tag:blogger.com,1999:blog-6704573462403312459.post3448635608302202099..comments2024-03-28T06:53:23.473-04:00Comments on Moneyness: Why so down?JP Koninghttp://www.blogger.com/profile/02559687323828006535noreply@blogger.comBlogger11125tag:blogger.com,1999:blog-6704573462403312459.post-65665586788297247642015-03-07T18:07:29.521-05:002015-03-07T18:07:29.521-05:00I will add that if there were only private currenc...I will add that if there were only private currencies, any time they would get a return above non fiat private stores of values, the currencies would become highly unstable (see bitcoin ) as people would hoard them and idle stockpiled amounts would become disconnected from the amount of stuff there is available out there to buy with it. <br /><br />When people would start to try to redeem their fiat, velocity would go up, and prices too. The reason money can't have a return above market without becoming volatile and risky is that accumulated idle money doesn't have intrinsic value and isn't tied to production. Unlike with investment, the amount of stuff people will want to buy with the money risks not being created. <br /><br />The only exception is money created and backed by a formidable government legal system. Central banks and governments can make money keep value above market by squeezing the value out of other assets when money velocity rises, basically transfering wealth from real investors and tax payers using a restrictive monetary policy. But allowing non investing fiat hoarders to keep their above market returns highly distorts the investment and labour markets, creates unemployment and destroys overall wealth (as we have seen in low inflation countries particularly europe recently). Benoit Essiambrehttps://www.blogger.com/profile/09777196965771952105noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-17113202774730017622015-03-07T08:33:09.320-05:002015-03-07T08:33:09.320-05:00Without money, not only would it be possible for l...Without money, not only would it be possible for low risk stores of value to have negative real returns but it would probably be a regular occurance. Anyone that would have a need for savings, that is work now but get value later, would either have to stockpile stuff, build capital, or give stuff to someone in exchange for some of their future production (an IOU). Stockpiling stuff, given maintenance costs, storage costs, obsolescence costs, insurance costs etc can have very negative returns. It is also not a given that people can create new capital, new businesses, that have a guaranteed positive return, especially in a slowing economy. So for example when the demand for savings grow, if a stockpile of stuff has a return of -10% and new private business has a safe return of -5%, you might as well lend to someone with a good reputation that offers -4% (the assumption is that this person has acces to better capital creation opportunities with say -3% returns ) . There is no other way to save. Benoit Essiambrehttps://www.blogger.com/profile/09777196965771952105noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-88619538397814915082015-03-05T16:24:21.032-05:002015-03-05T16:24:21.032-05:00The zlb/cash storage thesis is fine as long as opp...The zlb/cash storage thesis is fine as long as oppty cost of money remains positive (i.e. deflation expectations leading to positive real rate at zlb)Diegohttps://www.blogger.com/profile/18084671738464414141noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-4191105421728825502015-03-05T15:59:16.060-05:002015-03-05T15:59:16.060-05:00For "notes and bonds" seems necessary to...For "notes and bonds" seems necessary to address oppty cost (i.e. availability of competing +npv projects). This brings up pessimism question automatically as long as real rates also negative. Diegohttps://www.blogger.com/profile/18084671738464414141noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-59802311318844127472015-03-05T14:07:10.805-05:002015-03-05T14:07:10.805-05:00"But what would this mean? It seems to me tha..."But what would this mean? It seems to me that if such a situation would occur, the creation of new IOU’s (new money) would directly come to a full stop, as the issuers of such IOU’s would make a loss on them. "<br /><br />I'm not so sure of that. Banks make money on the spread between accepting IOUs (deposits) and issuing IOUs (loans). If they make a loss by lending, they can still earn spread income by accepting deposits at even more negative rates. JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-91729221923495659322015-03-05T13:53:53.800-05:002015-03-05T13:53:53.800-05:00Gross says in his latest:
"The universe of n...Gross says in his latest:<br /><br />"The universe of negative yielding notes and bonds in Euroland now total almost $2 trillion. .. The possibility of negative interest rates was rarely if ever contemplated in academia prior to 2014... It was as inconceivable as the “Big Bang” with its black holes that followed billions of years later; the rules of physics or in this case the rules of money didn’t apply; it was impossible to imagine."<br /><br />Cash storage and liquidity differentials address those points directly.<br />JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-17291041780722542222015-03-05T10:52:10.225-05:002015-03-05T10:52:10.225-05:00I think to address Gross's distortion concern ...I think to address Gross's distortion concern requires something more comprehensive than the mechanism of cash storageDiego espinosanoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-25298538136739211172015-03-05T09:45:10.136-05:002015-03-05T09:45:10.136-05:00JP, a comment on your post (and this time after ha...JP, a comment on your post (and this time after having read it ).<br /><br />You conclude that it is possible to have negative nominal interest rates without central banks. I assume that, inflation generally being positive, this would mean that it would also be possible to have (even larger) negative real interest rates without having central bankers. <br /><br />But what would this mean? It seems to me that if such a situation would occur, the creation of new IOU’s (new money) would directly come to a full stop, as the issuers of such IOU’s would make a loss on them. And that would mean, assuming that new IOU’s are still being required, i.e. by firms and households wanting to invest and spend, that these firms and household would have to bid up interest rates to a level at which IOU issuers would resume issuing IOU’s, i.e. to a level where it would be profitable for them to do so.<br /><br />And it seems to me that if such a level could not be reached due to a lack of money demand, this would most likely result (in the real world) in deflation. This would lead to an increase of the real interest rate, again (unless something is really wrong) to a level at which it would be profitable again for IOU issuers to issue new IOUs.<br /><br />In short: in a world without central banks, it would be is possible to have negative real interest rates, but it would require the efforts of a central bank to reach such a situation.<br /><br />AntonAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-31979975611580272482015-03-04T23:04:31.082-05:002015-03-04T23:04:31.082-05:00All I feel comfortable biting off (for now at leas...All I feel comfortable biting off (for now at least) is the question of nominal rates. JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-12429269267055351752015-03-04T18:39:22.122-05:002015-03-04T18:39:22.122-05:00Theoretically, nothing special about the ZLB or ne...Theoretically, nothing special about the ZLB or negative rates. All else equal. All isn't. <br /><br />What is unusual is the following combination:<br />-negative and falling nominal rates<br />-negative real rates<br />-normal and falling risk spreads<br /><br />When Yates can explain how an undistorted market allows for all three, he can label it a "capitalist" outcome. Diego Espinosanoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-68343923460166668592015-03-04T17:25:11.153-05:002015-03-04T17:25:11.153-05:00The fact that safe hassle-free real natural market...The fact that safe hassle-free real natural market rates are negative is almost a direct consequence of the laws of thermodynamics that says nothing maintains itself without work and energy. Everything decays.<br /><br />Sometimes people see negative returns as unnatural aberrations. This might be because of the fact that the 20th century was one of unprecedented technological and demographic growth which made low risk positive returns easy to find.<br /><br />Central banks pricing out investment in everything that has a real return bellow -2% and replacing it with fiat may well be cutting off a source of new capital that should be gaining in importance in a context of a large cohort of wealthy people near retirement and the global savings glut.<br /><br />Benoit Essiambrehttps://www.blogger.com/profile/09777196965771952105noreply@blogger.com