First, may I say that I greatly appreciate your use of balance sheets and dealer model diagrams to tell your stories, though I may disagree with some of the morals you derive from the stories?

Second, when you say "[central banks] borrow by taking deposits from the banking system, using the proceeds of that borrowing to purchase assets", haven't you reversed causality? If I am AIG with toxic MBS assets that can't catch a bid on private markets, then the Fed acts as a value investor and fills my coffers with reserves, are you saying those reserves came from other banks' deposits? But didn't they really come out of thin air? The reserves were created first, then used to buy assets no one else wanted at that price? Nothing was "borrowed" from anyone?

Third, is your criticism of chiropractic money itself chiropractic, in the sense that you ignore complex nuances of Lonergan's "dual rate" proposal (note that dual rates are an explicit policy of the ECB), unfairly reducing his views to "if we could just change this one thing"? Are you criticizing the mote in another's eye while ignoring the log in your own?

Fourth, regarding your earlier "Cars and Chips" blog on inflation, aren't expectations of inventory the real driver, and can't the Fed control inflation expectations as needed by buying and selling inflation swaps as part of open market operations? So emotional misestimations of future inventory shortages can be mitigated by compensating buyers for irrational price increases?

Expand full comment