In fact, the only real value of Fischer’s pretentious bloviation was that it was a reminder that the financial system of the world is in thrall to a tiny, insuperably arrogant posse of Keynesian academics who have invented from whole cloth a monetary theory of plenary control. They have effectively ended free market capitalism in the financial system and beyond and made democratic fiscal governance essentially irrelevant.
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 18 comments to Samizdata quote of the day |
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“Democratic fiscal governance” is just as much a problem. The US currently cannot “stimulate” the aggregate demand curve via lowering the prime (i.e. monetary policy) because it’s effectively bottomed out and adjusted for inflation is actually in the negative. Remember that with negative interest rates, it actually pays you to take out a loan, yet businesses are STILL not doing so because they have no idea where the gov hammer will land next.
Even Keynes would say that we’re in a “liquidity trap”. Hayek would say it’s a broke banking system. So now that monetary policy is in a stalemate, we must defer to fiscal policy in congress, but of course the Republicans WANT the economy to completely sour whilst vying for a Republican “solution” i.e. a new president. (It’s no coincidence that American economies and markets crash and burn in every modern president’s 4th year. “It’s the economy, stupid”).
Just for laughs.
https://m.youtube.com/watch?v=d0nERTFo-Sk
Stockman makes a lot of sense with economic matters but he is a waste of space on pretty much any other topic. As the Sage of Carmel once said, a man’s got to know his limitations.
Perry,
Totally agree. I get his blog in email from every day. Once he gets off the budget deficit and the Fed, he’s as loony as they come.
The Western countries are all bankrupt. Way too much debt and way too much owed in Ponzi Scheme promises. That inhibits growth and will until their is total collapse or total reform. Bet on total collapse as the politicians don’t care.
Illinois is our most bankrupt state and most corrupt. A lady just won a lottery there and they gave her IOU’s as they don’t have the money to pay her:
http://www.zerohedge.com/news/2015-08-30/illinois-pays-lottery-winners-ious-after-30kmonth-budget-guru-fails-produce-deal
It was always the intention of the late Lord Keynes to “free” borrowing from real savings.
The present situation is what he would have wanted.
See “Where Keynes Went Wrong” by Hunter Lewis.
Turning from monetary policy to the fiscal situation.
Borrowing at near zero interest rates (thanks to demented monetary policy) is not saving places such as Chicago from approaching bankruptcy.
Their fiscal management skills really are that bad.
Forget “slaves to interest” and all that ….. modern government can not even pay back near interest free loans.
The cult of benefits and “public services” (beloved of “New Liberals” for a very long time now) is coming to a sticky end.
In criminal matters, the question is “qui bono?”—who benefits?
Who is it that benefits, then, from the destruction of monetary value? Those who create nothing, but only know how to manipulate currency to their advantage.
Who benefits from the destruction of artistic value? Those who lack the talent to create anything but mundane and meaningless “shock” art.
Who benefits from the destruction of traditional family centered values? Those for whom the raising of a family in a stable, productive home is anathema.
Who benefits when the great literature or music or art of an entire culture is rejected, and replaced with trendy, pc, race, class gender centered pablum? Those who have nothing to say, or contribute, to the betterment of their fellow human beings, but only degrade them and their lives.
Whenever one observes the presence of true value being replaced by that which is meaningless and valueless, remember—“qui bono?”
It may seem an aside (at first), but I
am puzzled by the fact that the Fed could, but does not, sell assets – if the objective is to “soak up” xs fiat money.
What is the “OM” in FOMC for?
What possible objective of changing (note term) a stated interest rate could not be as well (or better) achieved by selling assets?
OM is part of OM MANI PADMI HUM, a Buddhist chant, something about Jewels and lotuses with eyes. Glad to clear that up!
Re: veryretired
“Whenever one observes the presence of true value being replaced by that which is meaningless and valueless, remember—“qui bono?””
On the biggest and most important issue – qui bono if white indigenous people are reduced to minorities in the Western nations?
RRS, where do you get the idea that the objective is to soak up excess money? The OM in FOMC is an atavism from back back when the Fed was limiting itself to gently nudging interest rates by buying and selling Treasurys. The, beginning in 2008, the went balls-to-the-wall, and have been buying everything that’s not nailed. They are even now hesitant to raise rates, with unemployment in the low 5’s. They do not view the problem as excess money, but as insufficient money.
As another point, if they start selling Treasrys, as you suggest, bond prices drop, yields rise, the cost to roll over federal debt increases, and they’ll promptly be called to the principal’s office.
RRS, I think they could sell the assets they have bought through QE, and I seem to recall that the Fed did a test of some sort a couple of years ago. I’m not sure what the situation is in the US but in the UK the Bank of England has an indemnity from the government. This means that by selling bonds they could trigger off a rise in yields which would cause a fall in the value of the bonds, which could result in a loss on the Bank’s balance sheet which the Treasury would in theory have to make good. Might require some dancing around the issue. Personally I doubt the bonds will ever be sold; best that can be hoped for is that as the bonds mature the cash received gets nihilated.
@Planus,
My query:
Why does the Fed pay interest on members’ balances deposited with the Fed? Why would they increase that rate of interest?
(The chatter has nor been about the “discount” rate).
The “if” about soaking up has to do with the means available to react to, or allay, inflationary forces that might be fueled by xs credit (terms) or xs currency float. The current and trending velocity seems not to be an issue.
Your Point:
Well, of course I do not limit the classes of assets for the “clean up;” but, taking your point, would not increasing general interest rates have much the same impacts on fiscal policies? Raise interests rates, fixed return asset prices drop, new issues will “cost” more or have to be structured in shorter maturity mixes, etc., etc.
An asset seller can “ease” items into a *variety* of markets, quietly, periodically, stop and go – unlike a “fixed” interest rate structure. There can be choices as to the forms (maturities and yields) to be sold.
That said, the real costs acceptable for the use of credit in the absence of adequate currency equivalents in commerce and finance, are determined by what can be gained by the use. Carry Trades, anyone?
@ Peter T,
Aye, there’s the rub! Like you, I suspect there were some quiet runs at reductions of the non-fiscal debt obligations.
But, the deficits continue and the “Government” does not issue currency to pay its bills – it issues debt – the Fed issues the currency. Now, inflation (in theory) would also reduce the value of that debt – but – inflation is one of the feasible ways of “reducing” that debt for the Government (the politically palatable). But, the Fed balance sheet has stuff from Fannie & Freddie. etc. for which there may be other “better” places. Is all that “marked to market?” (What market).
Lot’s of tough calls, and just as many tough echoes.
To Hayek with Keynes!
Veryretired, that was very Ayn Rand, and that’s a complement.
Please: CUI bono, cui is dative case “to whom”.
Nicholas!!! EXCEPTIONALLY awful!!!!
It’s been way too long since my high school latin classes for me to concern myself any longer with cases or spelling, but thank you for the corrected usage. I just hope my essay wasn’t too too cocway.
The current quarterly of the KC Fed is on the insensitivity of the economy to interest rates.
Pick it up on Google