly lies. All the while the same people crying about the deficit now said then that deficits don't matter. What happened is a failure of Obama, it's a failure of the Republican policies as Obama's weren't even given a shot as the modern day Republican doesn't want a democracy, what they want is a dictatorship where they dictate the rules and compromise with the other side of the isle, formally known as politics, is bad and it's my way or the highway mentality is the rule of law for the party. Hell, the party abandoned its very own plan for affordable health care and now call it one of the worst things ever... their own plan... the same plan, funded the same way with the same penalties for not participating, that they tried to pass into federal law 3 times is now one of the worst things that our government has ever passed.

Cruz and Trump will isolate America from our allies, especially if Trump won. None of our allies (save perhaps Israel) would want to associate with us. They are already mad at us for Bush's wars and both Cruz and Trump want to escalate those wars and "carpet bomb" millions of innocent people to get to a few bad people? Trump wants to kill their families, which will make it easier to radicalize more and more people... and before one says that is the brutality of that religion, which religion is the one wanting to carpet bomb innocent people to kill a few guilty people and torture people and other crimes that their Christ would never support? Of course everything the Republicans want to do is exactly what ISIS has publicly stated they want other nations to do, so perhaps the Republican party is in league with ISIS?

Their policies, especially Trump's, regarding items made out of the country (jobs sent overseas by the same people that Republicans love... the same people who take for themselves while they refuse to pay living wages to their employees for pure greed reasons) would result in an economic melt down in the US as countries and businesses refuse to do as much business with us... or they move from the US dollar as the standard currency as retribution, which again wrecks the US economy.

Of less importance is that a Trump presidency and likely a Cruz as well would result in a guarantee that we'd lose the bids for the 2024 Olympic games and the 2026 World Cup, both of which we have a decent lead on as of now, but if men of hate and discrimination get in, then why would games of peace come? Trump wants to refuse to let Muslims even visit, and that would make a huge percentage of those who'd come for either or.

Anyhow to the subject of Bernie. Yes the Republican's would block everything as they do with Obama, but the conversation is moved and advanced for the people. I'd fear that if Clinton got in, the Republicans would spend all their time trying to impeach her rather than go about the process of governing. Bernie they'd just try to ignore and then get caught off guard as the nation caught onto his ideas and wanted to run with it and gave him a congress that would work with him.... of course a Trump nomination means they'd likely lose the Senate anyhow... which will be hilarious, doesn't matter if it's Clinton or Sanders in the office, because moments after the election, Obama pulls the moderate Supreme Court Justice nomination that the Republicans asked for by name before it became a political issue, and they instead get a more liberal justice... (I'm further amused by how they say they just want American's to vote on it... they did folks, 4 years ago, everyone knew there'd likely be an opening or two during his terms and he still won.)

@greatgooglymoogly

Thanks for taking the time to watch it.

Like I said in my previous comment, this talk needs to take a lot of shortcuts, otherwise its length would surpass anyone's attention span.

So, point by point.

By "balanced budget", I suppose you refer to the federal budget. A balanced budget is not neccessarily a bad thing, but it is undesirable in most case. The key reason is sectoral balances. The economy can divided into three sectors: public, private, foreign. Since one person's spending is another person's income, the sum of all spending and income of these three sectors is zero by definition.

More precisely: if the public sector runs a surplus and the private sector runs a surplus, the foreign sector needs to run a deficit of a corresponding size.

Two examples:
- the government runs a balanced budget, no surplus, no deficit
- the private sector runs a surplus (savings) of 2% of GDP
- the foreign sector must, by definition, run a deficit of 2% of GDP (your country runs a current account surplus of 2% of GDP)

- the government runs a deficit of 2% of GDP
- the foreign sector runs a surplus of 3% (your current account deficit of 3%)
- your private sector must, by definition, run a deficit of 1% of GDP, aka burn through savings or run up debt

If you intend to allow the private sector to net save, you need to run either a current account surplus or a public sector deficit, or both. Since we don't export goods to Mars just yet, not all countries can run current account surpluses, so you need to run a public sector deficit if you want your private sector to net save. No two ways about it.

Germany runs a balanced public budget, sort of, and its private sector net saves. But that comes at the cost of a current account surplus to the tune of €250B. That's 250 billion Euros worth of debt other countries have to accumulate so that both the private and public sector in Germany can avoid deficits. Parasitic is what I'd call this behaviour, and I'm German.

If you feel ambitious, you could try to have both surplus and deficit within the private sector by allowing households to net save while "forcing" corporations to run the corresponding deficits. But to any politician trying that, I'd advise to avoid air travel.

As for the "devaluation of the currency", see my previous comment.

Also, she didn't use real numbers, because a) the talk is short and numbers kill people's attention rather quickly, and b) it's a policy decision to use debt to finance a deficit. One might just as well monetise it, like I explained in my previous comment.

Helicopter money would be quite helpful these days, actually. Even monetarists like AEP say so. If fiscal policy is off the table (deficit hawkery), what else are you left with...

As for your question related to the Fed, let me quote Eric Tymoigne on why MMT views both central bank and Treasury as part of the consolidated government:

"MMT authors tend to like to work with a consolidated government because they see it as an effective strategy for policy purpose (see next section), but also because the unconsolidated case just hides under layers of institutional complexity the main point: one way or another the Fed finances the Treasury, always. This monetary financing is not an option and is not by itself inflationary."

MMT principle: the central bank needs to be under democratic control, aka be part of government. The Fed in particular can pride itself on its independance all it wants, it still cannot fulfill any of its goals without the Treasury's help. It cannot diverge from government policies too long. Unlike the ECB, which is a nightmare in its construction.

Anyway, what does he mean by "one way or another the Fed finances the Treasury, always"? Well, the simple case is debt monetisation, direct financing. However, the Fed also participates by ensuring that Primary Dealers have enough reserves to make a reasonable bid on treasuries. The Fed makes sure that auctions of treasuries will always succeed. Always. Either by providing reserves to ensure buyers can afford the treasuries, by replacing maturing treasuries or buying them outright. No chance whatsoever for bond vigilantes. Betting against treasuries is pointless, you will always lose.

But what about taxation as a means to finance the Treasury? Well, the video's Monopoly example illustrated quite nicely, you cannot collect taxes until you have spent currency into circulation. Spending comes before taxation, it does not depend on it. Until reserves are injected into the banking system, either by the Fed through asset purchases or the Treasury through spending, taxes cannot be paid. Again, monetary financing is not optional. If the Treasury borrows money from the public, it borrows back money it previously spent.

Yes, I ignored the distribution of wealth, taxation, the fixation on growth and a million other things. That's a different discussion.

Well, cheers for sticking with it anyway, I really appreciate it.

It's a one hour talk on the deficit in particular, and most of what she says is based on MMT principles that would add another 5 hours to her talk if she were to explain them. With neoclassical economics, you can sort of jump right in, given how they are taught at schools and regurgitated by talking heads and politicians, day in and day out. MMT runs contrary to many pieces of "common sense" and since you can't really give 10 hour talks everytime, this is what you end up with – bits and pieces that require previous knowledge.

I'd offer talks by other MMT proponents such as William Mitchell (UNSW), Randy Wray (UMKC) or Michael Hudson (UMKC), but they are even less comprehensible. Sorry. Eric Tymoigne provided a wonderful primer on banking over at NEP, but it's long and dry.

Since I'm significantly worse at explaining the basics of MMT, I'm not even going to try to "weave a narrative" and instead I'll just work my way through it, point by point.

@notarobot

"Let's address inequality by taking on debt to increase spending to help transfer money to large private corporations."

You don't have to take on debt. The US as the sole legal issuer of the Dollar can always "print more". That's what the short Greenspan clip was all about. Of course, you don't actually print Federal Reserve Notes to pay for federal expenses. It's the digital age, after all.

If the federal government were to acquire, say, ten more KC-46 from Boeing, some minion at the Treasury would give some minion at the Fed a call and say "We need $2 billion, could you arrange the transfer?" The Fed minion then proceeds to debit $2B from the Treasury's account at the Fed (Treasury General Account, TGA) and credits $2B to Boeing's account at Bank X. Plain accounting.

If TGA runs negative, there are two options. The Treasury could sell bonds, take on new debt. Or it could monetise debt by selling those bonds straight to the Fed – think Overt Monetary Financing.

The second option is the interesting one: a swap of public debt for account credits. Any interest on this debt would be transfered straight back in the TGA. It's all left pocket, right pocket, really. Both the Fed and the Treasury are part of the consolidated government.

However, running a deficit amounts to a new injection of reserves. This puts a downward pressure on the overnight interest rate (Fed Funds Rate in the US, FFR) unless it is offset by an increase in outstanding debt by the Treasury (or a draw-down of the TT&Ls, but that's minor in this case). So the sale of t-bonds is not a neccessity, it's how the Treasury supports the Fed's monetary policy by raising the FFR. If the target FFR is 0%, there's no need for the Treasury to drain reserves by selling bonds.

Additionally, you might want to sell t-bonds to provide the private sector with the ability to earn interest on a safe asset (pension funds, etc). Treasury bonds are as solid as it gets, unlike municipal bonds of Detroit or stocks of Deutsche Bank.

To quote Randy Wray: "And, indeed, treasury securities really are nothing more than a saving account at the Fed that pay more interest than do reserve deposits (bank “checking accounts”) at the Fed."

Point is: for a government that uses its own sovereign, free-floating currency, it is a political decision to take on debt to finance its deficit, not an economic neccessity.

"Weimar Republic"

I'm rather glad that you went with Weimar Germany and not Zimbabwe, because I know a lot more about the former than the latter. The very, very short version: the economy of 1920's Germany was in ruins and its vastly reduced supply capacity couldn't match the increase in nominal spending. In an economy at maximum capacity, spending increases are a bad idea, especially if meant to pay reparations.

Let's try a longer version. Your point, I assume, is that an increase in the money supply leads to (hyper-)inflation. That's Quantity Theory of Monetary 101, MV=PY. Amount of money in circulation times velocity of circulation equals average prices times real output. However, QTM works on two assumptions that are quite... questionable.

First, it assumes full employment (max output, Y is constant). Or in other terms, an economy running at full capacity. Does anyone know any economy today that is running at full capacity? I don't. In fact, I was born in '83 and in my lifetime, we haven't had full employment in any major country. Some people refer to 3% unemployment as "full employment", even though 3% unemployment in the '60s would have been referred to as "mass unemployment".

Second, it assumes a constant velocity of circulation (V is constant). That's how many times a Dollar has been "used" over a year. However, velocity was proven to be rather volatile by countless studies.

If both Y and V are constant, any increase in the money supply M would mean an increase in prices P. The only way for an economy at full capacity to compensate for increased spending would be a rationing of said spending through higher prices. Inflation goes up when demand outpaces supply, right?

But like I said, neither Y nor V are constant, so the application of this theory in this form is misleading to say the least. There's a lot of slack in every economy in the world, especially the US economy. Any increase in purchases will be met by corporations with excess capacity. They will, generally speaking, increase their market share rather than hike prices. Monopolies might not, but that's a different issue altogether.

Again, the short version: additional spending leads to increased inflation only if it cannot be met with unused capacity. Only in an economy at or near full capacity will it lead to significant inflation. And even then, excess private demand can easily be curbed: taxation.

As for the Angry Birds analogy: yeah, I'm not a fan either. But all the other talks on this topic are even worse, unfortunatly. There's only a handful of MMT economists doing these kinds of public talks and I haven't yet spotted a Neil deGrasse Tyson among them, if you know what I mean.

@radx @enoch @eric3579

For one thing, give the executive or legislative power over the printing press in a crisis and they will not willingly give that power up and end up abusing it. For another, if you're simply printing money to spend then you depreciate and inflate your currency commensurately, at least in the long term. Relying heavily on this is the kind of thing that Venezuela does. There's a reason that governments instead take on their fiscal spending as debt. On that I would say, I've also become much more skeptical of fiscal stimulus in general but particularly in corrections or recessions. I'm okay with automatic stabilizers (unemployment benefits, the largely limitless kind with strings attached we have here in Australia) but not so much direct fiscal stimulus.

The fundamental issue to me is large, even extremely large fiscal spending will not affect business confidence levels of economic conditions. There is some fiscal multiplier effects (the multiple of the effect on national income over the spending injection by the government) but the worse economic conditions are, the lower this will be. Also, yes with say infrastructure spending, you're creating immediate jobs. Problem is these are in no way permanent jobs and simply pushes the can down the road on them finding new employment. Better to provide unemployment benefits and training to get them into a more permanent job faster.

Also large bouts of spending (again to use infrastructure as an example) tends to be hugely wasteful. Good projects require appraisals, consultation and careful planning. The notion of handfuls of 'shovel ready' projects is a political myth. You can instead span it out but then you don't get the mooted fiscal boost. In fact I would argue infrastructure spending is never appropriate as fiscal stimulus. It should be in a constant, planned process of improvement irrespective of business cycles or downturns. The US stimulus under Obama was largely long term spending projects like this as giveaways to the states. There is little evidence it eased the recovery or altered behaviour though. Many states simply enacted the same civic projects they would have otherwise and used this money instead of issuing debt like they would have otherwise - effectively they saved on interest.

So what are the alternatives then? The government here in Australia also heavily spent on roads, home subsidies and schools but notably also gave all income earners a cash deposit of AUD $300-950. The latter is probably the closest you can get to a pure fiscal stimulus - immediately cash to spend, injected not into banks than might save it but given particularly to low / medium income earners most likely to spend it. Again what we saw is that it hardly altered consumer / household behaviour. Many saved it, many spent it on large one off purchases (e.g. TVs, in which case most of that value was transferred overseas). So we gave a dollop of cash as stimulus to the global economy of which Australia is a drop in the ocean. Basically my attitude is, if you maintain good infrastructure, effective education systems, adequate but efficient regulation, reasonable tax rates, and importantly competitive markets, the best way to get through a crisis is to let the market stabilize by itself. Provide assistance and retraining to workers who lose their jobs by all means, but don't expect government spending to be some kind of savior.

I agree on the inflation aspect of your post. There were certainly no shortage of self-declared monetarists buying up gold in anticipation of high inflation, but as you say dollops of cash in the economy are meaningless if they are idle and the economy under capacity. The question now with unemployment in the US at 5.5% whether capacity is finally pushing LRAS levels. Probably not, participation rate is low and falling, and the unemployment rate is woefully underrepresenting forced part timers. Also as you mention the dip in oil will temper prices on the input cost side. The Fed certainly seems to think so and has started tightening rates but as so much commentary in the investing world is saying, this may turn out to be a mistake and they may end up having to reverse course.

I would argue that automation still isn't the job killer #1. Plain old political decisions, such as sound finance, deficit hawkery, and austerity lead by a mile in this category. Neither is being addressed properly, but I find it hard to focus on the employment effects of automation when the Eurozone, for instance, runs at >10% unemployment strictly due to policies enacted by (non-)elected officials. We don't need technology to cause mass unemployment, humans can do that all on their own.

Additionally, even the amount of work available is a matter of perspective. Within the current system, the number of jobs with a decent salary is already dwarfed by the number of people looking for one. The amount of work to be done, on the other hand, is not.

Case in point: our (read: German) national railroad company is short-staffed by about 80.000-100.000 people, last I checked; our healthcare system is short-staffed by at least 200.000 people, probably a lot more; law enforcement is short by about 50.000; education is short by at least 20.000. Let's not even talk about infrastructure or ecological maintenance/regeneration. These are not open positions though, because nobody is willing/able to pay the bill.

So while I agree that we should be discussing how to deal with technological change, a more pressing matter is either to alter the system or to at least take back control over the vast sums of dead currency floating around in the financial nirvana or on Stephen Schwarzman's bank accounts. First stop: full employment. Then, gradually, guaranteed basic income when automation does, in fact, cause mass unemployment.

Finally, I don't think automation will do as quick as sweep as some presume. The quality of software in commercial machines is quite absymal in many cases, since it was written in the normal fashion: do it now, do it quickly, here's five bucks. Efficiency improvements generally come at the price of QA, and it shows. Europe's most modern railway control center is nearby, and it never went online -- Bombardier cut corners and never had the proper railway expertise to begin with. Meanwhile, the center build in '53 is working just fine, and so are the switches put in place when Wilhelm II was running the show.

Edit: That said, I'm thrilled to see mind-numbing labour being replaced by machines. Can't happen quickly enough.

Apologies, I got carried away... wall of text incoming.

@RedSky

I agree, monetary policy at low rates has very little to offer in terms of economic stimulus. Then again, the focus almost solely on monetary policy is part of the problem. Fiscal policy can have a massive impact, both directly (government purchases of goods and services) and indirectly (increase in automatic stabilizers). But for that you either need to be in control of your central bank, so that you can engage in Overt Monetary Financing ("printing" money). Or you need the blessing of the private banks, which is particularly true for a Vollgeld system.

The budget is the core of a parliamentary democracy, and to be at the whim of the folks at Deutsche Bank, HSBC or Credit Suisse -- no, thank you very much. We saw how that played out in Greece.

Anyway, the central bank can do miraculous things: if it provides funds to the democratically elected body in charge of the budget, aka parliament/the government. Trying to "motivate" the private banks to stock up on cheap reserves to stimulate lending is just a sign of ideology.

The great Michal Kalecki, in his essay The Political Aspects of Full Employment, summarized the general issue of government spending quite clearly. The industrial leaders stand in opposition to government spending aimed at full employment for three distinct reasons: a) dislike of government interference in the problem of employment as such; b) dislike of the direction of government spending (public investment and subsidizing consumption); c) dislike of the social and political changes resulting from the maintenance of full employment.

I'd say control over your currency is too great a tool to leave it in the hands of unelected managers. Clement Attlee knew very well why he had to nationalize the Bank of England in '46.

Back to the issue of inflation, I'd like to make two points. First, how big a role should inflation really play when talking policy. Second, what's the influence of a central bank on inflation.

Where does it come from, this focus on inflation. People usually talk about government spending when discussing inflation. Private spending is rarely brought up, even though it can be just as inflationary. So let's ignore private spending for a moment and talk purely government spending: should a deficit/surplus not be judged primarily by how well it helps us achieve our macroeconomic goals? Or more clearly, why should we sacrifice full employment or our general welfare on the altar of inflation? Yes, that's over the top. But so is the angst of inflation.

I'd say let's stick with Abba Lerner's concept of functional finance and judge deficits/surpluses purely by how well they help us achieve our macroeconomic goals. Besides, the US has run massive deficits during the GFC, so much in fact, that a great number of monetarists saw hyperinflation just around the corner. Still waiting for it. Same for Japan. Massive deficits... and deflation.

As long as spending, both private and government, doesn't push the economy beyond its limits (full employment, real resources, production capacity), out-of-control inflation just doesn't materialize. Plus, suppressing inflation is actually one thing central banks can do quite well. Unlike causing inflation, which both Japan and the EU are showcases off. Draghi can dance naked on the table, monetary policy (QE, mainly) won't push inflation upwards.

Which brings me to the second point: what's inflation, what's the cause of inflation, how can central banks manipulate it.

CPI is often used as a measure of inflation, but I prefer the GDP deflator. CPI doesn't account for externalities that you cannot influence, whatever you do. Prime case: the price of oil. Monetary policy of the Bank of Sweden has no influence on the price of oil. The GDP inflator, however, accounts for every economic activity within your currency zone -- much more useful.

General theory says, this measure of inflation goes up when demand surpasses supply. And vice versa. The primary factor of demand is domestic purchasing power, therefore wages. If you suppress wages, you suppress inflation. If you push wages, you push inflation. More specifically, you can see a direct correlation between unit labour costs and the GDP deflator in every country at any time. Here's a general graph for multiple countries, and the St. Louis FED provides a beauty for the US.

That's why it's easy for central banks to combat inflation, but almost impossible to fight deflation.

As always, my views are just a layman's perspective with no claims to expertise.

@RedSky

You correctly point out the intent of the reform, to stop fractional banking which they diagnosed as a primary driver of volatility within the financial sector. They want to revert back to a system where the banks were intermediaries the way you described it: deposit leads to loan, in this case at a maximum ratio of 1:1, no leveraging.

Unlike the current system where bank deposits are mostly created by banks themselves -- the act of lending creates deposits. In fact, deposits are liabilities of the banks, not assets. Reserves are assets, but they are only traded between entities with accounts at the central bank. And, in normal times, are provided quite freely by the central bank in exchange for other assets.

Anyway, "Vollgeld" places the ability to create money exclusively in the hands of the central bank. Controlling the amount of money in circulation was a concept most central banks were eager to drop during the '90s, since it never worked. Demand for credit is volatile, central control is inflexible, even if they could somehow quanfity the need for it ex ante -- which they can't. Hell, they can't even do it ex post. You can't quantify the need for additional money beyond what's already in circulation if the central bank's action set the conditions for a dynamic development in the first place. You can't know in advance what increases in production need to be financed, you can't know how demand for liquidity evolves over time. The quantity theory of money was buried for a reason, it ignores reality.

Anyway, I applaud the proponents of Vollgeld for pointing out the dysfunctionalities of our fractional reserve system as well as how questionable it is, ethically, to hand over so much power to a small cabal of financial elites. In fact, I'm quite ecstatic to hear them point out that a nation with a sovereign, free-floating currency does not need to finance deficits through banks -- how very MMT of them. Go OMF!

But their proposed solutions are a fallback to "the market will stabilise itself if left alone, a completely independant central bank will keep the quantity of money in circulation at just the right amount". This hands-off approach resulted in absolute devastation whenever it was applied. They want to turn the state into a regular economic subject that has to adapt to the amount of money currently in circulation. It's (the illusion of) control by technocrats, where you get to disguise policies against the masses as "economic neccessities". Basically the German Eurozone on steroids.

As for the absolute independence of the central bank: you are right, that is not strictly part of the Swiss Vollgeld initiative. But it's what almost every proponent of Vollgeld within the German-speaking circles argues for, including major drivers behind the initiative. Can't let politicians have control over our central bank or else they'll abuse it for populist policies.

They are true believers in technocrat solutions, completely seperate from democratic control.

PS: I cut down my ranting to a minimum of MMT arguments, given that many people see it as just a different sort of voodoo economics.

Edit: Elizabeth Warren's 21st Century Glass Steagal Act strikes me as a rather promising way to solve a great number of problems with the financial industry without going back into the realm of monetarism.

@radx

I think you misunderstand the Swiss referendum. It's about preventing banks from creating money through fractional lending, it doesn't restrict the central bank. Typically banks will take in deposits and lend a portion out (keeping a % as a capital buffer), that money then filters through the system and some of if returns as deposits, and the process repeats (hence the term fractional banking).

In effect banks are creating money through lending out more money than otherwise exists. It also means they lend out far in excess of the deposits they have, creating high leverage and meaning even a small level of default can lead to them eating through their capital and insolvency (see US in 2008). The referendum seems to be about effectively preventing fractional lending.

No idea what effect it would have in a country like Switzerland. The country is an exception as it has a relatively small economy but is seen globally as a safe haven currency meaning every time there is a crisis you see the CHF appreciate rapidly (similar to the USD). Naturally that tends to wreck havoc with the economy and exports since the currency value no longer reflects the real economy and is why the central bank has taken various measures to discourage it in the past.