tag:blogger.com,1999:blog-6704573462403312459.post1832251638352937..comments2024-03-29T02:53:03.321-04:00Comments on Moneyness: Transporting the macroblogosphere back to 1809: Usury Laws and the 5% upper boundJP Koninghttp://www.blogger.com/profile/02559687323828006535noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-6704573462403312459.post-82389648348829869372013-07-30T08:48:09.578-04:002013-07-30T08:48:09.578-04:00I have started a petition to get Usury made illega...I have started a petition to get Usury made illegal. Will you join me please? Sign Here: https://secure.avaaz.org/en/petition/Outlaw_Usury/edit/Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-63587499089335923832013-07-24T22:23:57.364-04:002013-07-24T22:23:57.364-04:00Yes, I suppose the Directors could switch from dis...Yes, I suppose the Directors could switch from discounting bills at artificially low prices to buying stock in various corporations at market prices. The Directors couldn't be accused of usury, since usury doesn't apply to equity, yet by buying stock they would be provisioning England with liquidity, as you point out.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-46086549273398878702013-07-24T17:38:17.206-04:002013-07-24T17:38:17.206-04:00If I were blogging about the FUB, I'd tell the...If I were blogging about the FUB, I'd tell the Bank directors to stop making loans, since low-interest loans would burn up the Bank's assets and cause inflation. Instead, the Bank should buy solid assets (bonds, real estate, short-term real bills, etc). This would get the needed bank notes into circulation without the bank losing assets. <br /><br />If I still had breath left, I'd tell Henry Thornton that he was wrong when he said:<br /><br />"Suppose that A sells one hundred pounds worth of goods to B at six months credit, and takes a bill at six months for it; and that B, within a month after, sells the same goods, at a like credit, to C, taking a bill; and again, that C, after another month, sells them to D, taking a like bill, and so on. There may then, at the end of six months, be six bills of 100 pounds each existing at the same time; and every one of these may possibly have been discounted. Of all these bills, then, only one represents any actual property. (Thornton, 1802, p. 86.)"<br /><br />His mistake was in failing to see that B's bill is backed by B's property, C's bill by C's property, etc, so that in the end, we have 600 pounds of property backing 600 pounds of money.<br /><br />Next, I'd tell David Ricardo that he was wrong when he said:<br /><br />"Let us suppose all the countries of Europe to carry on their circulation by means of the precious metals, and that each were at the same moment to establish a Bank on the same principles as the Bank of England--Could they, or could they not, each add to the metallic circulation a certain portion of paper? and could they not permanently maintain that paper in circulation? If they could, the question is at an end, an addition might then be made to a circulation already sufficient, without occasioning the notes to return to the Bank in payment of bills due. If it is said they could not, then I appeal to experience, and ask for some explanation of the manner in which bank notes were originally called into existence, and how they are permanently kept in circulation. (Ricardo, 1811, p. 117.)"<br /><br />His mistake was failing to see that whatever new money is issued is backed by new assets acquired by the Bank.<br /><br />Oh, wait. They wouldn't believe me. I guess the best thing would be to have them assassinated before they wrote that stuff.Mike Sproulhttp://www.csun.edu/~hceco008/realbills.htmnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-66463873275440222952013-07-24T16:18:22.871-04:002013-07-24T16:18:22.871-04:00Mike, I definitely agree with you that credit rati...Mike, I definitely agree with you that credit rationing is a pretty poor policy alternative. What policy choice would you have blogged about if you were transported back to 1809?JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-30813254866804879682013-07-24T15:29:59.771-04:002013-07-24T15:29:59.771-04:00PS: Great job explaining the zero lower bound. A l...PS: Great job explaining the zero lower bound. A lot of economists still don't seem to get it. Keep at it.Mike Sproulhttp://www.csun.edu/~hceco008/realbills.htmnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-85634738610590027842013-07-24T14:17:39.122-04:002013-07-24T14:17:39.122-04:00Here's the trouble with credit rationing:
&qu...Here's the trouble with credit rationing:<br /><br />" This recourse to a rationing of credit caused renewed stringency in the money market in the spring of 1796 and evoked loud protests from the City (London).<br /> It is not easy to reconcile these complaints about the continued scarcity of money during this period with the no less insistent complaints about high prices, and with the continued unfavorable course of the exchanges." (Hayek, 1933, p. 40)"<br /><br />When interest rates are set too low, lending will reduce the bank's assets, so the bank's money will lose value. So like you said, rationing won't prevent moderate inflation, but at least it will limit the bank's losses and prevent hyperinflation. Unfortunately, avoiding hyperinflation comes at the expense of creating shortages of money.Mike Sproulhttp://www.csun.edu/~hceco008/realbills.htmnoreply@blogger.com