tag:blogger.com,1999:blog-6704573462403312459.post7776187479175900528..comments2024-03-29T02:53:03.321-04:00Comments on Moneyness: Andy Haldane and BOEcoinJP Koninghttp://www.blogger.com/profile/02559687323828006535noreply@blogger.comBlogger31125tag:blogger.com,1999:blog-6704573462403312459.post-13892333134034010492015-10-04T14:53:38.059-04:002015-10-04T14:53:38.059-04:00Highly negative (real) interest rates have not bee...Highly negative (real) interest rates have not been an infrequent phenomenon in the developing world. Obviously, they have been the result of very high inflation (relative to the bank rate, which was positive), but supposedly the effect is similar when inflation is low and the bank rate is pushed down to a very low level. For these developing countries, the most frequent outcome has been a de-facto dollarization of the domestic economy. I suspect that the same will happen under a highly negative nominal rate regime. There are plenty of currencies to choose from- the Canadian dollar, the NZ dollar, the Australian dollar, etc.Mnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-41980761210548904552015-10-02T19:02:42.298-04:002015-10-02T19:02:42.298-04:00Bill Mitchell ;) Bill Mitchell ;) Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-5194590311128609762015-09-30T10:13:54.344-04:002015-09-30T10:13:54.344-04:00NiceNiceAhmedhttps://www.blogger.com/profile/14581880222150240798noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-48255914938869798332015-09-29T11:47:46.091-04:002015-09-29T11:47:46.091-04:00Yes, the "standard framework" makes a lo...Yes, the "standard framework" makes a lot of dubious assumptions.Peter Šurdahttps://www.blogger.com/profile/02219200720577247444noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-27939573096391681082015-09-29T09:06:37.343-04:002015-09-29T09:06:37.343-04:00If you'd said this at the outset, you'd ha...If you'd said this at the outset, you'd have saved us plenty of arguing! This post assumes the standard framework, not the Austrian framework, and its usefulness should be judged with that in mind.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-72028631712127653132015-09-29T09:02:31.720-04:002015-09-29T09:02:31.720-04:00Bilbo, as in the Lord of the Rings guy?Bilbo, as in the Lord of the Rings guy?JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-44482833738819064582015-09-29T04:13:42.432-04:002015-09-29T04:13:42.432-04:00Has anyone suggested relying less on monetary poli...Has anyone suggested relying less on monetary policy and more on fiscal stimulus?<br /><br />Fiscal policy is the best counter-stabilisation tool available to any government<br />http://bilbo.economicoutlook.net/blog/?p=18797<br /><br />"The reality is that policy makers have very little idea of the speed and magnitude of monetary policy impacts (interest rate changes) on aggregate demand. There are complex timing lags given how indirect the policy instrument is in relation to its capacity to influence final spending.<br /><br />Further there are unclear distributional effects – creditors gain when rates rise, debtors lose. What will be the net effect? Central bankers do not know the answer to that question.<br /><br />Monetary policy is also a blunt policy instrument that has no capacity to target specific segments of the spending population or regions.<br />***<br /><br />Fiscal policy expansion is always indicated when there is a spending gap. It is a direct policy tool ($s enter the economy immediately) and can be calibrated and targetted with more certain time lags. Liquidity trap or not, fiscal policy is the best counter-stabilisation tool available to any government."<br /><br />_______________________________<br /> <br />Modern Monetary Theory in Canada<br />http://mmtincanada.jimdo.com/<br /><br /><br />Larry Kazdanhttps://www.blogger.com/profile/04756717838017050246noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-25061239028401715052015-09-28T11:13:12.934-04:002015-09-28T11:13:12.934-04:00Even if prices were rigid, it does not automatical...Even if prices were rigid, it does not automatically follow that that is the reason for a recession. If for example the reason is, as austrians argue, the prior increase in the quantity of money, then a loose monetary policy does not solve the problem, it cures symptoms.<br /><br />The rigidity could also be caused by transaction costs rather than psychology, in which case again a loose monetary policy is not a a solution to the problem.<br /><br />Last but not least, none of that refutes my argument that this is just a redistributive mechanism, rather it would mean that the judgement of "price setters" is erroneous and that makes the redistribution an appropriate countermeasure.Peter Šurdahttps://www.blogger.com/profile/02219200720577247444noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-2572431180831790512015-09-28T09:20:59.007-04:002015-09-28T09:20:59.007-04:00Given that prices are rigid, monetary policy isn&#...Given that prices are rigid, monetary policy isn't just a zero-sum game, A central banker who keeps money too tight can trigger a recession, one who loosens can soften a recession. That's why tools must be adequate. A small net loss incurred by those who use 50s is probably worth incurring given the ability to offset recessions, which hurt everyone. JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-57155437440750238732015-09-28T02:12:38.110-04:002015-09-28T02:12:38.110-04:00JP, as money is neither a consumer nor a producer ...JP, as money is neither a consumer nor a producer good, monetary policy can at best be a liquidity-redistributing mechanism, a zero-sum game. With respect to the tools evaluated in this post, in addition to redistributing liquidity they also increase transaction costs, therefore are a net loss.<br /><br />As for the privately issued bank notes, in a system with negative interest rates, what makes more sense would be to issue full reserve backed electronic cash system. That could be funded by transaction fees rather than fractional reserve banking. However, that area is heavily regulated.Peter Šurdahttps://www.blogger.com/profile/02219200720577247444noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-32087934462930480492015-09-26T17:42:37.160-04:002015-09-26T17:42:37.160-04:00I agree with you, but that is only the solution to...I agree with you, but that is only the solution to the problem we are already in and someone always has to pay the price (in this case the majority of the population again). Assuming this would then put our fiat system back into shape, after having paid the price, how could we be confident that our monetary managers would not mess it up again. My personal response so far to this question is that the only way to avoid more of these situations (and almost any system) is to make the understanding of the monetary system clear to a critical mass of people so that they create a counter movement to those abuses.Anonymoushttps://www.blogger.com/profile/12191008517302618067noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-3290734042140941442015-09-26T12:20:20.570-04:002015-09-26T12:20:20.570-04:00Think about it this way. Let's say a large fin...Think about it this way. Let's say a large financial crisis hits, maybe something like the Asian Financial Crisis of 1997. To deal with the ripple effects of a crisis like that, a central bank will typically need some room to cut interest rates, say by 2%. This is easy to do when interest rates are already at 4%, just cut to 2%. Problem solved.<br /><br />However, the European Central Bank (we'll use Europe as our example rather than the UK) currently maintains an interest rate oft -0.25% (which isn't loose, by the way, as it continues to undershoot its inflation target.) Can the ECB safely cut rates to -2.25% to counteract the crisis? No. Once it reduces rates to around -1.5%, everyone will rush into the 500 euro note for safety. The system needs to be altered in a way that allows a -2.25% rate. This post proposes what I think is a relatively simple alteration that allows us to get there. But of course, there are many other ways to address the problem.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-70920077615070262622015-09-26T09:45:45.419-04:002015-09-26T09:45:45.419-04:00Thanks for pointing that out, sorry for misreprese...Thanks for pointing that out, sorry for misrepresenting it. The issue, from my point of view, is that freezing 50 pound notes is not that far away from abolition or can be just an intermediate step. Now that we are in this monetary mess there might be no other ways for the CBs to solve the issue by having everyone else paying for it. It would be great to read more posts from you, if not done already (please point me to them if possible), on how monetary policy should be managed and how it interacts with the legal and state system. I find Walter Eucken's ideas very interesting in that regard, but I am not an economist to have a full view on how ideas have evolved since 1950 in that regard.Anonymoushttps://www.blogger.com/profile/12191008517302618067noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-49852111191096415932015-09-26T07:20:46.529-04:002015-09-26T07:20:46.529-04:00"...another negatively affected group are tho..."...another negatively affected group are those who hold money in a bank deposit."<br /><br />Yes, I mentioned that in my post. But they'll still be able to get 20s, 10s, and 5s. Again, the small set of changes required to get more space below zero imposes a relatively small set of burdens relative to the benefits it allows.<br /><br />As for private companies, Peter, they wouldn't dare issue a 0% yielding note in a negative rate environment. They'd quickly go bankrupt... as I wrote <a href="http://jpkoning.blogspot.ca/2013/06/does-zero-lower-bound-exist-thanks-to.html" rel="nofollow">here</a>. So no need to clamp down.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-32381287790318179922015-09-26T06:54:53.643-04:002015-09-26T06:54:53.643-04:00Kimball's crawling peg plus a per capita refun...Kimball's crawling peg plus a per capita refund added to the income tax refunds should take care of most of the equity based objections. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-47519109007192002702015-09-26T03:23:17.431-04:002015-09-26T03:23:17.431-04:00Anonymous, to be fair, I don't think JP is &qu...Anonymous, to be fair, I don't think JP is "pushing", rather I think he is being too neutral. I actually don't mind that at all, I just think that people need to be reminded of different ways of phrasing the same thing. See https://www.youtube.com/watch?v=-RPR90_SPm8Peter Šurdahttps://www.blogger.com/profile/02219200720577247444noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-55390985043460951032015-09-26T02:08:22.343-04:002015-09-26T02:08:22.343-04:00JP, the "inconveniences of a small group"...JP, the "inconveniences of a small group" are merely the most visible aspect of the redistribution. The other aspects are hidden, and the task of economics is to expose precisely those unseen consequences of actions. For example, another negatively affected group are those who hold money in a bank deposit, which is hardly a small group. I would also like to remind you that some competition is prohibited in this area (for example, private companies cannot issue banknotes themselves like they used to in the past).Peter Šurdahttps://www.blogger.com/profile/02219200720577247444noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-18730991421016609182015-09-25T19:57:24.829-04:002015-09-25T19:57:24.829-04:00If you haven't read any "insider" di...If you haven't read any "insider" discussion of the economic disadvantages, try <a href="http://johnhcochrane.blogspot.ca/2014/12/get-rid-of-currency.html" rel="nofollow">John</a> <a href="http://johnhcochrane.blogspot.ca/2015/01/more-cash-and-zero-bound.html" rel="nofollow">Cochrane</a> or <a href="http://www.moneyandbanking.com/commentary/2015/2/9/negative-nominal-interest-rates-back-to-the-future" rel="nofollow">Steve Cecchetti</a>.<br /><br />"For the public, swapping deposits for banknotes is a very valuable option...Deposits are clearly vulnerable to counterparty risk in a way that banknotes are not."<br /><br />Agreed. But embargoing the largest value note doesn't prevent you from swapping your deposits for safe 20s, 10s, and 5s. You still get the option of obtaining a secured loan to the central bank at par.<br /><br />"Negative rates necessitates eliminating currency as a vehicle for transferring large volumes of savings. I don't think you'd dispute this."<br /><br />I <i>am</i> disputing this. The 50 pound note stays in circulation. Anyone who wants one can simply buy it in the secondary market. Anyone who wants smaller denominations can convert their deposits into 20s, 10s, or 5s.<br />JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-83901547261241739772015-09-25T19:42:31.463-04:002015-09-25T19:42:31.463-04:00Glad you like the blog, Alex. I just want to point...Glad you like the blog, Alex. I just want to point out that while I support the idea of temporarily negative rates, I don't support cash abolition, especially not the abolition of small value notes as they are a large part of the regular circulation. If you reread this post, you'll see it advocates the freezing the the quantity of 50 pound notes, not their abolition.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-60549779440336601292015-09-25T18:17:23.559-04:002015-09-25T18:17:23.559-04:00JP, I'll clarify. I'm concerned over the ...JP, I'll clarify. I'm concerned over the growing call for negative rates and elimination of large banknotes. Bankers offer one and only one solution to low nominal growth, that of negative interest rates -- which necessitates eliminating or hobbling currency. I hear little or no "insider" discussion of the political or economic disadvantages, unintended consequences, or legality of such a radical re-orientation of monetary policy. This is intellectually dishonest at best, and abetting financial fraud on the public at worst.<br /><br />For the public, swapping deposits for banknotes is a very valuable option -- as Robert Sams points out "your bank deposit, which is an unsecured loan to a highly leveraged deposit-taking institution". Deposits are clearly vulnerable to counterparty risk in a way that banknotes are not.<br /><br />Yes, the group of individuals who use 50 pound notes on a regular basis is small now, but this could change overnight. The option to convert unsecured leveraged bank loan into a secured loan to the central bank is not trivial or a matter of simple-minded convenience. The convertibility option is profoundly valuable: pointing at the number of current 50 bill users is laughably misleading; promising marvelous "benefits to everyone" shows contempt for your audience.<br /><br />You clearly protest that you are not eliminating currency: just "freezing the quantity of 50 pound notes", but this is obfuscation and semantics. Bottom line, negative rates necessitates eliminating currency as a vehicle for transferring large volumes of savings. I don't think you'd dispute this.<br /><br />You know, there exist profound arguments against negative rates: I suggest you address them. It's a gold mine -- sorry, bank reserve -- of prospective blogging material. You might even persuade!Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-62425398871501118622015-09-25T17:20:25.987-04:002015-09-25T17:20:25.987-04:00Thanks JP - I read every blog you post and enjoy t...Thanks JP - I read every blog you post and enjoy them deeply, but this idea of supporting negative interest rates and cash abolition you are supporting doesn't make any sense to me. The problem from my point of view is not the action of people, but the issue is with the supposed safe keepers of money (central banks) not doing their job and creating these situations as government and economic system tools. Having the system taking away my hard earned "money" is not social nor is it likely to take us to a path of growth without someone paying the bill (the overall population).<br /><br />As a reference if you not familiar with them I did read recently Walter Eucken's book from the 50s about economic order and Günter Schmölders also explain this quite well.<br /><br />Keep the great work in sharing your insights.<br /><br />AlexAnonymoushttps://www.blogger.com/profile/12191008517302618067noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-23982214302631950132015-09-25T14:30:39.467-04:002015-09-25T14:30:39.467-04:00Peter, the inconveniences faced by the small group...Peter, the inconveniences faced by the small group of individuals who use 50 pound notes on a regular basis would be far outweighed the benefits that everyone (including that small group) enjoys by having a flexible monetary policy.<br /><br />Anon, this post isn't about 'eliminating banknotes'. It is about freezing the quantity of 50 pound notes. As for the rest of your comment, I'm not sure what you're trying to say.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-77128549350458302832015-09-25T13:58:29.432-04:002015-09-25T13:58:29.432-04:00Peter, for some inexplicable reason, JP spends a l...Peter, for some inexplicable reason, JP spends a lot of time pushing negative rates and eliminating banknotes. <br /><br />You see, if debt markets hit a iceberg, banks will need to steal your savings. Banks will steal quickly (in a bail-in), or slowly (with negative rates). To keep your savings available to them and "on board", they first machine-gun the lifeboats (banknotes).<br /><br />All for your own good, of course. You will be so much better off locked in below decks.<br /><br />Funny how it's never quite convincing.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-82048756886443874342015-09-25T09:41:50.387-04:002015-09-25T09:41:50.387-04:00Both in the case of cash withdrawals, and with the...Both in the case of cash withdrawals, and with the bank note reform, as you yourself point out, the methods to achieve the goals are penalising certain groups of people and benefiting other groups. I think that people need to be reminded of this, as a counterview to the neutral or positive phrases like "deal with technological constraints", "slacken the bound", "policy".Peter Šurdahttps://www.blogger.com/profile/02219200720577247444noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-41908642537701218982015-09-25T09:27:12.181-04:002015-09-25T09:27:12.181-04:00Ha, you're getting the idea. You could also in...Ha, you're getting the idea. You could also increase width and length as denominations increase in value, like Brazil, Europe, or New Zealand:<br /><br />http://www.globalawareness.com/wp-content/uploads/2013/08/Brazil-Real.jpg<br /><br />https://www.ecb.europa.eu/press/pr/date/1997/html/pr970702_2.en.html<br /><br />http://www.rbnz.govt.nz/notes_and_coins/banknote_upgrade/banknote-features-for-low-vision.htmlJP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.com