Stop Bashing Banks, Please

Steve H. Hanke's picture

Authored by Steve H. Hanke of The Johns Hopkins University.

Since the Great Recession, politicians have obsessed over bashing banks and bankers. According to Pols of all stripes, bankers caused the 2008-09 crash and ensuing slump. To make the world safe from banks, the “all-knowing” have given us Basel III, Dodd-Frank, and a plethora of banking regulations. This has, among other things, provided Bernie Sanders and his ilk with an open field.

Analyzing the effects of bank bashing requires a model of national income determination. A monetary approach is what counts. The link between growth in the money supply, broadly determined, and nominal GDP is unambiguous and overwhelming. The accompanying chart for the G20 countries makes this clear. 

So, why has the post-crisis recovery floundered? Because the growth in broad money has remained well below its trend rate. Indeed, Divisia M4, which is reported by the Center for Financial Stability in New York, is only growing at a 4.0% year-over-year rate. Since the crisis, the policies affecting bank regulation and supervision have been massively restrictive. By failing to appreciate the monetary consequences of tighter, pro-cyclical bank regulations, the political chattering classes and their advisers have blindly declared war on bank balance sheets. In consequence, bank money, which accounts for 80% of broad money in the U.S., has contracted since the crisis (see the accompanying chart). Since bank money is the elephant in the room, even the Fed’s quantitative easing and the ensuing surge in the growth of state money has been unable to fully offset the tightness that has enveloped banks and bank money growth.

Looking at the U.S., there is a ray of hope: credit to the private sector has finally started to grow above its trend rate, and the 4.0% Divisia growth rate is higher than it was in 2014 and the first half of 2015. The accompanying chart shows where we are. The growth rate for nominal final sales to domestic purchasers, which is a good proxy for nominal aggregate demand, and the growth rate for broad money are depicted. It is clear that the U.S. remains in a growth recession. The economy is growing, but at less than its post-1987 average rate.

Since early 2013, however, the growth rate of broad money has accelerated. If this continues, nominal aggregate demand growth rates should remain roughly where they are at present. The biggest risk we face is that the relentless attacks on banks continues and intensifies.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
malek's picture

Criticizing Basel III, while conveniently forgetting to mention Basel I and II loosened requirements by creating a plethora of new loopholes...

Fuck you, Steve.

All Risk No Reward's picture

Either the OP is an astoundingly duped useful idiot or he's on the Debt-Money Monopolist payroll.

Look, debt-based monetary systems are freaking fraud. 100% criminal fraud. The only reason it exists is the government is full of paid-off sociopaths, the government enforces the fraud, and the general population is nescient/ignorant and entirely pathetic when it comes to issues of real import - like their stinking debt-money system.

Now, if you think the monetary system isn't a fraud, then let me lend you $20 ARNR Notes @ 5% using all your wealth as collateral. In one year, you will owe me $21 due to double entry bookkeeping adjustments that add $1 interest liability to your balance sheet and $1 interest asset to my balance sheet.

To sum up, you will have been given $20, you will owe me $21, AND I CONTROL THE $1 YOU NEED TO PAY ME BACK AND TO KEEP ME FROM ASSET STRIPPING YOUR IMMONETARATE (monetary illiterate) *ss.

So, would you accept the "deal?"

Stop 1. being played for a fool or 2. trying to play us for fools.

The entire debt-money edifice is 100% fraudulent and, yes, the MONEY CENTER BANKS ARE THE BIG BAD CORPORATE FRONTS OF THE BIG BAD OWNERS.

Blame these pieces of steaming, oozing crap.

And shut up about "over regulation" psy-ops when mega-banks launder $100 billions in drug money and get to keep it tax free and avoid losing their jobs (except the whistle blower to shut him up) and criminal prosecution...

How a big US bank laundered billions from Mexico's murderous drug gangs
http://www.theguardian.com/world/2011/apr/03/us-bank-mexico-drug-gangs

Poverty: Debt (and starvation) Is Not A Choice
https://www.youtube.com/watch?v=juQc0rLdB-E

Inequality - Why Are The Rich Getting Richer?
https://www.youtube.com/watch?v=ZzCegQVljdY

How to Be A Crook
https://www.youtube.com/watch?v=2oHbwdNcHbc

Renaissance 2.0
https://www.youtube.com/watch?v=96c2wXcNA7A

Debunking [Debt] Money - How The World Really Works
https://www.youtube.com/watch?v=7_yh4-Zi92Q

Stop being a quisling for the Debt-Money Monopolist Fascists. The karma of using one's precious life force to being such an uber scumbag is going to be suffocating when your eventual anagnorisis comes due.

Tic tock's picture

Bank-bashing is quite counter-productive, they are members of society, a wayward gift -after all, we all need money to ask people to stop asking questions. Where's the harm in that. in monetary tems, tax bank profits above 1% - let it be virtually unprofitable as a business. Instead, it pays good salaries, so cap labour costs at 30% , allow a provision for bad loans, and it's a simple consumer business. And take bank money away. For example, m4 reverts to the treasury, who convert m4 to interest-bearing 30 yr bonds at 2% (whatever matches maturity on current bank extension)- banks holding the deposits, etc, are responsible for crediting the interest. But now, those banks with deposits have an asset, inside their increasing deposit base. In one scenario the risk is high, in another it is low, in one there is a demand to borrow, to accumulate money, on the part of individuals. Or, to invest; but who will front individuals the cash. Traditionally, the Treasury issue paper into the banking sector who distribute it into the economy. but we're no longer that economy. This is a more productive economy than it was 30 years ago, nor does one need the same level of money to own the means of production. Banks can continue to be good for large infrastructure, but are not currently well-suited to distributing money to promote an intellectual society. With declining costs of production  and a desire to own interest-bearing bonds, the Treasury can take the risk of distributing State money, or Government Borrowing, to individuals themselves, while at the same issuing QE more directly, should the occasion arise.  

Joke Heros's picture

Wah those poor fragile dindu nuffin wrong banks, they are just trying to God's work golly gee

hooligan2009's picture

shenanigans - to hope that money growth should be above 8% compond per annum so that nominal growth is the same, ignores

profitiability and the law of diminishing returns manifesting from the obsolescence of the "old economy" that is cannibalized by innovation, (e.g. robotics)

changes in population demographics and the "peak demand" of consumers for "old economy" and government regulation of drugs, food production, and demographic changes (aging population requiring a more affordable level of health care) - poners how much german GDP per capita is abotu to drop with a few million useless refugees who will only be a drag on the fiscal side to the tune of at least 50,000 euros each (health education housing and food) for a hit of at least 100 billion euros a year, or an infinite present value using Draghis discount - or 5 trillion euros preset value at a 2% discount rate)

M4 growing (money without purpose) beyond profits earned in the private sector (net of interest and taxes)

this article looks typical of scientists who dont realize that a pencil works in a weightless environment and you dont need to spend millions rand years easearching a ball point pen, especially if you need an immediate solution

One-Eyed-Thong's picture
One-Eyed-Thong (not verified) Feb 12, 2016 7:49 PM

friday !!!

have you seen my bong ?

JohnGaltsChild's picture

"The biggest risk we face is that the relentless attacks on banks continues and intensifies."

It will as long as I'm alive.

PoasterToaster's picture
PoasterToaster (not verified) Feb 12, 2016 7:23 PM

Banks are nothing but useless parasites.  They create no value and offer nothing but slavery.

All Banking must be completely illegal.  This is the only way to avoid war, and the only way to a better future. 

koncaswatch's picture

Tyler trolling us!! LOL

bonin006's picture

Has this happened before? - A perfect 1 with the first 15 votes.

cheech_wizard's picture

Wait, did I just read this right?

Relationship actions
Personal information
Biography

Professor of Applied Economics at The Johns Hopkins University

History
Member for
2 days 1 hour
Standard Disclaimer: Christ, it took me almost 6 months to even get on this website...
cheech_wizard's picture

Just because I was force fed something other than doom porn...

http://econ.jhu.edu/directoryindex/faculty/

Steve H. Hanke, Department of Geography and Environmental Engineering
Professor, hanke@jhu.edu
Ph.D., University of Colorado
Applied economics, Microeconomics, Macroeconomics, Finance
Office: Ames Room 209
Office Hours: Monday through Friday 4:00-5:00pm

Standard Disclaimer: Don't make me take off the hat.

sapioplex's picture

Boy, the Ministry of Truth has been working long hours lately!

medium giraffe's picture

Because they're so fucking ROCK SOLID that a bit of jeering will scatter them all to the wind?

williambanzai7's picture

Is this some kind of joke?

besnook's picture

.....and i will sell the vhs of bankers gone wild.

JamaicaJim's picture

POSTING ERROR

The Tyler's were out at lunch, and some fuckhead from The Bluffington ComPost slipped this PIECE OF SHIT IN.

FUCK YOU HANKE....!

adr's picture

Um, DEBT expanded by a few hundred trillion worldwide and this DEBT was counted as GDP by countries around the globe.

Borrowed money that can never be paid back does not count as growth.

If I buy a Bugatti with an American Express Black, but fail to pay the bill, I don't get to keep the car. 

Hmm, but the salesman probably gets to keep his commission.

BINGO!!!!! There is the point of the game. Even though stocks were bought with debt by the corporations, the CEO gets to keep the money the stocks were bought with.

DEATH TO BANKS!

DEATH TO BANKERS!!

DEATH TO MONEYCHANGERS!!!

RopeADope's picture

Hmm, a credit line 98% unused was just cancelled by BAC when they pretended there was a fraudulent charge and lied that they were unable to make contact.

These banks are only there when they can f*ck America in the ass. Having a credit line dropped that has been on the history for decades is going to really hurt the old credit score. All because they are worried about being insolvent as the Greatest Depression hits.

adr's picture

I had a $10k credit line with them and they cancelled it because I never used it. The last time I had a multi thousand dollar credit line cancelled because I didn't use it was 2008, hmmm coincidence?

Chris88's picture

Guy is completely right. Nothing wrong with banks, there's something wrong with central banking and the FDIC.  Absent this, banks are forced to compete on safety as well as return, which makes them like any other business.  Most people who just throw the term "bankster" around work a dead-end manual labor job and couldn't read a balance sheet.

cheech_wizard's picture

Lincoln Savings and Loan ring any bells?

Wait, let's get more recent...

The 2008 financial crisis led to the failure of a large number of banks in the United States. The Federal Deposit Insurance Corporation (FDIC) closed 465 failed banks from 2008 to 2012. In contrast, in the five years prior to 2008, only 10 banks failed.

Standard Disclaimer: No, nothing wrong with banks at all... just keep telling yourself that... I suppose I could go all juvenile on you, call you a flaming douche nozzle, but somehow you're just not worth cutting into my drinking time on a Friday night...

Chris88's picture

You apparently can't differentiate between cause and effect with a moronic comment like that.  You think there would have been a financial crisis absent the Fed/FDIC?  You're delusional.

Chris88's picture

Three Free Shit Army downvotes with nothing to say.

PoasterToaster's picture
PoasterToaster (not verified) Chris88 Feb 12, 2016 7:43 PM

Bootlicking traitor.

Chris88's picture

You're the government bootlicker, probably clamoring for the banks to be broken up or managed by mommy government.  You can't just get government out of banks and let them compete.  Dumb ass Statist weasel.

noless's picture

So your vote is on "don't end the fed" then?

farmboy's picture

Dear mr Hanke, You cannot pollish a turd.

clue4sum's picture

steve hanke you poor misguided fool,how many bankers have gone too jail over fixing Libor rates,Forex market,fixing the london fix to name a small sample, answer zero. I don't want to bash you I want to run a pitchfork through your fucken head you apologist piece of shit.

Reaper's picture

He believes Iceland is the new Hell.

Farqued Up's picture

Hanke is just Peter puffing his blow buddy colleagues, recognition, don't you know.

Grandad Grumps's picture

"M4 money supply is defined as a measure of notes and coins in circulation (M0) + bank accounts. It is a broader definition because it includes bank accounts, and not just notes and coins in circulation."

It seems that less money is making it into bank accounts since the interest paid on bank accounts is deminimus and there has been a push from the banks to get people and companies to put the money into the purchase of equities, bonds and derivatives (are brokerage account considered bank account for the purposes of M4?). Additionally cash has been discouraged.

I would argue that M4 is an obsolete and useless measurement given how money is created and used today, particularly in a global economy where money is not a closed system and there is no reason to expect there to be a relationship between M4 and GDP, given how each is measured.

TheCentralScrutinizer's picture

I noticed that he failed to mention that stupendous level of "monetary velocity" which at the lowest levels since the 1960s.

Scrutinizer

Quebecguy's picture

During my father's "issue" with the bank, they lost the mortgage documents, then later introduced documents they had 'found", but which, of course, were forgeries. FUCK YOU. 

 

Death to the Moneychangers...

Full Nelson's picture
Full Nelson (not verified) Feb 12, 2016 4:36 PM

Hanke's the kinda guy who read "How To Win Friends And Influence People" - a great instruction book on the art of peeing on a leg and calling it warm rain.

12357111317's picture

The Emperor New Clothes are truly spendid!   :^)

12357111317's picture

Eyeballing the chart, in the USA, quantity of money grew by 6.5%, and GDP grew by 6.0%.  So...

Real inflation was 6.5%, which is way more than "economists" claimed.

By subtraction, real GDP actually declined 0.5%.  So, citizens got 0.5% less than last year. 

Whoever got that 6.5% made out like bandits.  Let me guess:

-Military Industrial Banking Propaganda Police Prison Spy Complex? 

-Ethanol "Farmers"?  

-FSA "Families"?  

-"Immigrants"? 

-Who else is on the taxpayer dole?

J Jason Djfmam's picture

-Whoever else is on the taxpayer dole.

 

Fixed it for you.

dot_bust's picture

You're kidding, Hanke, right? Was your article previously published on TheOnion.com?

I especially like the following statement that you made: "So, why has the post-crisis recovery floundered?"

Here's some advice: Never use the words, post-crisis and recovery, in the same sentence when describing what has transpired in the past few years.

The U.S. never got out of the 2008-2009 crisis, so there hasn't been a recovery.

Moreover, banks comprise the Federal Reserve, which has punished savers by using 0% interest rates that ensure that no one can earn interest on bank deposits.

El Vaquero's picture

Fuck the banks, Hanke, and fuck you too.  Try getting sued by one because they fucked up their records some time.  You learn just how corrupt they really are.

silverer's picture

"The biggest risk we face is that the relentless attacks on banks continues and intensifies."

The biggest risk we face is that the banks have flimsy reserves, insane policies, and due to that the people most at risk are depositors, investors, and taxpayers.  Hey, don't believe me, look what happened the last time.  AIG.  Should I send them congratulations on the party they threw the next day when they were told they were getting bailed out?  A party paid for with taxpayer dollars?   Iceland dealt with it properly.  The rest of the planet, no.

anarchitect's picture

"So, why has the post-crisis recovery floundered? Because the growth in broad money has remained well below its trend rate."

What a moron.  The chart of the quantity of money vs. nominal GDP is right under his nose.  The correlation is stunning.  But nominal GDP is not real GDP.  It includes inflation and reveals that money supply growth has done nothing to boost real GDP growth.  Real growth looks quite anemic, else the blue line would be slowly pulling away from the red line.  The problems are systemic: regulation, taxation, interest rates set by commissars, banks taking stupid risks knowing that they'll be bailed out or that depositors will be bailed in, and so on.  The money supply has nothing to do with it.

Thanks, Tyler, for reminding us that academia still has its head up its ass.

christiangustafson's picture

If we can only pump up and maintain high price levels, we can avoid depressions and the deflationary spiral altogether!

NeedleDickTheBugFucker's picture

I guess Steve Hanke is the newest contributor to ZH.  It doesn't seem like the right forum for his pro-bank, Keynesian demagoguery, but maybe it was Hanke's desire to take a few swings at Fight Club.