I’d really like to retire, but . . .

How can I when stuff like this appears at distinguished web sites.  Here’s Daniel Gros at Project Syndicate:

BRUSSELS – Interest rates are now close to zero throughout the developed world (the United States, Europe, and Japan). But the global economy is slowing down, and financial markets went into a tailspin during the summer. This suggests that the problem is more profound than one of insufficient monetary stimulus.

THAT is the problem we face.

HT:  Marcus Nunes



27 Responses to “I’d really like to retire, but . . .”

  1. Gravatar of Benjamin Cole Benjamin Cole
    9. September 2011 at 17:13

    Oh, just shoot me.

  2. Gravatar of MikeDC MikeDC
    9. September 2011 at 17:18

    Damn if we didn’t elect John McCain president. I had a lot of fun back in early 2008 writing exam questions about his wish that interest rates were 0, but it doesn’t seem quite so funny now, does it?

  3. Gravatar of Bryan Willman Bryan Willman
    9. September 2011 at 17:28

    The best part is that the ad under your post is “invest in gold now!” – so of course the way to retire is to invest in gold!!! (Tonque in cheek)

    Seriously – Rogoff’s book (“This Time It’s Different”) reports that there were various times (notably after the Tulip debacle) where real interest was so low that nobody could make a living on intermediated investment. So everybody had to be a “businessman” of some kind.

    So “how to retire” is really “should I buy the nicer of the local McDonald’s, or some practical apartments I can rent out to normal people? Or….”

    I find myself facing (more broadly and abstractly) this very issue.

    I guess the question is, when will enough people go “start something” to fix the problem? How long do real interest rates have to be negative before cash looks for a better home?

  4. Gravatar of Scott Sumner Scott Sumner
    9. September 2011 at 17:51

    Ben, My reaction.

    MikeDC, If McCain were President now the GOP would be polling at sub-Herbert Hoover levels. They are soooo lucky.

    Bryan, But the S&P earns nearly $100, on a level of 1100. That’s a pretty good rate of return. Unless it goes down. . .

  5. Gravatar of Russ Anderson Russ Anderson
    9. September 2011 at 18:23

    It should be noted that Daniel Gros has PhD in Economics, University of Chicago. Perhaps that’s the problem…

  6. Gravatar of ChacoKevy ChacoKevy
    9. September 2011 at 19:41

    Ben, Scott: Perhaps Vader can help you vent:

  7. Gravatar of Scott Sumner Scott Sumner
    10. September 2011 at 05:37

    Russ, I’m guessing he didn’t study monetary theory under Milton Friedman.

    ChacoKevy, Yes, that’s how I feel.

  8. Gravatar of flow5 flow5
    10. September 2011 at 05:40

    10 year German bond rates are even lower than the 10 year Treasuries. Both interest rate levels represent extremely “tight” (long-term), monetary policies.

    Back during the Great Depression Congress failed to issue an adequate volume of goverment debt which the frbNY needed to “prime the pump”. In this Great Recession, Bernanke introduced IOeRs to take Treasuries off the market & thus sterilize their purchases. But long-term growth rates for monetary flows (our means-of-payment money X’s its transactions rate-of-turnover are still at sub-par rates-of-change realative to real-output. Bernanke’s error slowed the current recovery.

    When CBs grant loans to, or purchase securities from, the non-bank public, they acquire title to earning assets by initially, the creation of an equal volume of new money — somewhere in the banking system. I.e., commercial bank deposits are the result of lending, not the other way around.

    Thus the expansion of commercial, MSB, CU, & S&L, bank credit (in the deposit taking, money creating, financial institutions), mirrors the growth in the stock of money. If bank credit (not Reserve bank credit), is growing, then so is the overall money supply.

    The current shift by bank customers in their deposit classifications is just the reverse of shifts that occured in the high interest rate environment of the early 80’s. Whereas then, DDs shrank & velocity increased, today the ratio of DDs has risen & the velocity of those deposits has declined.

    The upshot is monetary policy is too restrictive and the rate-of-change in nominal gDp is too low.

  9. Gravatar of W. Peden W. Peden
    10. September 2011 at 05:50


    That’s a very good point about demand deposit velocity and interest rates. Another reason, incidentally, not to target M1.

    May I ask where you get your figures for “means of payment money” and “transactions rate of turnover”? I’m assuming that the former isn’t any particular monetary aggregate and the latter isn’t real GDP.

  10. Gravatar of Scott Sumner Scott Sumner
    10. September 2011 at 06:03

    flow5, I have the same general view, but I cut out the monetary aggregate middleman. I just focus on NGDP growth, which is too low. That means the Fed needs to do more regardless of where all the monetary aggregates are moving.

  11. Gravatar of flow5 flow5
    10. September 2011 at 09:00

    Professor: I guess that is equivalent to “dumbing it down” for Bernanke & co.

  12. Gravatar of flow5 flow5
    10. September 2011 at 09:16

    W. Peden:

    Joeseph Granville published his OBV, etc., & then his followers were able to anticipate his calls – thereby changing what the market turning point would have been. He is a great technical analyst but his record has been distorted because the market discounted his analysis.

  13. Gravatar of Lars Christensen Lars Christensen
    10. September 2011 at 10:00

    This is seriouly bad!

  14. Gravatar of D. F. Linton D. F. Linton
    11. September 2011 at 13:24

    Prof. Sumner,
    Have you encountered the line of analysis given in this (http://www.hussmanfunds.com/wmc/wmc110124.htm) post?

    The empirical relationships do seem to argue that there are substantial non-linearity and variability in the Fed’s control linkages. If these real world effects are inescapable how does that affect your proposal for NGDP targeting?

  15. Gravatar of OhMy OhMy
    11. September 2011 at 13:57

    Daiel Gros is right. Monetary stimulus cannot do a thing now. Wray proved as much here:


    Scott Sumner, you are pushing a “solution” that was proven to be unworkable by people who know how the Fed and the banking system works. Why do you push a dead idea that monetary stimulus would help? Your kind of stimulus (negative interest on reserves) was shown to be … contractionary. How much worse can it get?

  16. Gravatar of flow5 flow5
    11. September 2011 at 15:02


    No other group spues more lies than the MMT fraternity.

  17. Gravatar of W. Peden W. Peden
    11. September 2011 at 16:24


    “Your kind of stimulus (negative interest on reserves) was shown to be … contractionary.”

    Tell me more. The rest of your post is very old MMT stuff, but this is interesting.

  18. Gravatar of OhMy OhMy
    11. September 2011 at 16:56

    W Peden,

    Read Wray, understand what reserves do and don’t do and you will get it.

  19. Gravatar of OhMy OhMy
    11. September 2011 at 16:59


    Hmmm, MMT lies? If this was so, SS wouldn’t have to complain that it focuses too much on reality, LOL.

    Read the comments, good laughs there

    This one was the best:

    [SS’s] comment is equivalent to a weatherman saying:

    I wasn’t able to fully grasp how meteorologists think about weather (despite a good-faith attempt), but a few things I read shed a bit of light on the subject. My theory is that they focus too much on the barometric pressure, moisture levels, wind flow, and patterns, and not enough on the core of weather predictions like licking your finger and sticking it into the air, which I see as the “pull something out of your ass phenomenon.”

    SS has nothing that could refute anything MMT says, not a thing.

  20. Gravatar of W. Peden W. Peden
    11. September 2011 at 17:15


    There is nothing about negative interest rates on reserves in that article. It talks about POSITIVE interest rates on reserves a bit, though. Perhaps you meant that positive interest rates on reserves are contractionary, since they erode the difference between cash reserves and securities?

  21. Gravatar of OhMy OhMy
    11. September 2011 at 18:40

    W Peden,

    No, positive interest on reserves is actually expansionary. You are confused about basics as most of readers (and the author) of this blog. Read Wray, read Fullwiler, read Lavoie, read Moore.

  22. Gravatar of W. Peden W. Peden
    11. September 2011 at 18:48


    So the erosion of the distinction between t-bills and cash as a result of IOER is expansionary?

  23. Gravatar of OhMy OhMy
    11. September 2011 at 19:04

    W Peden,

    “The erosion of distinction” has no effect. Short rate does and the interest income. Did you read the sources I guggested? You are fast.

  24. Gravatar of W. Peden W. Peden
    11. September 2011 at 19:43


    Well, the first source you gave had absolutely nothing to do with the effects of negative interest rates on reserves and talked about something which you now say “has not effect”. My interest waned after that point- I really was interested in have a debate about a situation where increasing the demand for base money had a contractionary effect, but apparentely I’m not getting that debate (right now).

  25. Gravatar of W. Peden W. Peden
    11. September 2011 at 19:44

    * reducing the demand for base money.

  26. Gravatar of flow5 flow5
    12. September 2011 at 07:25


    MMT’ers were the last ones (not the only ones), to recognize that banks aren’t reserve constrained, that banks don’t loan out excess reserves, that loans create deposits, etc. Yes indeed, what a joke.
    And MMT’s sectoral balance equation doesn’t balance. So much for reality.

  27. Gravatar of Scott Sumner Scott Sumner
    12. September 2011 at 09:11

    D.F. Linton, Yes, many have shown me that article, but I’m afraid he makes a fundamental mistake. If the central bank is inflation targeting, then money supply changes will tend to be negatively correlated with V. But that says nothing about causality. It’s why monetarist theories looked worse after the Fed got better at stabilizing NGDP.

    OhMy, Reducing demand for the medium of account is expansionary. That’s S&D 101. And have you checked out Sweden recently?

    And as far as “read Wray” don’t you know that Krugman, Rowe, DeLong, Beckworth, me, and everyone else has read Wray, Mosler, etc. We simply find their arguments wrong, and I’ve said why in many posts.

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