Stuff I Read On the Internet (2013-08-31)

Just a few comments on some articles I have run across.

• Interfluidity has comments on whether banks are special when compared to other financial intermediaries (link). I would argue that other financial intermediaries should be treated as banks, as the shadow banking system is an extension of the formal banking system. For example, money market funds take over deposit-taking bank functions, and so money in money market funds remain in the consolidated banking/shadow banking system. If you have a model which you are attempting to fit to real-world data, your model probably should have behavioural differences amongst the different institutions within the financial system. (An example is the model of the repo market by Nick Edmonds.) But if you are attempting to understand what is theoretically possible, distinctions amongst financial institutions is blurred. 
• A comment on a comment on a talk by Warren Mosler by Brad DeLong. Professor DeLong's discussion is based on the assumption that "unsustainable debt trajectories" are a ready danger for modern economies. If stock-flow norms exist, rising government deficits will lead to more rapid nominal GDP growth (and hence inflation if real growth does not rise) as the sectors with increasing interest income spend more out of that income. Moreover, taxes will rise in response to faster nominal income growth. Therefore debt trajectories end up being stabilised, which is an empirically observed feature of welfare state economies with floating exchange rates.
• Calculated Risk covers the mediocre personal income report released Friday. These data are consistent with an economy with a steady slow growth trend, with some superimposed noise.

(c) Brian Romanchuk 2013