Monday, September 2, 2013

Scott B. Sumner — The “hot potato effect” explained


So finally Scott Sumner explains himself — sort of — with a thought experiment

In his first point he assumes that increasing the amount of gold will automatically depress its price as a commodity. Yes, if demand remains the same and supply increases that is the case. But why assume that is the case? Is it mathematically necessary or could demand increase to absorb the increased supply?

At the time of the discovery of the New World gold importation vastly increased into Europe. It did not result in a fall in the price of gold but rather increased inflation, due not merely to the increase in the amount of gold but rather due to increase in the level of effective demand and the capacity of economies to meet it. This was the age of empire building and governments spent lavishly. However, this is a special case historically.

For example, India traditionally imports a great deal of gold, much of which is customarily used for temple donations and kept in the temple treasury, or is saved as personal decoration. The increase in the volume of gold does not affect the price level, since much of the gold is saved or used as ornament rather than contributing to effective demand as money. Presently, the Indian central bank is begging people not to save in gold and is also asking temples to free up their gold hoard. However, this is unlikely to have great effect lacking legislation owing to Indians cultural heritage that results in high demand for gold. A similar situation exists in China, where gold is also hoarded as a traditional store of wealth and source of status and prestige.

Professor Summers concluded with:
Did anyone fall off the train on the way to market monetarist enlightenment? I think I see a few MMTers in the ditch along the way, still scratching their heads.
ROFL. We are scratching out heads all right. Someone actually pays you to teach economics? Clear instance of a market failure. Or, to quote Bill Gates, "That's the stupidest thing I've ever heard." Of course, this was a favorites saying of Gates, and I find myself saying it everyday when I read the economics blogs. So I don't mean to single out the good professor for special treatment. When the assumptions are wildly unrealistic, the conclusions are bound to be bonkers when extended outside the limited confines of the model, you know, to reality.

And it's still not explained how the Fed is going to credibly threaten to dump a whole bunch of cash into the economy. That's fiscal in that it increases consolidated nongovernment net financial assets in aggregate, and the Fed has no legal authority to do that.

And President Bush did do something like that with the approval of Congress in sending out checks to everyone. Did the value of money fall? Did it create even a blip of inflation? Just how much would it take to get the result that Professor Sumner proposes?

Oh, and the Bush drop was checks and not cash. Just how is the government going to threaten to distribute that much cash into circulation? What is the credible transmission mechanism that would lead the market to the expectations that are assumed?

But let's even assume that there is a legitimate "helicopter drop" of cash into the economy. People have two choices, spend it as cash or deposit it in their bank account for future use, just as would happen if the drop is by check of electronic payment, which leads to the bank exchanging a lot of vault cash it doesn't need for reserve balances that it can earn some interest on.

What people would spend, use to pay down debt, or save in another form would depend on their economic situation. Those in the lower 80% would be more likely to spend and pay down debt rather than save, while those in the upper 20% would likely increase spending a bit and save the rest. Depending on the amount injected this would lead to an increase in effective demand that would close the output gap and stimulate investment as the economy expanded to meet the demand. If more than that, then the result would be inflationary.

Since the Fed cannot do helicopter drops of cash, how likely is it that Congress would do this fiscally, which would increase the debt, or else permit the Fed to act fiscally on its behalf but without increasing the debt. I'd say about as close to zero as one can get.

This is just nonsense. why are we even talking about it? I would not, if Professor Sumner had not specifically mentioned MMT, and so invites a response.

Finally, a lot of people, including a lot a supposedly sophisticated people, placed bets based on the logic of monetarism at time that the Fed announced QE, greatly expanding what they consider "M." Confident that rising inflation would depress bond prices as yield rose, they shorted the bond market — and lost their shorts. Expectations turned out to be unfounded. But, who knows, maybe the suckers will be taken again by Fed jawboning about what it has no power to do. I wouldn't bet on it though, even through there is a sucker born every minute.

Perhaps Professor Sumner needs to change the subtitle of his blog to "A slightly off-kilter perspective."

The Money Illusion — A slightly off-center perspective on monetary problems.
The “hot potato effect” explained
Scott B. Sumner | Professor of Economics, Bentley University
(h/t y in the comments)

The key difference between Friedman and Keynes is that Friedman makes M in MV=PT the independent variable that is controlling, and Keynes makes effective demand the independent variable that is controlling. Moreover, Friedman defined M as the monetary base, whereas Keynes realized that M is actually spendable money that contributes to effective demand. The monetary base is not spendable and doesn't translate into effective demand as recent events have amply demonstrated.

The quantity view presumes that the total amount of money being spendable will influence the value of money. So if the amount of money is doubled, then the real value in terms of purchasing power is halved by inflation. Increase double M and also double P.

However, there are several issues overlooked here. First, money is not only a medium of exchange but also a store of value and a reckoner of debt. Money is not only for spending but also saving and also for paying down debt. "Cash under the mattress" is out of the loop and doesn't contribute to effective demand for as long as it is saved and not spent. Money that is used to pay down debt to banks reduces the amount of money in that just as loans create deposits, deposits are used to extinguish loans.

So not all "money" figures into the amount of effective demand.

Moreover, the money that does contribute to effective demand doesn't have the same effect independent of time. Increasing effective demand when there are idle resources and an output gap increases supply without affecting price in a competitive environment. Even has maximum production is approached, companies are likely to expand capacity through increased investment.

Effective demand doesn't affect price until the ability of an economy to expand production to meet demand begins to falter and imports cannot meet the increased demand either.

So taking M as the independent controlling variable rather than effective demand is a serious mistake theoretically, and a debilitating mistake when used to formulate economic policy.

The "hot potato effect" is imaginary.

51 comments:

Matt Franko said...

left this for y over there Tom I will copy it here FTR:

He has "money is neutral"...

The way I look at it (electrical paradigm) nothing that 'flows' is appropriately described as "neutral" (or 'positive' or 'negative' either)

In electrical paradigm, 'potential' can be 'positive, negative or neutral', electrical current 'flow' of charged particles is created across these potentials...

I look at dynamic 'flows' of USD balances as similar to 'charged particles' in this analogy, instead of 'potential', so you would not appropriately describe this flow as 'neutral'... you would use a term/unit that describes a 'flow' in 'per unit time', a 'zero flow' is also not best described as 'neutral' rather it is a 'zero flow'...

iow we would never say: "amperes are neutral"...

The wiki on amperes: "the ampere is a measure of the amount of electric charge passing a point in an electric circuit per unit time with 6.241 × 1018 electrons, or one coulomb per second constituting one ampere."

We have 'authority' in an economy operating under state currency... which is similar to electrical 'potential' in an electrical analogy.

This 'authority' can probably be described as 'neutral or positive or negative' .... but not the currency.

So he is mixed up.... maybe where he is going wrong is he is applying the word "neutral" to the metonym "money" in trying to communicate or describe his observation that his "money" is not the operative 'force' in the system so he is saying it is 'neutral' using the word in a general sense meaning "of no import" in itself (ie without the presence of 'potential' or 'authority').... that would be my hunch...

So leave the term 'neutral' out of it when it comes to analyzing state currency systems... rather use it in describing the current status of our civil government...

right now I'd describe govt as 'positive' (but obviously not high enough)

rsp

Matt Franko said...

particle flow thru conductive materials is not that the atoms are treating them as "hot potatoes"...

Can we perhaps learn from nature?

y said...

"It did not result in a fall in the price of gold but rather increased inflation"

Sumner actually makes that point:

"Now let’s do the same three examples but assume gold is the medium of account. How does that change things? Obviously the price of gold can no longer plunge, as the price of the MOA is fixed by definition. But it’s value will still fall sharply, as the price of other goods and services rise".

Can I suggest a correction?

y said...

"The term price revolution refers to the relatively high rate of inflation that characterized the period from the first half of the 16th century to the first half of the 17th, across Western Europe, with prices on average rising perhaps sixfold over 150 years. This level of inflation amounts to 1-1.5% per year, a relatively low inflation rate for the 20th century standards, but rather high given the monetary policy in place in the 16th century.

Generally it is thought that this high inflation was caused by the large influx of gold and silver from the Spanish treasure fleet from the New World, especially the silver of Bolivia and Mexico which began to be mined in large quantities from 1545 onward".

http://en.wikipedia.org/wiki/Price_revolution

Michael Norman said...

Sumner's a tool. I have to do a video on this guy. Seriously.

y said...
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y said...

I'm guessing the supply of gold and silver in european economies increased as gold from the new world was minted and then SPENT into the economy by sovereigns/ governments/ aristocrats/ the army...?

Also the increased supply of money would have lowered interest rates, making borrowing cheaper.


I'm guessing the Spanish government didn't bring the gold over from South America and then only use it to buy back government bonds from financial markets (QE)?

Tom Hickey said...

Matt they think that money is neutral since money created by lending nets to zero. "For every borrower there is a saver."

They disregard that changes in quantity and quality of lending have powerful impacts on the real economy, as Minsky demonstrated.

As you say, money lent has a charge. When the circuit is disrupted by ability to discharge debt, then the effect is debt-deflation. Similarly, when the current of money creation exceeds the ability of the system to handle it effectively through expansion, then inflation results.

But even this explanation leaves out effective demand as the key transmission mechanism and the necessity for rising ability to service keeping up with rise in indebtedness.

The big mistake though is in assuming that the price of money (interest rate) is essentially the same as the price real assets and commodities so that raising and lower the interest rate has a direct effect on other prices independently of other factors.

It's myopic.

Tom Hickey said...

The debate now hangs on whether money is neutral and banks aren't special — or not.

Those who think so are imagining a bullion-based (commodity-based) monetary system with interest rates set by the market. This is the assumption in SS's thought experiment.

y said...

Mike,

I wouldn't recommend doing an insulting video. The best way to respond is to clearly demonstrate why Sumner's theories are misguided or wrong, in a rigorous way that he can't just dismiss.

I think the reason Sumner includes the poke at MMTer's in his post is because Cullen Roche keeps writing that Sumner understands nothing, whilst demonstrating very little understanding himself.

Tom Hickey said...

@ y

But SS confused this in the first place by talking about price rather than value in terms of purchasing power.

"The only way for society as a whole to get rid of the extra gold is by driving down the price of gold until people want to hold the new and larger quantity.  Assume the price falls in half.  That also means the value of gold relative to other goods and services falls in half."

No, the (nominal) price of gold was not driven down, it was exchangeable for less in real terms due to inflation. As people had more to spend, prices got bid up and the price inflation ensued.

Tom Hickey said...

y, I realized that what I had said was not sufficient and amended it considerably.

Yes, the influx of gold from the New World was spent by governments on empire-building and high living.

I provide the example of India where much gold importation is used for temple donation, and the temples just expand their treasuries or use it for decoration. Never gets spent.

y said...

They think money is neutral because in "the long run" an increase in the supply of money is believed to only result in higher prices with no effect on real output.

They argue money can have a real effect in the short run because "prices and wages are sticky".

But in "the long run" prices are believed to be flexible so the issue of "sticky prices" doesn't last.

Joan Robinson pointed out that "the long run" is a series of short runs. If money has an impact in the short run - making output, employment, investment and wealth higher than it otherwise would have been in the short run, then a series of such "better than otherwise would have been" short runs leads to a better "long run" position, because each short run period builds on the legacy of the previous short run period. As such money is non-neutral in both the short and long run.

y said...

"SS confused this in the first place by talking about price rather than value in terms of purchasing power".

In the first example gold is not assumed to be money in any way. It is a real asset which exchanges for money.

In point 4 he assumes instead that gold is money, i.e. what he calls the 'medium of account'. He states that if this is the case then:

"Now let’s do the same three examples but assume gold is the medium of account. How does that change things? Obviously the price of gold can no longer plunge, as the price of the MOA is fixed by definition."

Your quote refers to the first example, where he assumes that gold is not money.

y said...

"Professor Sumner seems unaware that his thought experiment actually happened at the time of the discovery of the New World and vastly increases gold importation. It did not result in a fall in the price of gold but rather increased inflation"

This is the bit I think you should amend because nothing that Sumner says suggests that he doesn't get that point. As for his knowledge of history, I'm sure he has read about that period.

Matt Franko said...

"assume gold is the medium of account. How does that change things? "

Humans have then surrendered their authority.

rsp,

Tom Hickey said...

OK, amended.

Greg said...

My conclusions about Sumner are this

He should not be concerned about hyperinflations at all seeing as he thinks money is an illusion and doesnt affect real activity in the long run. Why not just make money completely worth less and just get on with our economic lives?

He doesnt understand relative prices. He has made the statement twice, not once but TWICE (and I called him on it the first time)

." BTW, prices in Japan are 100 times higher than in the US, and Korean prices are 1000 times higher. I don’t see how other theories can even get us into the right ball park."


Prices are a 100x higher in Japan? 1000x higher in Korea? Does he mean gas is about 300$ gallon in Japan and 3000$ a gallon in Korea? Clearly not because thats obviously false. Does he mean the cost of living is 100x more in Japan and 1000x more in Korea? I hope not cuz thats provably false too.

What he means is that in Japan they have two more zeros after all their prices than we do. Thats all.
And this is supposed to be some sort of insight ?!

Sumner is a moron.

y said...

"In his first point he assumes that increasing the amount of gold will automatically depress its price as a commodity. Yes, if demand remains the same and supply increases that is the case."

Interestingly in his example Sumner talks about a single company discovering a vast gold 'hoard', but doesn't talk about monopoly pricing. If one company discovered such a vast 'hoard' they could choose to either flood the market or keep prices high by monopolistically restricting supply.

y said...

"This was the age of empire building and governments spent lavishly. However, this is a special case historically."

I don't think the increase in effective demand was all due to government spending. My point is that the new money entered into the economy through spending, thereby increasing net financial wealth and triggering a cascade of increased spending and investment. And the increased money supply would have lead to lower interest rates, making investment even cheaper to finance.

If the wikipedia article I linked to above is correct, and during the 'price revolution' inflation was only 1-1.5% per year on average, despite the large influx of new money and increased spending, this just seems to demonstrate how chronically demand-constrained those european economies were.

Tom Hickey said...

"
Interestingly in his example Sumner talks about a single company discovering a vast gold 'hoard', but doesn't talk about monopoly pricing. If one company discovered such a vast 'hoard' they could choose to either flood the market or keep prices high by monopolistically restricting supply."

Think DeBeers, which controls the diamond market as a monopoly.

Then there is the question of cost of recovery. Market price is limited on the low side by what it costs to dig it out, refine it and bring it to market. Now that the low hanging fruit is plucked, new discoveries are increasingly more costly to bring to market.

But apparently conventional economists don't consider frictions in the models, or the various factors affecting supply and demand.

Dan Kervick said...

I'm writing up a response now. Hope to have it done by the end of the day.

y said...

I was thinking of DeBeers.

In Sumner's unreal world the company discovering this vast new quantity of gold decides for some reason to immediately bring all of it to market as fast as it possibly can, leading to a collapse in the price of gold - despite the complete absence of competitors vying to extract the same gold.

Fails econ 101, assumes monopoly is the same as perfect competition.

Matt Franko said...

Why would they be digging for it in the first place if as in his hypo "Because before the discovery people were already in equilibrium, they held as much gold as they wanted to hold..."

y said...

Matt, he says "people were already in equilibrium, they held as much gold as they wanted to hold at existing prices".

In other words they could want to hold more gold at lower prices.

"Equilibrium" talk often leaves out the actual processes by which supposed equilibrium is achieved.

Tom Hickey said...

"Because before the discovery people were already in equilibrium, they held as much gold as they wanted to hold"

How is it possible to know that if there is a fixed supply of gold? Some one is going to hold it depending on various factors of which price is only one, or one could say summarizes the other factors. The going rate is the equilibrium price, and it is relatively volatile.

Look at the long term chart of the price of gold. Does that look like any sort of stable preference. Gold doesn't respond to changing supply but to a lot of factors that influence the bid and asked price. If there is a stable influence it is probably the real interest rate. But the real interest rate in turn is influenced by many of the same factors that affect preference to hold gold. High liquidity preference, low real interest rate and high demand for gold is often associated with economic conditions that provoke a flight to safety.

Take oil price, where they actually were recent announcements of big new discoveries. Did oil price fall noticeably? No. Same with huge discoveries of natural gas as a result of fracking. Did the market collapse? Again, no.

I don't think that SS's examples help the argument any.

Just cut to the chase and tell us how the Fed is going to create credible inflationary expectations w/o going fiscal, which it is not authorized to do. The rest is just a lot of hand waving.

Increasing bank rb was supposed to do it according to QTM and it failed miserably, although monetarist say that in the long run it will be inflationary unless QE is unwound, because they don't understand the monetary system, the banking system and how they interface through settlement balances.

Matt Franko said...

So the producers would want to increase production in order to first lower the unit prices paid for their product?

Matt Franko said...

They would first lower their offer?

y said...

"The going rate is the equilibrium price, and it is relatively volatile."

the going rate is the disequilibrium price. If you're trading gold you buy it at the current price because you think the price will change (in your favor) in the near future.

"Equilibrium" refers to a state that is always just out of reach. It refers to an imaginary situation where market processes have come to an end.

Tom Hickey said...

Mat, they have a floor set by costs and a ceiling set not only by what the market will bear but what the economy will bear. If price of viral commodities is raised too much it results in contraction which lowers everyone's sales.

We can see this in the actions of the Saudis as swing producers. They set a floor price and a ceiling price and let prices fluctuate in the corridor, raising prices were they are able and lower them as they think that have to maintain economic stability. They are aided in this now that oil is considered as asset and is being demanded independently of use. This is happening with many commodities now as large producers and traders dominate markets rather than users and many producers competing.

Neoclassical economists pretend that price is determined by supply and demand in near perfect markets, which simply don't exist in many significant cases. they presume that financial markets, goods market and labor markets operate on the same principles and with no asymmetry, friction, or complexity.

The math may be fine, but the world doesn't work that way for a lot of reasons that result in anomalies.

The essence of SS's argument is that if people believe that "the money supply will double" nominal wages, asset prices, and wages will all respond equally in the long run if not immediately to the shift in purchasing power.

The Fed tried this already QE by increasing rb with no success. So now the suggestion is to use cash instead? First, how is that possible under current institutional rules and secondly , why would it make a difference as a "hot potato" anyway. It's imaginary.

y said...

"viral commodities"

That's a new one.

y said...

"This is happening with many commodities now as large producers and traders dominate markets rather than users and many producers competing"

Also banks are increasingly getting in on the act as the government allows its 'quasi-agents' (banks) to do whatever the f@ck they want - even if that means buying up large parts of the supply of a commodity on credit and storing it in warehouses to make a profit on price changes, which impact the value of financial assets.

y said...

"if people believe that "the money supply will double" nominal wages, asset prices, and wages will all respond equally in the long run"

most apparently don't believe that QE will result in higher demand for goods and services, they just think it will result in higher asset prices as long as it continues.

Tom Hickey said...

@ y

I should have said "clearing price that indicates (temporary) equilibrium of supply and demand taking all factors into consideration"?

The reason that most markets don'r stabilize at an equilibrium price is due not only to quantity available but also to those contributive factors being in flux. In fact, changes in quantity available may not be the primary factor. Could be changing indifference due to any number of factors.

What I am trying to say is that the gold market is has never been at a stable equilibrium price, so the assumption that it is as an example means what? It's imaginary.

SS: "Over a period of years the extra output causes gold prices to fall in half.  But why?  Because before the discovery people were already in equilibrium, they held as much gold as they wanted to hold at existing prices.  The extra gold is a sort of “hot potato” that people try to get rid of.  But obviously not by throwing it away!  They get rid of it by selling it.  But notice that while that works at the individual level, it doesn’t work in aggregate."

This assumes an stable (equilibrium) market price at the clearing price he chooses as an example, "say 1200. But markets are not stable and price movement is not always influenced by supply and demand in the sense of price falling with increased production. As a matter of fact, the increased price of gold brought forth a great deal more production than previously because some mines became profitable again with the rise in price and prices continued to rise, not because people "wanted to hold more gold" just because. They wanted to hold more gold for a variety of reasons, inflation, deflation, devaluation, etc, and they were willing to hold more as the price increased despite increased production and the prospect of a lot more gold being produced as prices rose higher, making more mining profitable.

And if increased supply automatically resulted in a fall in price why would firms even bother to look for new deposits, since that would just result in a fall in price unless they could make it up on volume on a lower margin, eg, through increasing efficiency of extraction.

What I am saying is that SS's examples don't help his argument, but just raise more questions about simplistic assumptions or lack of understanding of actual markets.

Tom Hickey said...

"viral commodities"

That's a new one.


:)

"vital"

Tom Hickey said...

most apparently don't believe that QE will result in higher demand for goods and services, they just think it will result in higher asset prices as long as it continues.

I have seen more than one argument that in long run, the effect will be inflationary. Just you wait.

The alternative is supposed to be a crash in the tsy market due to Fed unwinding QE.

Pretty much standard fare at ZH.

y said...

"Just you wait"

but according to the efficient markets hypothesis, if markets thought QE would result in significantly higher prices for goods and services, then those prices would already exist.

y said...

"the increased price of gold brought forth a great deal more production than previously because some mines became profitable again with the rise in price and prices continued to rise, not because people "wanted to hold more gold" just because. They wanted to hold more gold for a variety of reasons"

An example of where the standard demand curve doesn't apply.

y said...

"if increased supply automatically resulted in a fall in price why would firms even bother to look for new deposits, since that would just result in a fall in price"

The "perfect competition" argument is that there is a period in which companies can make 'abnormal' profits, but that soon evaporates as more competitors come into the market and so drive prices down.

This doesn't hold though in a situation where the first company holds a monopoly on the extraordinary "gold hoard" they have discovered.

Matt Franko said...

I dont think gold is a good example as it is typically not "consumed" like instead coal would be oxidized for power...

These "typical" commodities are consumed so they have to be 'modeled' as a flow... there is a consumptive flow and a production flow...

Again if he is saying "money is neutral" where he is saying "money" is 'not of import' compared to the
real commodity consumption and commodity production flows, then I may see where he is coming from... iow "money" is not important compared to the basic supply and demand flows of a necessary commodity...

y said...

"I dont think gold is a good example as it is typically not "consumed" like instead coal would be oxidized for power..."

Very droll.

Classic.

y said...

Oh sorry my misunderstanding, I thought you were suggesting that gold is "oxidized for power".

I thought that was funny!

y said...
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y said...

As in, gold is dug up out of the depths and brought out into the open air (i.e. oxidized) for "power"...

y said...

Matt,

"then I may see where he is coming from"

http://en.wikipedia.org/wiki/Neutrality_of_money

Matt Franko said...

Well y some out there do actually eat or 'consume' the gold and silver!

(but i dont think they oxidize in the human digestive tract...)

But also you could say what you originally interpreted where gold is actually brought up 'into the oxygen' for 'power' under a gold (metallic) system...

The golden rule: "He who has the gold rules..." Which is the way it is under the metals and I'm glad that epoch seems to be finally over for us...

Its funny how the words can work out different ways often...

I'll take a look at the wiki..

rsp.

Tom Hickey said...

Everyone agrees that MV=PT. They just differ in the understanding of what M is and whether change in M affects T.

Money neutrality holds that the effect of M is only on P (nominal price) and not T (real stuff). That is to say that an increase in aggregate demand does not result in a corresponding increase in T, so only affect P, assuming V to be constant.

Keynes rejected money neutrality in both short and long run. He held that an actual increase in M through fiscal policy could affect T through an increase in aggregate demand at under full employment and full capacity utilization since it would send a signal to expand production (supply) to meet the increased demand.

Increasing the monetary base through monetary policy doesn't have the same effect, however, since it doesn't add to spending power or propensity to consume and mostly provokes portfolio shifting, lowering the price of the securities that the cb buys to increase rb and raising the nominal price of riskier assets as non-bank deposits migrate to other savings vehicles.

So monetarists are at pains to "prove" that fiscal stimulus doesn't increase AG in a way that increases real effects like real GDP by expanding T.

Fiscalists, on the other hand, point to the difference between monetary and fiscal policy based on fiscal increasing $NFA which monetary policy cannot do. All monetary policy does is change the composition and term structure of existing $NFA without affecting the amount.

So far SS has shown no evidence he understands this, let alone trying to refute it.

Ralph Musgrave said...

The final sentence of Scott Sumner’s post is ridiculous: “I think I see a few MMTers in the ditch along the way, still scratching their heads.”

MMTers pointed out over and over that an increase in what they call “private sector net financial assets” will increase spending. And an increase in the monetary base (all else equal) is an increase in PSNFA.

Matt Franko said...

Dan has his response up over at RE fyi... rsp

y said...

"The monetary base is not spendable"

What do you mean? Why not?

Tom Hickey said...

"The monetary base is not spendable"

That's obviously wrong since the MB includes currency in public circulation. Should be the rb and vault cash portion of the monetary base in not spendable.' Of course, vault cash is spendable if demanded at the withdrawal window, but rb are for settlement at the cb only.