tag:blogger.com,1999:blog-6704573462403312459.post7056025328725356336..comments2024-03-29T02:53:03.321-04:00Comments on Moneyness: How Irish pubs helped cure a shortage of safe assetsJP Koninghttp://www.blogger.com/profile/02559687323828006535noreply@blogger.comBlogger9125tag:blogger.com,1999:blog-6704573462403312459.post-51079045255152440322013-01-27T11:04:12.338-05:002013-01-27T11:04:12.338-05:00David,
One reason I found the Ireland story inter...David,<br /><br />One reason I found the Ireland story interesting is because the market spontaneously switched to using unsecured credit, which is commonly supposed to be inferior to secured credit. Market's seem to provide the necessary assets very quickly. <br /><br />Maybe modern markets take time to make the switch to unsecured credit. So in the meantime they turn to treasuries. But where's the problem? One thing about t-bonds is that we don't need to fabricate more of them to meet our demands for safety... we just need a higher real value on the stock of existing t-bonds. This can be entirely met by shifts in prices. Thus, the demand for safety is satisfied. Maybe we experience problems if we hit the zero lower bound, but this doesn't seem to be a part of your story.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-23387716068592173342013-01-26T21:36:06.952-05:002013-01-26T21:36:06.952-05:00JP,
No one denies that the private sector creates...JP,<br /><br />No one denies that the private sector creates money as it is needed. In fact, the private sector goes to great lengths in manufacturing "safe" (informationally insensitive) financial instruments that help facilitate intertemporal trade. <br /><br />The AAA rated tranches of MBS up until recently are an example of this (the manner in which they were used as collateral in repo arrangements). It all worked pretty well...for a while. But that's really not the point now, is it? David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-20866845332069440862013-01-26T08:55:36.400-05:002013-01-26T08:55:36.400-05:00There were still circulating Bank of England notes...There were still circulating Bank of England notes and coin. <br /><br />If the Irish hadn't found liquid substitutes for deposits, then notes and coin would have had to do far more "work". What would have likely happened in that scenario is a rise in the value of notes & coin... ie. a fall in prices, combined with a slowdown in output/employment. Using uncleared cheques prevented notes and coin from taking the brunt of people's demand for liquidity.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-41087565834559936472013-01-25T22:13:36.333-05:002013-01-25T22:13:36.333-05:00jp - since there was no quantity of money, it coul...jp - since there was no quantity of money, it couldnt have had any impact on the price level, output, employment etc, no?gasherbrumhttps://www.blogger.com/profile/00314964555371566832noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-81864639746647525942013-01-25T18:33:59.869-05:002013-01-25T18:33:59.869-05:00Anton, thanks for your comment. I suppose that wh...Anton, thanks for your comment. I suppose that when people know and trust each other, the asset they are transferring is their word, not an actual formal paper or electronic title. But it's still a safe asset. <br /><br />If you're interested, we had an good debate on the "Evil is the root of all money" idea once before. See <a href="http://jpkoning.blogspot.ca/2012/09/the-root-of-all-money.html" rel="nofollow">here</a> and <a href="http://andolfatto.blogspot.ca/2012/09/evil-is-root-of-all-money.html" rel="nofollow">here</a>.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-42977916128572334572013-01-25T16:59:09.539-05:002013-01-25T16:59:09.539-05:00The reason it worked in Ireland is exactly because...The reason it worked in Ireland is exactly because it is "a tight-knit society". If people know and trust each other you actually do not need safety assets. In fact, you do not even need money, which,incidentally, is what the paper "Evil is the root of all money" says. The other reason you may not need safety assets is when you do not need to save and that can happen when you do not need to store resources because things are free. That may actually happen in our generation future if technology continues to progress at this pace.Antonnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-2004184376927485912013-01-24T18:01:21.021-05:002013-01-24T18:01:21.021-05:00I can't believe I missed that post! Thanks fo...I can't believe I missed that post! Thanks for the mention. I guess I must be a dummy too.<br /><br />I was interested to note that Diego Espinosa made a comment consistent with my liquidation point above: http://jpkoning.blogspot.com/2013/01/i-must-be-dummy-for-not-understanding.html?showComment=1358784243503#c5701329798537216397RebelEconomisthttps://www.blogger.com/profile/13241098878248190971noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-61206488600078811322013-01-24T10:49:19.431-05:002013-01-24T10:49:19.431-05:00I saw that and actually linked to your comment in ...I saw that and actually linked to your comment in <a href="http://jpkoning.blogspot.ca/2013/01/i-must-be-dummy-for-not-understanding.html" rel="nofollow">my previous post</a>.<br /><br />Even if returns are low and risk widespread, we've got <a href="http://online.wsj.com/article/SB10001424127887324024004578171722053114776.html" rel="nofollow">record corporate bond issuance</a>. We've got to distinguish between a change in tastes for assets (which has surely occurred) and the idea that this change cannot - or hasn't already - been accommodated by the market.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-78850183158727141662013-01-24T09:48:49.078-05:002013-01-24T09:48:49.078-05:00Why can't more safe assets be created? I expr...Why can't more safe assets be created? I expressed a similar view on David Beckworths blog (on a post on which you also commented) here: http://macromarketmusings.blogspot.com/2013/01/resolving-safe-asset-shortage-problem.html?showComment=1358180148614#c6390727789866873241<br /><br />On thinking about it, I came to the conclusion that risk is now so widespread and returns are so low that it simply is not viable to produce safe assets (eg by repo or tranching) that can return more than money (ie a zero nomimal return).<br /><br />In other words, never-ending easing is underpinning the liquidity trap; we need more liquidation.RebelEconomisthttps://www.blogger.com/profile/13241098878248190971noreply@blogger.com