tag:blogger.com,1999:blog-6704573462403312459.post7177559271602710346..comments2024-03-18T11:14:41.367-04:00Comments on Moneyness: Sweden and peak cashJP Koninghttp://www.blogger.com/profile/02559687323828006535noreply@blogger.comBlogger35125tag:blogger.com,1999:blog-6704573462403312459.post-88304106029932234062015-04-30T01:14:10.712-04:002015-04-30T01:14:10.712-04:00You should to use this template for your blog
http...You should to use this template for your blog<br />http://bangashtemplates.blogspot.com/Blogger Templateshttps://www.blogger.com/profile/13812898653944302196noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-65201120783177240622015-04-12T09:37:23.813-04:002015-04-12T09:37:23.813-04:00Great post. I think the vertical axis marks on you...Great post. I think the vertical axis marks on your first graph is in bUSD?David Lhttps://www.blogger.com/profile/03862463896365974736noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-2218503743107833022015-03-03T15:02:19.818-05:002015-03-03T15:02:19.818-05:00Ah, you very much cut to the crux.
Q: If the valu...Ah, you very much cut to the crux.<br /><br />Q: If the value of existing assets increases by $1 trillion, is there more "money" out there? Are there more "loanable funds"?<br /><br />When you see a report that in a crash, "$1 trillion disappeared," what do you make of that?<br /><br />I say that previously-existing asset markets do indeed create (and destroy) money out of thin air, not even counting endogenous gov and bank debt issuance/retirement. Like a magic black hole in the ground that money appears from and disappears into.<br /><br />I think directly related, I would very much like to hear your thoughts on this:<br /><br />http://www.asymptosis.com/is-gdp-wildly-underestimating-gdp.html<br /><br />(More lines here: https://twitter.com/asymptosis/status/560122005455122432)<br /><br />Which emerged from this:<br /><br />http://www.asymptosis.com/why-you-probably-dont-understand-the-national-accounts-in-pictures.html<br /><br />The graph in the first post greatly befuddles me, and despite many requests to knowledgeable folks, nobody has even essayed an explanation. Seems v weird to me...Steve Rothhttps://www.blogger.com/profile/11895481216028771016noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-74091072831448338892015-03-03T14:24:08.512-05:002015-03-03T14:24:08.512-05:00Yes, it's the hot potato argument.
You'r...Yes, it's the hot potato argument. <br /><br />You're right that agents could respond by swapping previously-produced assets among themselves, say in equity markets. But only initially. Secondary markets are not black holes; the effects of monetary loosening can not stay bottled up in them:<br /><br />http://jpkoning.blogspot.ca/2014/12/speculative-markets-are-not-black-holes.htmlJP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-54742737871174340862015-03-03T10:32:29.420-05:002015-03-03T10:32:29.420-05:00JP:
"By reducing the return on reserves to n...JP:<br /><br />"By reducing the return on reserves to negative levels, anyone holding reserves (or instruments redeemable in reserves, like deposits) will try to offload them, driving NGDP higher."<br /><br />I think you're invoking the hot-potato argument here, right? Here's what seems to be implicit in that, and it's the thing I don't understand:<br /><br />"anyone holding reserves...will try to offload them [by purchasing more newly-produced goods and services than they would otherwise], driving NGDP higher."<br /><br />But that assumption is not safe, is it? Agents could respond strictly through portfolio rebalancing (swapping <i>previously</i>-produced assets among themselves), and through balance-sheet adjustments (increasing or decreasing debt/lending).<br /><br />??Steve Rothhttps://www.blogger.com/profile/11895481216028771016noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-71894910413244929252015-03-03T09:12:56.483-05:002015-03-03T09:12:56.483-05:00Yes, I agree with you.
I focus on the deposit ra...Yes, I agree with you. <br /><br />I focus on the deposit rate in this post because even though it isn't the Riskbank's key interest rate, it is probably the most negative interest rate in the world, and even then depositors choose to bear that negative rate rather than holding cash.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-70213472074273372692015-03-03T08:22:46.861-05:002015-03-03T08:22:46.861-05:00I'm sorry, I wrote my comment without having r...I'm sorry, I wrote my comment without having read all of your post. You do mention the fine tuning rate and the amount deposited there. My point is the fine tuning facility for all practical purposes is a deposit facility and that the effective floor on overnight deposits with Riksbanken is -0.2%. Torgeir Hoienhttp://www.skagenfunds.comnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-41132889336428307522015-03-03T07:24:48.545-05:002015-03-03T07:24:48.545-05:00Interesting post. But the relevant deposit rate in...Interesting post. But the relevant deposit rate in Sweden, called the fine tuning rate, is currently -0.2%. It's true that Riksbanken charges 0.85% on a different deposit facility. But the amount deposited on this facility is very small, as banks, when the market is open, have the option to use the fine tuning facility. As of February 23, 145 million SEK was deposited at the facility that pays an interest of -0.85% while 16,319 billion SEK was deposited at the facility that pays an interest of -0.2%. Torgeir Hoienhttp://www.skagenfunds.comnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-50621942650963449342015-03-02T17:32:21.329-05:002015-03-02T17:32:21.329-05:00I realize that, the error was just that Bankgirot ...I realize that, the error was just that Bankgirot is not the name of the system. The system, owned by BG is called Swish and came in 2011.Magnus Anderssonhttps://www.blogger.com/profile/07321669201339852857noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-59000168758839962622015-03-02T13:30:29.117-05:002015-03-02T13:30:29.117-05:00JP, I read and understood from the beginning. I&#...JP, I read and understood from the beginning. I'm pointing out that your premise may be misguided. All the data I see says that more & free-er use of currency would be a better stimulus to NGDP than negative rates and less currency. <br /><br />Instead of further restricting currency, entertain the notion that currency usage needs to be liberalized. US citizens should be able to withdraw $50,000 in cash at the bank, walk over and pay for a car. The fact that the banking system de facto makes this impossible is a major problem. You can cut out all these fee-demanding middlemen, and get a 5-10% discount on prices by using no-counterparty/no-fee cash. <br /><br />You blithely state that banks don't have control over the amount of currency in circulation? Perhaps it is bank regulation, then. Try withdrawing $10,000 in cash sometime and find out whether banks have control over currency formation. Guess what? You can't, and this $10,000 gets smaller in real terms with every passing day.<br /><br />Note that currency is the best predictor of NGDP price levels.<br />http://informationtransfereconomics.blogspot.com/2014/02/the-role-of-central-bank-reserves-in.html<br /><br />High excess reserves and lower rates do not work to stimulate NGDP: deposits get hoarded, while cash flows are starved. In fact, high reserves and low rates are symptoms of a high-debt, understimulated NGDP economy. This is an unconscionable outcome for the populace, but a great low-NGDP, high-asset-present-value outcome for owners of capital (debt, equity) and their bank/state handmaidens.<br /><br />Nearly 80% of all the growth in the currency base over the past 10 years has been in your $100 bills. $100 bills are already 90% of the currency base. Please understand that you are not proposing "cash lite". I call a 90% reduction pretty well a no-cash outcome.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-14675973695652836142015-03-02T09:42:08.386-05:002015-03-02T09:42:08.386-05:00Thanks. The thing I am trying to explain in the po...Thanks. The thing I am trying to explain in the post is when Payments in Real Time, Bankgirot's new payment system, went live:<br /><br />http://www.bgc.se/en/about-bankgirot/payment-systems/payments-real-time/JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-5101976155655961432015-03-02T09:38:47.956-05:002015-03-02T09:38:47.956-05:00"What do you mean by 'by transacting with..."What do you mean by 'by transacting with deposits' ? Paying out of checking / savings accounts ?" <br /><br />Yes.<br /><br />"If consumers pull out their cash ( in notes ) from the bank, it will be a 'run in' and the banking system will collapse."<br /><br />Yes, it will be something like a run. That's why a central bank needs to alter the institution of cash in order to prevent a run from happening as interest rates fall below zero. Otherwise a central bank will keep interest rates too high out of fear of creating a run.<br />JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-34808933594873642742015-03-02T00:55:09.926-05:002015-03-02T00:55:09.926-05:00I'd say the by far most important reason that ...I'd say the by far most important reason that Sweden has stopped using cash is a concerted effort by the banks and merchants to promote cashless payments. This has been done for at least 20 years now in order to reduce handling costs and lower the risk for robberies, once very common especially against money couriers. Magnus Anderssonhttps://www.blogger.com/profile/07321669201339852857noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-13298400685575682642015-03-02T00:40:30.692-05:002015-03-02T00:40:30.692-05:00A little error in your text: the Bankgirot has bee...A little error in your text: the Bankgirot has been around for decades a a network for transferring funds between companies and from individuals to companies instead of using checks. They are however the owners of Swish. Magnus Anderssonhttps://www.blogger.com/profile/07321669201339852857noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-27501481789775983722015-03-01T20:32:21.668-05:002015-03-01T20:32:21.668-05:00>consumer will all prefer to transact with cash...>consumer will all prefer to transact with cash rather than deposits<br />Also banks all around the world practice fractional reserve banking. I am sure Swedish banks are no exception. If consumers pull out their cash ( in notes ) from the bank, it will be a 'run in' and the banking system will collapse. Anonymoushttps://www.blogger.com/profile/03502005603667892896noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-13587162532605009922015-03-01T19:31:02.072-05:002015-03-01T19:31:02.072-05:00>But as interest rates fall below 0%, consumer ...>But as interest rates fall below 0%, consumer will all prefer to transact with cash rather than deposits<br /><br />What do you mean by 'by transacting with deposits' ? Paying out of checking / savings accounts ? Anonymoushttps://www.blogger.com/profile/03502005603667892896noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-64736333602444676502015-02-28T21:01:10.412-05:002015-02-28T21:01:10.412-05:00If an economy hits some turbulence, and the centra...If an economy hits some turbulence, and the central bank chooses not to reduce rates, this will cause employment to fall by more than if the central bank had chosen to reduce rates. <br /><br />Sometimes a central bank may have to reduce interest rates to negative levels in order to ensure that employment doesn't fall. But as interest rates fall below 0%, consumer will all prefer to transact with cash rather than deposits, since cash can never yield less than 0%. Deposits cease to exist as everyone converts them into cash. The result is that interest rates fall less then they should, and employment rises by more than it should.<br /><br />Ipso facto, how consumers prefer to transact to purchase goods and services ( i.e. with bank notes or electronic asset tags or coupons ) does have a bearing on the structural parts of the economy.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-77821276624907373802015-02-28T20:46:57.137-05:002015-02-28T20:46:57.137-05:00"Exactly how are reserves supposed to stimula..."Exactly how are reserves supposed to stimulate NGDP under these conditions? More currency would boost NGDP more reliably than this no-cash all-reserve system you're flirting with."<br /> <br />I repeat, neither this post nor the previous one talk about not no-cash systems. Please reread my post and comments. By reducing the return on reserves to negative levels, anyone holding reserves (or instruments redeemable in reserves, like deposits) will try to offload them, driving NGDP higher. You suggest that more currency would boost NGDP, but central banks do not have any control over the amount of currency in circulation. JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-66457598119142645242015-02-28T18:54:20.685-05:002015-02-28T18:54:20.685-05:00Specifically I meant interest rates, etc that you ...Specifically I meant interest rates, etc that you cited.<br />Anonymoushttps://www.blogger.com/profile/03502005603667892896noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-53904639298261110092015-02-28T18:52:27.812-05:002015-02-28T18:52:27.812-05:00This comment has been removed by the author.Anonymoushttps://www.blogger.com/profile/03502005603667892896noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-74020682591342076792015-02-28T11:17:54.873-05:002015-02-28T11:17:54.873-05:00JP, cash is more than a irrational quasi-criminal ...JP, cash is more than a irrational quasi-criminal want. Currency - not reserves - is the ultimate deliverable for all financial contracts, including demand deposits. Everything else is derivative debt. <br /><br />Low interest rates and enormous excess reserves suggests that the supply of debt is enormous, and demand for borrowing is slack. Exactly how are reserves supposed to stimulate NGDP under these conditions? More currency would boost NGDP more reliably than this no-cash all-reserve system you're flirting with. <br /><br />Let alone ineffective for monetary stimulus of NGDP space, no-cash economics are oligarchical. Do you realize how much power you are glibly handing over to the state and its bank cronies? How much money and power they will extract from you in this bargain?<br /><br />Most of the western world is woefully understimulated. What the world needs is more cash and higher NGDP, not less cash and lower interest rates.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-90149349047077510162015-02-28T08:56:57.387-05:002015-02-28T08:56:57.387-05:00"Of course the Riksbank needs to ensure the i..."Of course the Riksbank needs to ensure the integrity of the payments system. But it also needs to determine at what price to set the value of clearing balances."<br /><br />I am saying those are one and the same. As I understand it the European countries that currently have low bank interest rates are trying to protect their payment system from the destabilizing effects of external currency traders. <br /><br />The countries that have low cash currency growth reflect the fact that the non-cash payment system is perceived to be functioning in a safe, sound and efficient manner. The countries with high cash growth reflect a much lower level of confidence in the safety, soundness and efficiency of non-cash money. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-65757235154638847822015-02-28T08:49:57.915-05:002015-02-28T08:49:57.915-05:00In our effort to increase economic activity, we ma...In our effort to increase economic activity, we make a base assumption that more money will increase activity and inflation. Then, having increased the money supply, we see total deposits in banks increase but no corresponding increase in economic activity.<br /><br />Now we have more money but without increased economic activity so something else must be an economic drag. Maybe people have too much preference for holding money. If so, discourage them from holding money by decreasing interest rates and making money less attractive as a store of wealth. <br /><br />This is effectively done by placing a tax on the use of money. Your proposal to discourage cash as an alternative to deposits fits into the same tax category.<br /><br />I was trying to point out that the amount of money in the economy is the result of government issuing money, not the result of how fast people spend their money. Roger Sparkshttps://www.blogger.com/profile/01734503500078064208noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-70601002639634700792015-02-27T23:39:00.305-05:002015-02-27T23:39:00.305-05:00What do you mean by 'structural parts of the e...What do you mean by 'structural parts of the economy'. Do you mean the real economy; jobs, factories, production, etc?JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-6704573462403312459.post-11816418361256363232015-02-27T23:30:37.498-05:002015-02-27T23:30:37.498-05:00Sorry Roger, I'm not following you.
Anon: Of...Sorry Roger, I'm not following you. <br /><br />Anon: Of course the Riksbank needs to ensure the integrity of the payments system. But it also needs to determine at what price to set the value of clearing balances. It might set them equal to an ounce of gold (a gold standard), it might let them equal a consumption basket that declines at 2% each year (an inflation target), or it might loosely target inflation so as to allow for real effects (dirty inflation targeting, or NGDP targeting). But it can't just let the value of clearing balances flutter around. And that is monetary policy. In the specific case I mentioned, negative interest rates may be necessary to ensure that an NGDP target doesn't undershoot. JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.com