Recent discussion of monetary policy

Commenter SDOO sent me the following:

Kocherlakota quoted you on Twitter re: Fed, ECB, BoE and BOJ getting together next week.

That’s quite an honor.  Stephen Kirchner sent me a couple of FT articles.  The first contains some extremely interesting information on the zero lower bound, which is looking less and less like a lower bound:

But the Bank of Japan’s set-up for negative rates, which apparently follows the Swiss National Bank’s, casts doubt on the premise that the nominal cost of holding cash is zero. As we have explained, if a private Japanese bank wishes to exchange its central bank reserves for cash, the BoJ will adjust the portion of its reserves to which negative rates apply by the same amount. That means any extra cash that a bank wishes to hold will cost it as much as if it kept it on deposit at the central bank.

But what really matters is what the public wants to do. JP Koning nicely explains the “hot potato effect” of pushing central bank reserve rates below zero: banks will bid down rates on other assets in the financial system as they try to swap reserves for cash. Ultimately, they will be forced to lower rates on deposits below zero as well, so that customers will have to pay to keep their money on deposit. This is where the liquidity trap is really supposed to snap shut: will there not be a run for cash as depositors refuse to pay banks to hold their money?

But consider two things. First, it is not as if depositors as a class actually have a legal right to convert all their money to cash as it is. You cannot present a debit card at the Bank of England and demand cash. Indeed, even your own bank limits how much cash you can withdraw, as Frances Coppola has pointed out. Just read the fine print of your account terms of service.

And how could private banks honour mass withdrawals of cash even if they wanted to? No law provides for the central bank to swap client deposits for cash; only central bank reserves. And despite the huge growth of reserves in recent years, these still amount to only a fraction (about one-fifth in the UK) of bank deposits. So, to honour customers’ demands, banks would have to borrow more reserves from the central bank, which could impose terms as onerous as it wished. Onerous enough that banks would try to pass the cost on to customers. As my colleague Richard Milne argues in an analysis of Danske Bank’s success — its market value now exceeds that of Deutsche Bank — Danske is thriving because it has adapted to Denmark’s negative rates, in part by indeed passing them on to customers.

Second, the BoJ’s and SNB’s set-ups to neutralise banks’ incentive to hold cash instead of reserves can be exactly duplicated by the banks themselves vis-à-vis their customers. You want to take cash out of your account? Be our guest, but we will keep track of your total balance of net cash withdrawn and charge you the same interest on that balance as we charge on your deposits. This can be implemented through one of the regular “updated terms and conditions” that our banks seem to impose on us unilaterally every so often.

Read the whole thing.  This article (by Martin Sandbu) confirms my claim back in 2009 that the central bank could impose negative IOR on vault cash, but it also provides lots of options that I never contemplated.  More evidence that central banks never really tried very hard, which is obvious now that the Fed is no longer at the zero bound (and should have been obvious during 2008-12 when the ECB was above the zero bound.)

The second FT article is an odd one, with some good stuff:

December 16 2015 may go down as the date of one of the most monumental policy errors in history. The financial markets were nervously anticipating that the US Federal Reserve would raise the interest rate for the first time in nearly a decade — but few grasped the inadequacy of the data driving the decision.

The Fed had never before initiated a tightening cycle when the manufacturing sector was shrinking. . . .

The bond market, meanwhile, sees no shades of grey in the data; it is shifting rapidly from pricing in one rate hike this year towards pricing in the possibility of the next move being a rate cut, all but ridiculing the Fed’s insistence that four rate hikes would come to pass in 2016.

Tellingly, Fed officials are softening their tone on the number of times the rate might rise this year. “Don’t fight the Fed” — the idea that markets ultimately benefit from the Fed’s decisions — has become a cliché. The truth is the Fed has never dared fight the markets.

There’s that term ‘dare’ again, which Tyler Cowen mentioned a few weeks back (and I quoted in a recent post.) Unfortunately this generally good article (by Danielle DiMartino Booth) is marred by one dubious claim:

With hindsight, few dispute that the Fed missed an opportunity to raise rates in 2014. No doubt, tightening policy at that stage would have created its own messy side-effects. That said, the benefits would have been significant.

First, for example, commodity prices might not have risen so high or so fast without the cheap money flowing from the US to emerging markets. Property prices worldwide might not be as frothy had investors not sought refuge in the sector from what they rightly recognised as risky valuations in equity and bond markets. And “fragile” would not now be the word for financial markets and economies worldwide.

Is it really true that “few” dispute this claim?  I certainly do.  I’m not saying it’s impossible, counterfactuals are always tricky, but it certainly should not represent the conventional wisdom at this point, unless I’m missing something.

BTW, Just to be clear I am currently much more worried about NGDP growth than jobs.  I still think a recession is unlikely for the US in 2016.  Rather I worry that if NGDP growth and long-term rates stay low, the Fed will be ill-prepared for the next recession—unless it shifts to NGDPLT.  And let’s face it; no one can predict recessions.

PS.  I have a new article in The Fiscal Times discussing my Depression book, and its implications for current policy debates.

PPS.  Over at Econlog I have a new post on a talk given by James Bullard.

PPPS.  I will be giving a couple talks at the Warwick Economics Summit this weekend, so my blogging may tail off for a few days.


Tags:

 
 
 

45 Responses to “Recent discussion of monetary policy”

  1. Gravatar of E. Harding E. Harding
    5. February 2016 at 11:02

    “And let’s face it; no one can predict recessions.”

    -What evidence do you have for that? Just because the economic consensus can’t predict recessions, doesn’t mean no on can, that’s ridiculous.

    Your Fiscal Times post is good and sweet.

    And I’m still surprised you haven’t said much about Canada cutting rates recently.

  2. Gravatar of Kevin Erdmann Kevin Erdmann
    5. February 2016 at 11:05

    They dared to fight markets in august and December er 2007 and September 2008.
    Housing in the US has had unprecedented high rent and low starts. Starts have been at recession levels or lower for a decade now. I guess all that QE has created an unsustainable bubble of renters! Yields on homes in the US are priced as if TIPS are trading at 4%. It seems that a prerequisite to writing on this topic is to avoid reviewing any empirical covering the last decade.

  3. Gravatar of Randomize Randomize
    5. February 2016 at 11:29

    “You want to take cash out of your account? Be our guest, but we will keep track of your total balance of net cash withdrawn and charge you the same interest on that balance as we charge on your deposits.”

    Banks charging interest in cash withdrawn seems both dystopian and unnecessary. The cost of storing and insuring cash is more than enough to make paying a measly .25% for the FED to store it seem cheap. Even safe-deposit boxes require insurance and carry their own rental costs.

  4. Gravatar of JP Koning JP Koning
    5. February 2016 at 11:56

    I liked Sandbu’s article. There are three ways to impose a negative return on cash in order to remove the lower bound. Put a fee on: 1) the withdrawal of cash; 2) on cash holdings, or; 3) on the deposit/re-deposit of cash. The SNB and BOJ (as well as Sandbu) are choosing the middle option, which (correct me if I’m wrong) is the idea you mentioned, Scott. Miles Kimball advocates the last, a time-varying re-deposit fee.

    It seems like you’re getting re-interested in negative rates, Scott, but there’s been a lot of work done on this since 2009. Time to get caught up. Here is Miles’ recent paper:

    https://www.imf.org/external/pubs/ft/wp/2015/wp15224.pdf

    Here are some lazier ways to reduce, not remove, the lower bound:

    http://jpkoning.blogspot.ca/2015/02/a-lazy-central-bankers-guide-to.html

  5. Gravatar of ChargerCarl ChargerCarl
    5. February 2016 at 11:57

    Scott you need to get on twitter. Kocherlakota was name dropping you the other day.

    Even Nick Rowe is there now.

  6. Gravatar of JP Koning JP Koning
    5. February 2016 at 12:00

    Actually, when Sandbu refers to banks implementing the SNB and BOJ’s solution, he is advocating the first option, fees on withdrawals.

  7. Gravatar of E. Harding E. Harding
    5. February 2016 at 12:45

    ChargerCarl, Twitter is horrible. I don’t understand what people find redeeming about it.

  8. Gravatar of Matt Waters Matt Waters
    5. February 2016 at 13:03

    “So, to honour customers’ demands, banks would have to borrow more reserves from the central bank, which could impose terms as onerous as it wished. Onerous enough that banks would try to pass the cost on to customers.”

    I’m not sure this is true. Let’s say it’s September 2008 and the Fed is willing to make rates on excess reserves as negative as necessary to meet NGDP/inflation targets. The penalty rate of say, 2%, will be charged on (vault cash) + (deposits) – (required reserves). So the banks can’t avoid it by just making cash withdrawals on their own account.

    But a negative rate 20 times higher than Japan or Sweden will surely lead to many more depositor withdrawals of cash. Coppola’s blog post suggests that the deposit agreement allows delaying withdrawals of cash for operational reasons. Some withdrawals can be denied because of money laundering, but only because federal law supersedes private contracts.

    The CURRENT contract between banks and depositors says the bank is ultimately responsible to convert deposits to cash no matter what, as long as it is not for money laundering. If the central bank makes getting that cash expensive, well that’s the bank’s problem.

    So depositor contracts would have to be changed en masse. The bank-depositor contracts would be fundamentally different where $100,000 deposit may be convertible to $100,000 purchase but only a $98,000 cash withdrawal.

    It would take a big change in how regular people, not just economists, view demand deposits to make significant negative rates work. Keynesian stimulus probably is more politically palatable at this point, even though I would personally prefer negative rates and changing all the depositor contracts instead.

  9. Gravatar of ssumner ssumner
    5. February 2016 at 14:01

    Leaving soon, so just time for one quick comment.

    JP, I’d guess you are ahead of me on negative IOR right now. But it seems like my 2009 post (replying to Mankiw) is holding up pretty well. I said the issue of cash withdrawals getting around negative IOR has some practical difficulties, and probably doesn’t prevent negative IOR from being expansionary. I also mentioned negative IOR on vault cash.

    But I still don’t think the lower bound is the real problem (and this is where I disagree with Miles) I think they have the wrong target; with NGDPLT we would not be in this situation.

  10. Gravatar of Dan W. Dan W.
    5. February 2016 at 14:36

    Matt,

    Thank you for pointing out the obvious. Dithering about negative rates of 25 or 50 basis points is a waste of time. Once it is decided that rates can go negative then rates need to go really negative, as in -2%, -3%, -5%, etc. Otherwise not much is going to change in the behavior of consumers.

    So if rates go to -2% or less the big question is what happens with loan rates, especially mortgages. If they show a similar decline then it is possible consumers will refinance and spend the savings. But I believe the greater motivation in the face of negative rates would be to pay down debt. Consumers will see declining rates as a trend and go in a waiting mode to see how much lower they will go. Once consumers have uncertainty about what to do in the face of negative rates the obvious choice is to pay down debt – this would be the sure return on investment. In which case there would be a run on banks and a crash in the economy as loan balances would dramatically shrink.

    So not only would banks have to penalize cash withdrawals, they would need to penalize the payment of existing debt. Which begs the question: How much freedom are the Monetarists going to destroy to defend their ideology?

  11. Gravatar of Matt Waters Matt Waters
    5. February 2016 at 16:52

    As far as I know, most business bonds or loans aren’t callable. Meaning they can’t be refinanced like a mortgage.

    I think you’re making the same argument the woman from FT Alphaville did concerning 0.25% positive IOR. She basically said the IOR is the only reason the money market exists right now, because there are no other ultra-safe, short-term assets returning even 0.25%. If the money market funds go, or money market funds have to charge interest, then the economy must do worse because…uh, well she didn’t really go that far.

    Arguments get pretty bizarre from people in the financial sector who see financial products as ends to themselves. Increasing rates becomes expansionary. War is peace. Freedom is slavery.

    I admit high negative rates alone would hurt the banks. Without similar penalties for cash withdrawals, bank balances would go down. Even then, the OVERALL economy wouldn’t contract. We would end up in the same place we are now, where a ton of cash sits idle. Actual rates on bonds, including refinanced mortgages, wouldn’t go to -2% or -5%.

    If you DO have negative interest on cash withdrawals, then why would bank balances decrease. Many people wouldn’t be happy, and it would shock most people’s understanding of bank deposits. But it wouldn’t make sense to make a bank withdrawal once people figured out holding cash is worse for them. New bonds and refinanced mortgages WOULD go below zero, which is the point.

    Sufficient penalties of physical cash withdrawals would make going from 2% to -2% similar to 6% to 2%.

  12. Gravatar of Major.Freedom Major.Freedom
    5. February 2016 at 17:19

    “BTW, Just to be clear I am currently much more worried about NGDP growth than jobs.”

    Oh don’t worry, the theory you adhere to compels you to place NGDP as most important. What you are currently much more worried about is always what an anti-market monetarist must be most worried about. Such a belief is justified by catch phrases like “pragmatism”.

  13. Gravatar of Benjamin Cole Benjamin Cole
    5. February 2016 at 18:05

    1. Commodities prices were (in general) falling in 2014.

    2. Sure, central banks can go to negative interest rates. That’s like devising a play for out of your own end zone. You never want to be there. Central banks should go to QE, long before they need negative interest rates.

    3. If negative interest rates persist, look for your cash economy to grow like topsy. No one seems to have noticed, but in the current era of low inflation and low interest rates (post 2008) cash in circulation has increased from about $800 billion to $1.4 trillion. That’s about $4,000 for every resident in the US, including old ladies and babies. Dealing in cash is addictive; no taxes, no paperwork, no records.

    I think this topic is so little discussed, as academics are attached to blue-chip institutions which generally do not pay by cash in paper bags.

  14. Gravatar of A A
    5. February 2016 at 19:13

    When december’s NGDP and January’s hourly wage growth trend in opposite directions, which is the better indicator of AD?

  15. Gravatar of Benoit Essiambre Benoit Essiambre
    5. February 2016 at 19:47

    Breaking: Bill Gross repeats twice in interview that central banks should strive for nominal gdp above 4%.

    http://www.bloomberg.com/news/videos/2016-02-05/bill-gross-u-s-underemployment-rate-didn-t-change

  16. Gravatar of Ray Lopez Ray Lopez
    5. February 2016 at 20:20

    Sumner: “with NGDPLT we would not be in this situation.” – CITE PLEASE?

    Marx/Lenin (paraphrasing): ‘From each according to his ability, to each according to his needs’, is a principle of scientific socialism that will result in a workers paradise – CITE PLEASE? (Wikipedia: In the Marxist view, such an arrangement will be made possible by the abundance of goods and services that a developed communist system will produce; the idea is that, with the full development of socialism and unfettered productive forces, there will be enough to satisfy everyone’s needs.)

    In other words, please don’t just say “if you say so” to the Pied Piper of MM–make him prove his case.

  17. Gravatar of Major.Freedom Major.Freedom
    5. February 2016 at 20:27

    “Breaking: Bill Gross repeats twice in interview that central banks should strive for nominal gdp above 4%.”

    Lol, “breaking”.

    The same Bill Gross who is constantly villified on this blog.

    Now he’s super smart.

  18. Gravatar of Major.Freedom Major.Freedom
    5. February 2016 at 20:29

    Ray,

    The “proof” is the pre-Lucas/Goodhart critique implicated correlation between NGDP and employment.

  19. Gravatar of Jose Romeu Robazzi Jose Romeu Robazzi
    6. February 2016 at 05:15

    I am really confused right now. The idea of having negative rates on excess reserves is to make the system pass that on the consumers and make people spend, right? All we want to do is to raise NGDP. But how passing on to citizens the negative rates cost will achieve that objective? If people are holding more cash, isn’t the idea behind monetary policy that holding cash perhaps they will spend a little more and raise NGDP? If we tax them with negative rates, perhaps that will have the effect of making the whole society poorer and they end up spending less. It’ monetary offset in reverse.

  20. Gravatar of Jose Romeu Robazzi Jose Romeu Robazzi
    6. February 2016 at 05:26

    Read the article on the “success” of Danske Bank. They passed on the cost of negative rates to corporations and small and medium size firms. Nothing to the general population. To me, it looks like just another tax, and dubious monetary effects. Are banks effectively lending more and the public effectively spending more ? Even if NGDP is growing, can that be caused directly by negative rates ? If someone has the evidence, please le me know…

  21. Gravatar of Ray Lopez Ray Lopez
    6. February 2016 at 07:49

    @MF – do you have a cite? MF: “The “proof” is the pre-Lucas/Goodhart critique implicated correlation between NGDP and employment.” – so what? Of course employment is coincident to NGDP (as it is a component of NGDP) but printing money to somehow pump up NGDP will not increase employment. A better way to increase employment, short-term, is NRA type ‘make work’, digging a hole and filling it again (though the one NRA project I saw, Skyline Drive in the Appalachian mountains in Virginia, was nice, albeit one has to question the wisdom of allowing people to drive to the tops of mountains in their car).

  22. Gravatar of Dustin Dustin
    6. February 2016 at 09:59

    OT: Great interactive graphic of the treasury yield curve

    http://graphics.wsj.com/reacting-to-fed-rates/

  23. Gravatar of Scott Sumner Scott Sumner
    6. February 2016 at 11:03

    Dan, Monetarists are not trying to take away any freedoms. It is non-monetarists who propose limits on the use of cash.

    Thanks Benoit.

    A, Too soon to say. I lean toward NGDP being more meaningful.

    Jose, How is it contractionary if you reduce the demand for the median of account?

  24. Gravatar of Saturos Saturos
    6. February 2016 at 11:06

    The New Consensus on the Eurozone crisis:
    http://www.voxeu.org/article/ez-crisis-consensus-narrative

    Nice to have it written up like this. Don’t know how many of you have already seen it.

  25. Gravatar of Major.Freedom Major.Freedom
    6. February 2016 at 11:09

    Ray, I was being sarcastic.

  26. Gravatar of ssumner ssumner
    6. February 2016 at 11:12

    Ray—the only man in America who thinks money is neutral AND that boosting AD by having men fill holes will create jobs.

    And no, that was not the NRA, it was the WPA.r

  27. Gravatar of Major.Freedom Major.Freedom
    6. February 2016 at 15:00

    “Monetarists are not trying to take away any freedoms. It is non-monetarists who propose limits on the use of cash.”

    Sumner, the only economist in America who conflates support for cash freedom as proof monetarism is not about taking away ANY freedoms.

    News flash: central banks are not free market institutions. They are governmental institutions, maintained by anti-free market laws.

    Monetarism REQUIRES taking away people’s freedoms. Namely, their monetary freedoms. For if there was monetary freedom, then there could be no central banks, and without central banks, there can be no research into or advocacy of any “optimal” central bank money printing rule.

    Monetarists who nevertheless rabbleroused for central banks in a world without them, would be relegated to the Marxists and other anti-capitalist utopians.

  28. Gravatar of Dan W. Dan W.
    6. February 2016 at 18:00

    Scott,

    So you oppose negative interest rates? If not then what is your plan to prevent people from withdrawing cash from their deposit and money market accounts when they KNOW such accounts will lose value and that holding cash will not?

    Also, if growth in the supply of money in the economy is the goal does it not make sense to simply inject this money directly into the economy? In other words, instead of manipulating interest rates paid on reserves why not simply change the law and empower the Federal Reserve to send money directly into the accounts of account holders?

  29. Gravatar of Ray Lopez Ray Lopez
    6. February 2016 at 18:25

    Sumner: “Ray—the only man in America who thinks money is neutral AND that boosting AD by having men fill holes will create jobs”

    Wait, please! This is another Sumner Howler akin to your earlier howler late last year about the Gold Standard being the same as the Gold Exchange Standard (as well as your numerous weekly howlers, but I’m just counting the big ones).

    Are you saying professor that the government cannot create AD if money is neutral? Do you think that money neutrality is incompatible with creating AD via the government? Certainly not! You are confusing Keynesian “boosting” of AD, which requires, as does monetarism, sticky wages/prices and money illusion, with the mere fact that if resources are idle, the government can increase (“boost”) AD simply by putting idle people to work.

    Wow, and you were a tenured professor? Then I’m Einstein.

  30. Gravatar of Gary Anderson Gary Anderson
    6. February 2016 at 18:42

    “Ray—the only man in America who thinks money is neutral AND that boosting AD by having men fill holes will create jobs.”

    Actually, filling the Hoover Dam created a city of two million, Scott. The AD was delayed by a few decades, but clearly, the move to build the dam was genius. No one knew that the mafia would build Las Vegas, because the big banks were too chicken of their own shadows to take on the task.

  31. Gravatar of Ray Lopez Ray Lopez
    6. February 2016 at 18:44

    @Dan W, others:

    http://www.themoneyillusion.com/?p=31339 (Sumner’s blog discussing negative interest rates)

    Note the Sumner DoubleSpeak: “the central bank could still use negative rates to reduce the demand for bank reserves (make it a hot potato), and hence boost NGDP. But as always they need to be aware of where the Wicksellian rate is, and not just chase the Wicksellian rate lower in a futile attempt to jump-start NGDP growth. ”

    So (1) negative rates would work, but (2) the central bank needs to know where the Wicksellian rate is, and not just guess and lower rates to try to find it (“chase”). But Wicksellian rates are unknowable, hence how to discover what this rate is except via trial-and-error, which Sumner rules out?

    BTW, Sumner is (paradoxically) against negative rates, which he calls “regressive”.

  32. Gravatar of Major.Freedom Major.Freedom
    6. February 2016 at 19:24

    Gary wrote:

    “Actually, filling the Hoover Dam created a city of two million, Scott.”

    Why is it that every propagandizing of big bad state projects, without fail, ignores the law of opportunity costs?

    Obviously the resources were more highly needed elsewhere, because the state forced people to pay for the dam.

    Genius? It was a gigantic waste of resources.

  33. Gravatar of Sven Sven
    7. February 2016 at 02:12

    Here is a good (but partly disagreeable) speech by Mario Draghi, which shows that the ECB might finally get it:

    https://www.ecb.europa.eu/press/key/date/2016/html/sp160204.en.html

    Most interesting part:

    “Some argue that today the situation is different; that whereas Volcker could raise rates to 20% to tame inflation, central banks fighting disinflation are inhibited by the lower bound on interest rates. The Japanese experience after the bursting of the housing bubble in early 1990s is often presented as evidence.

    But the Japanese case in fact only reinforces the importance of full commitment from policymakers. As long as the commitment of the Bank of Japan to a low positive inflation number was not clear, actual inflation and inflation expectations stayed in deflationary zone. Since the Bank of Japan has signaled its commitment to reach 2% inflation, however, core inflation has risen from less than -0.5% in 2012 to close to 1% today. This is still short of the 2% objective, to be sure, but downward price shocks are also hitting Japan like all other advanced economies.

    We now have plenty of evidence that, if we have the will to meet our objective, we have the instruments. [..]”

  34. Gravatar of Market Monetarism needs people to predict recessions … and growth | Historinhas Market Monetarism needs people to predict recessions … and growth | Historinhas
    7. February 2016 at 04:24

    […] Sumner made a somewhat light-hearted comment in a recent post that “no-one can predict recessions”. It made me stop and wonder what was the point of […]

  35. Gravatar of Gary Anderson Gary Anderson
    7. February 2016 at 08:32

    Major, the libertarians would rejoice over the nowhere man, who sucked everything around him and himself, creating nothing, a blank screen. You should have watched the movie the Yellow Submarine to remember him. Truth is, the dam was not a waste of resources and has paid for itself massively. The personal GDP of residents of Las Vegas is greater than that of Brussels, Belgium and of Los Angeles, California.

  36. Gravatar of José Romeu Robazzi José Romeu Robazzi
    8. February 2016 at 10:02

    @prof sumner
    The first FT article suggests that banks are able to pass on to customers negative rates on cash withdrawn. People on this blog usually comment that rates are not important, what is important is the effect on NGDP. What is more important: make rates negative or make people spend a little more?

    If negative rates to the public are interpreted as a tax on cash, the public may choose to save more to make up for the hole in their budget. Businesses may find that there is a new cost in their production structure , shifting supply curves to the left, potentially reducing output. Even if the measure succeeds in increasing money velocity, you may achei-me as well real reduction in output and income because if the new tax.

    That is what i called reverse monetary offset: the monetary effect (expansionnary) is offset by a fiscal effect (contractionary). I get the (expansionnary) effect if negative IOER. I also get that if the banks pass that cost on to the deposit account holders and the public draw cash foram the banks is also expansionnary. What i don’t get is why an additional tax on cash is expansionnary…

  37. Gravatar of Ben Ben
    8. February 2016 at 12:03

    This chart on fed expectations is great:

    https://twitter.com/M_McDonough/status/696758210393481220

  38. Gravatar of James Alexander James Alexander
    8. February 2016 at 13:21

    Sven
    It’s still not good enough for Japan or Europe or the US to target 2% when they make it abundantly clear that any pick up from 0% or 1% that means the central banks’ own forecasts for two years out inflation goes above 2% will be an excuse to tighten. This trumps any amount of QE, -ve interest rates, guidance, etc etc. They have to break free of 2% inflation ceiling monomania. It’s the target that has to give, nothing else will really be effective. Ignoring this truth is turning into a tragedy.

  39. Gravatar of Steve Steve
    9. February 2016 at 22:24

    Circular Firing Squad, REARM!!!

    http://www.politico.com/blogs/new-hampshire-primary-2016-live-updates/2016/02/bush-plans-scorched-earth-attack-on-kasich-rubio-219058

    Bush plans scorched-earth attack on Kasich, Rubio

  40. Gravatar of Ironman Ironman
    10. February 2016 at 04:44

    There’s an article you might find interesting that was just published by Reuters, with Edward Chancellor’s description of some of the history of monetary policy in the era preceding the Great Depression:

    http://blogs.reuters.com/breakingviews/2016/02/09/chancellor-heed-the-threats-to-globalization/

  41. Gravatar of ssumner ssumner
    10. February 2016 at 14:20

    MF, Dan, Ray and Gary—-A murderers row of cluelessness.

    Ray, You asked:

    “Are you saying professor that the government cannot create AD if money is neutral?”

    Umm, no, why do you ask?

    Ben, Thanks, That’s good.

    Jose, You said:

    “What is more important: make rates negative or make people spend a little more?”

    You said:

    “If negative rates to the public are interpreted as a tax on cash, the public may choose to save more to make up for the hole in their budget.”

    That makes no difference–it’s not about saving or dissaving, it’s about hoarding or dishoarding.

    Sven, Thanks, That’s a good quote.

    Steve, The GOP is just a mind-boggling, epic, disaster. Someone kill off the party and put us out of our misery. Bring back the whigs, or tories, or something new.

  42. Gravatar of Jose Romeu Robazzi Jose Romeu Robazzi
    10. February 2016 at 20:31

    @Prof. sumner
    Under the scenario I depicted, saving = hoarding. In this case, it seems to me it does make a difference.

  43. Gravatar of Jose Romeu Robazzi Jose Romeu Robazzi
    11. February 2016 at 02:28

    @Prof. Sumner
    Under normal conditions I would say hoarding is different from saving, but in this context we are discussing, saving = hoarding (or marginal saving = marginal hoarding). So, I think it does make a diference …

  44. Gravatar of ssumner ssumner
    11. February 2016 at 07:03

    Jose, With negative IOR you would have less money hoarding, even if people chose to save more. It’s a tax on hoarding.

  45. Gravatar of Market Monetarism needs people to predict recessions … and growth | The Corner Market Monetarism needs people to predict recessions … and growth | The Corner
    11. February 2016 at 09:30

    […] Alexander via Historinhas | Scott Sumner made a somewhat light-hearted comment in a recent post that “no-one can predict recessions”. It made me stop and wonder what was the point of Market […]

Leave a Reply