Miles Kimball on negative interest rates
David Beckworth did a very interesting podcast with Miles Kimball. You probably know that Miles is an economics professor at Michigan and blogs under the name “Supply Side Liberal” (a label not far from my own views.)
Here are some good points that Miles emphasized:
1. If the Fed had been able to do negative interest back in 2008, the average interest rate over the past 8 years would probably have been higher than what actually occurred. Lower in 2008-09, but then higher ever since, as the economy would have recovered more quickly. He did not mention the eurozone, but it’s a good example of a central bank that raised rates at the wrong time (in 2011) and as a result will end up with much lower rates than the US, on average, for the decade of the “teens”. Frustrated eurozone savers should blame German hawks.
2. He suggested that if the Fed had been able to do negative interest rates back in 2008-09, the financial crisis would have been milder, because part of the financial crisis was caused by the severe recession, which would itself have been much less severe if rates had been cut to negative 4% in 2008.
3. Central banks should not engage in interest rate smoothing. He did not mention this, but one of the worst examples occurred in 2008, when it took 8 months to cut rates from 2% (April 2008) to 0.25% (December 2008.) The Fed needs to be much more aggressive in moving rates when the business cycle is impacted by a dramatic a shock.
Although I suggested negative IOR early in 2009, I was behind the curve on Miles’s broader proposal (coauthor Ruchir Agarwal), which calls for negative interest on all of the monetary base, not just bank deposits at the Fed. To do this, Miles recommends a flexible exchange rate between currency and electronic reserves, with the reserves serving as the medium of account. Currency would gradually depreciate when rates are negative. Initially I was very skeptical because of the confusion caused by currency no longer being the medium of account. I still slightly prefer my own approach, but I now am more positively inclined to Miles’s proposal and view it as better than current Fed policy.
Miles argued that the depreciation of cash against reserves would probably be mild, just a few percentage points. Then when the recession ended and interest rates rose back above zero, cash could gradually appreciate until brought into par with bank reserves. He suggested that the gap would be small enough that many retailers would accept cash at par value. As an analogy, retailers often accept credit cards at par, even though they lose a few percent on the credit card fees.
If cash was still accepted at par, would that mean that it did not earn negative interest, and hence you would not have evaded the zero bound? No, because Miles proposes that the official exchange rate apply to cash transactions at banks. This would prevent anyone from hoarding large quantities of cash as an end run around the negative interest rates on bank deposits. So that’s a pretty ingenious idea, which I had not considered. Still, I think my 2009 reply to Mankiw on negative IOR holds up pretty well, even if I did not go far enough (in retrospect.)
Why is negative interest still not my preferred solution? Because I don’t think the zero bound is quite the problem that Miles assumes it is, which may reflect differing perspectives on macro. Listening to the podcast my sense was that he looked at macro from a more conventional perspective than I do. At the risk of slightly misstating his argument, he sees the key problem during recessions as the failure of interest rates to get low enough to generate the sort of investment needed to equilibrate the jobs market. That’s a bit too Keynesian for me (although he regards his views as somewhat monetarist.)
In my view interest rates are an epiphenomenon. The key problem is not a shortfall of investment, it’s a shortfall of NGDP growth relative to nominal hourly wage growth. I call that my “musical chairs model” although the term ‘model’ may create confusion, as it’s not really a “model” in the sense used by most economists. In my view, the key macro problem is the lack of one market, specifically the lack of a NGDP futures market that is so heavily subsidized that it provides minute by minute forecasts of future expected NGDP. If the Fed would create this sort of futures/prediction market (which it could easily do), then the price of NGDP futures would replace interest rates as the key macro indicator and instrument of monetary policy. Recessions occur when the Fed lets NGDP futures prices fall (or shadow NGDP futures if we lack this market). Since there is no zero bound on NGDP futures prices, we don’t need negative interest rates. However, in place of negative rates the central bank may need to buy an awful lot of assets. You could say there is a zero lower bound on eligible assets not yet bought by the central bank. Which is why we need to set an NGDPLT path high enough so that the central bank doesn’t end up owning the entire economy.
To conclude, although Miles’s negative interest proposal is not my first preference, put me down as someone who regards it as better than current policy.
PS. I was struck by how many areas we have similar views. For instance he thought blogging was really important because what mattered in the long run was not so much the number of publications you have, but whether you’ve been able to influence the younger generation economists (grad students and junior faculty).
PSS. I will gradually catch-up on the podcasts, and then do another post on the 2nd half of the Brookings conference on negative IOR.
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10. June 2016 at 13:58
Scott, I´ve reached the conclusion that the Fed put the economy exactly where it wanted. That´s why they didn´t do any of the things that could have avoided it!
https://thefaintofheart.wordpress.com/2016/06/05/were-almost-there-a-narrative/
10. June 2016 at 15:16
“which would itself have been much less severe if rates had been cut to negative 4% in 2008.”
-4%? I’m sure that would have caused a financial crisis of its own, as money would have flown away from banks into cash.
“Central banks should not engage in interest rate smoothing.”
-Definitely. 100% agreed. NGDP smoothing is much more important than interest rate smoothing. Real prices are messy; making them appear neater often ends in disaster.
I think the ECB raised rates at the right time; it just failed to do sufficient QE when the recession really started hurting (late 2011-early 2012).
“No, because Miles proposes that the official exchange rate apply to cash transactions at banks.”
-Ah. But isn’t that pretty un-libertarian?
“For instance he thought blogging was really important because what mattered in the long run was not so much the number of publications you have, but whether you’ve been able to influence the younger generation economists (grad students and junior faculty).”
-Bingo.
10. June 2016 at 16:23
Nice post.
Negative interest rates are a good idea, but only if you are playing on your own 2-yard line and trying to get the ball out of the end zone.
But why play there?
The futures market is a fascinating idea. A central bank should target robust NGDPLT with quick or even automatic resort to QE or money-financed fiscal programs to enforce the NGDPLT growth path.
The spooky thing is some economists actually recommend playing the entire game on your own 2-yard line.
10. June 2016 at 18:22
Real helicopter money is better than buying assets and hoping for trickle down. Don’t we already have too much money at the top? You really think business is interested in passing their asset appreciation to workers? Hahahaha. Now I am a comedian.
But consider this, Valuewalk knows bonds are in massive demand and smart money knows the little Goldman Sachs game of scaring the sheeple to give up their bonds fearing yield appreciation is just a crock. http://www.talkmarkets.com/content/bonds/smart-money-positioning-is-supportive-of-bonds?post=97036&uid=4798
Demand for bonds has no bounds. And meantime bonds go will go negative all over the world. And that is deflationary, even if IOR is inflationary which it may not be if all the banks put their money in vaults.
10. June 2016 at 18:23
And Miles Kimball is just an advocate for theft. It is plain theft to take away cash from people who need it most. Couple that plan with asset buying and you may as well bury the bottom 50 percent.
http://www.talkmarkets.com/content/financial/miles-kimballs-sneaky-way-of-destroying-cash-the-importance-of-zero?post=86308&uid=4798
10. June 2016 at 19:41
Marcus, I’m not sure I’d say “exactly” where they want it, at least back in 2008-09. Right now you could say that, but then Kimball doesn’t recommend negative rates right now.
Harding, I don’t see how this monetary policy is less “libertarian” than the current monetary policy.
10. June 2016 at 20:37
Scott,
1. As long as you have huge ER, the discussion of negative rates is superfluous. If the Fed were doing its job, no one would be having this conversation.
2. No need for negative IOR. Just bring it down to zero.
3. If that doesn’t do it, the Fed is under no legal requirement to accept deposits other than required reserves so just send the money back to the banks. If that doesn’t work then (and only then) negative IOR.
4. The only issue with negative rates on the base is that people start holding more cash….but
5. Rates have to drop a bit (maybe quite a bit) before the shoe leather cost is exceeded so we are (and always have been) a long way from that.
6. If all of the above doesn’t work, then rather than Miles’ convoluted proposal, just charge banks an “ATM” fee. The Fed charges the banks 1% (or 2 or 3 or whatever is necessary) for cash “withdrawals.” The banks get it back if they convert the cash back into reserves. Fed allows free annual cash withdrawals of up to 4.7% of the base (or whatever the NGDPLT is.)
7. Quit beating the NGDP futures horse. The Fed can make reasonably good guesses without an NGDP futures market, which will get them 98% of the way to good policy. A futures market would just be icing on the cake. Now it’s just a distraction. Concentrate on the main message – NGDPLT.
10. June 2016 at 21:28
Ben
Why 2 yard line? What’s so special about 2? Oh yeah, get it now. Great analogy.
The ECB is about to hoover up 70% of the modest Euro Area non-financial corporate bond market.
http://www.economist.com/news/finance-and-economics/21700415-quantitative-easing-euro-area-enters-new-phase-unyielding
http://www.cnbc.com/2016/06/08/ecb-kicks-off-corporate-bond-buying.html
https://www.bondvigilantes.com/blog/2016/04/08/which-corporate-bonds-will-the-ecb-buy/
If only they’d raise the inflation target or just talk about nominal growth ambitions, it would be so much easier. As Ben says they are making huge efforts just to shove 2 year out inflation projections from 1.5% up to 1.8%.
https://www.ecb.europa.eu/stats/prices/indic/forecast/html/table_hist_hicp.en.html
10. June 2016 at 22:40
” Frustrated eurozone savers should blame German hawks.”
I understand your argument that when it comes to GDP, nominal is the real thing. But for savers surely you’d agree that the real rate of return is what matters. Would German savers have had a higher *real* average real rate over the current decade if the ECB had been more accommodating in 2011?
10. June 2016 at 23:09
This piece in the New Yorker has a nice quote that backs up some of what Scott has been saying about conservatives vs liberals over time: “In 1974, conservatives with college degrees had the highest level of trust in science and the scientific community. Today, they have the lowest.” with a reference linked.
http://www.newyorker.com/news/news-desk/the-mistrust-of-science
11. June 2016 at 02:30
@M Nunes – so you also believe in economists ‘fine tuning’ the economy? That was in style when you were younger, back in the age of Aquarius.
@Sumner- who does your friend Kimball think will win this year’s World Series? He seems to have a crystal ball.
I’d like to hear Sumner’s views on abolishing cash. Cash has become very dirty here in Greece, where I’m posting at the moment, trying to launder (from a relative, not drugs) a huge pile of cash they were keeping at home. Greece has not only capital controls but long-standing laws that assume any cash deposit is from the black market and the tax police will automatically withhold 33% from it, if the bank reports it, which they usually will if over $10k euro. It’s not fun dealing with cash, and quite dangerous as cash has a smell that seems to attract criminals; already some of it here was stolen by domestic help.
Negative interest rates won’t work when there’s cash in people’s mattresses. This is such a practical question I doubt Sumner has a concrete answer.
11. June 2016 at 03:25
A Fed that was data dependent wouldn’t smooth interest rates and rates would be a random walk. That runs so counter to their mentality and ethos. The Fed feels the need to prove that it is the all knowing superforecaster.
11. June 2016 at 04:50
“Recessions occur when the Fed lets NGDP futures prices fall (or shadow NGDP futures if we lack this market).”
No, that is and would remain incorrect. Recessions are not caused by insufficient inflation. Recessions are causes by an absence of a market in the production of money.
11. June 2016 at 04:50
“If the Fed would create this sort of futures/prediction market (which it could easily do), then the price of NGDP futures would replace interest rates as the key macro indicator and instrument of monetary policy.”
States cannot create markets.
11. June 2016 at 06:03
Yes, Ray, apparently even banks will keep cash in their mattresses. Theoretically negative IOR could work if people didn’t draw money out of banks, but there are better ways. Even asset buying that Scott calls for is better, but unfortunately it does not give the broad prosperity that real helicopter money would give.
That was what El-Erian was talking about, the limitation of monetary policy. I don’t agree with his position on helicopter money. But I agree with the limitation of asset buying. It just keeps the top guys going. It was the best idea in town, but Friedman knew it was not the end all be all for monetarism. Monetarists need to trust Friedman, and helicopter money must become a reality or we will have dopes like Miles Kimball calling for a discount on cash versus digital money. That is pure theft, and the fact that it is entertained instead of Friedman being entertained makes no sense to me.
It is time for monetarists to put their monetarism where their mouth is.
11. June 2016 at 07:19
Our host wrote: However, in place of negative rates the central bank may need to buy an awful lot of assets. You could say there is a zero lower bound on eligible assets not yet bought by the central bank.
I’ve been reading here often but irregularly since 2011 or perhaps earlier but I’ve missed any explanation as to why the central bank “doing more” is thought to be effective when it’s assumed that assets are what the central bank would buy. A change in the ownership of an asset and even higher asset prices does not necessarily have to result in goods and services being produced. If the Federal Reserve buys my house and rents it to me I’m not going to change my spending habits. It may be my fault entirely that I’ve missed something here or it is that economists have to speak in code to maintain the effectiveness of pronouncements alone (in which case there must be no reply to this comment).
11. June 2016 at 07:36
at least not a plainspeak reply.
11. June 2016 at 10:34
Ryan Cooper thinks there’s a ‘looming recession.’
“Let’s go through some numbers. Job creation has stalled badly in 2016, averaging only 150,000 per month thus far — worse than 2011’s figure. May had the weakest jobs number since January of 2010. Other economic data are more mixed (compiled here by Ben Casselman), but overall not very encouraging. The unemployment rate is low, and job openings are up, but actual hires have fallen substantially from their most recent peak. After increasing moderately for most of 2015, wage growth has also stalled, far below a rate consistent with decent productivity growth and a stable labor share of national income.”
“If you squint, it sort of looks like the economy is bumping up against full capacity. Employers are trying to hire, but they can’t find the workers, right? However, the problem with this story is there is not a single whiff of moderate inflation. If the economy is hitting structural constraints, then we ought to see price increases as companies bid against each other for labor and resources. But not only has wage growth stalled, inflation has been consistently below target — for more than three years straight.”
“The Fed deserves at least partial blame for this. The basic problem with America’s central bank, at least when it comes to monetary policy, is that it has confused timidity with caution. Whether a policy is cautious or not depends critically on the surrounding circumstances. If one is trying to enter the ocean on a rocky beach with heavy surf, it may be much more cautious to take a running leap and aim for the deep water than to do it timidly and be sliced to ribbons on the shallow rocks and barnacles.”
“Similarly, constantly communicating a desire to halt monetary stimulus and to return to normal interest rates could directly bring about the unwanted outcome by creating an economy-wide expectation that the Fed will halt any economic momentum before it even gets going. A much more cautious strategy would be hyper-aggressive stimulus to get some real momentum going, only then followed by a raise in rates once full employment is firmly established.”
As Ryan Avent wrote over four years ago, “Try overshooting for once. Try it!”
“At any rate, it’s clear that the Fed is completely incorrigible on this point. Absent new personnel or structural reform, they simply aren’t going to listen to this reasoning. And that should be worrisome indeed.”
http://theweek.com/articles/628809/america-needs-serious-about-looming-recession
11. June 2016 at 11:13
Something of which there should not be negative interest on Scott’s part;
http://www.wsj.com/articles/whit-stillmans-sense-sensibilities-1465597456
———–quote————
Count Whit Stillman squarely in the Austen camp. We should hope so, given that Mr. Stillman is the director of “Love & Friendship”—a new film adaptation of Austen’s unfinished novella “Lady Susan.” The reviews have been enthusiastic, and the movie is playing in nearly 800 theaters across the nation.
“Love & Friendship” is the first of Mr. Stillman’s films he hasn’t written. The success he is finding presents the kind of contradiction he most enjoys: a low-budget film that unapologetically celebrates manners and mores which are today routinely mocked and despised makes the top-10 box-office charts in the U.S., U.K. and the Netherlands over the long Memorial Day weekend. “It’s a little bit humbling that the first time I hit pay dirt, it’s with someone else’s work,” he says.
Mr. Stillman is speaking during a visit to New York City over a plate of ham and eggs at the Plaza Hotel. While sipping his coffee, he likens the Brontë-Austen clash to “an early 19th century gang war between the Jets and the Sharks.” Charlotte Brontë, he notes, “was one of Jane Austen’s fiercest critics.”
In sharp contrast to the works of the Brontë sisters, Austen’s fiction champions the head over the heart. It follows that her heroines are perceptive, intelligent and, as we would say today, low-maintenance.
“One is romanticism and the other is sort of anti-romanticism,” says Mr. Stillman of the genres represented by these Dead White Females. “Jane Austen was one of the first great skeptics of the Romantic movement, so she saw the nonsense coming down the pike and she makes fun of it.”
————–endquote———–
Beckinsale’s back!…and Sevigny’s got her.
11. June 2016 at 11:17
“Newest Inflation Expectations Likely to Trouble the Fed”
http://equitablegrowth.org/must-read-ben-eisen
11. June 2016 at 11:23
Sumner, you’re too lazy. Your recent post on Greece was good, but I expected it to be about what the Anglosphere left had said about Papandreou’s Greece in the 1980s, back when it was a classic anti-neoliberal failure story. Possibly, what excuses they made for its dismal economic performance, especially relative to the 1970s. Surely, you were around at the time, so you probably remember some of the stuff they said (I don’t).
12. June 2016 at 05:39
Retired Northwestern professor, and essayist par excellence, Joseph Epstein in the Weekend WSJ, on Trumpistas;
http://www.wsj.com/articles/why-trumpkins-want-their-country-back-1465596987
————quote————
I don’t believe that this woman is a racist, or that she yearns for immigrants, gays and other minorities to be suppressed, or even that she truly expects to turn back the clock on social change in the U.S. What she wants is precisely what she says: her country back.
Who, one needs to ask, took it away? Short answer: the cultural warriors. I was once in the company of Irving Kristol when someone asked him how the culture wars were going. “They’re over,” he said. “We lost.” By “we,” Kristol meant people with a strong regard for tradition, who valued liberty over government-induced equality, the entrepreneurial over the entitlement spirit.
Irving Kristol was correct; for the moment, at least, the struggle for tradition, liberty and private business endeavor has been substantially stalled. Multiculturalism, identity politics, political correctness, victimhood—the progressivist program generally—are now in the saddle, and do not figure easily to be dislodged.
The political rise of Donald Trump owes less to the economy, to his status as a braggadocio billionaire, to his powers of insult, to the belief that he can Make America Great Again, than to the success of this progressive program. What the woman who said she wants her country back really meant was that she couldn’t any longer bear to watch the United States on the descent, hostage to progressivist ideas that bring neither contentment nor satisfaction but instead foster a state of perpetual protest and agitation, anger and tumult.
So great is the frustration of Americans who do not believe in these progressivist ideas, who see them as ultimately tearing the country apart, that they are ready to turn, in their near hopelessness, to a man of Donald Trump’s patently low quality. In doing so they fail to realize that Mr. Trump has succeeded in this political season precisely because of the successful spread of these pernicious ideas. Or, to put it in the 1960s terms from which the current progressivism ultimately derives: Donald Trump, who in his vagueness and vapidity is unlikely to provide any solution, is himself part of the problem.
—————-endquote—————-
12. June 2016 at 05:42
Bonus points will be awarded to the first person to catch what Whit Stillman and Joseph Epstein have in common.
12. June 2016 at 06:13
“Real helicopter money is better than buying assets and hoping for trickle down. Don’t we already have too much money at the top? You really think business is interested in passing their asset appreciation to workers? Hahahaha. Now I am a comedian.”
If you are proposing using helicopter money for a massive redistribution of income, and are thinking that this is going to help the economy, I think you are very misguided. It would also quickly result in Fed losing its independence.
My understanding of buying assets is that it forces investors into higher risk investments rather than sitting on money. If there are technologies and projects worth investing in, that will grow the economy and put people back to work. Do we want the Musks and Bezos of the country investing in high risk, high reward projects? As an engineer, yes I do. Government investment in these types of projects is no substitute. Witness how many billions NASA wasted on a shuttle replacement, prior to opening it up to private providers. Distributing money to consumers may help retailers and makers of consumer goods (i.e. China), but does little to help the US economy.
The fact is that government tax and transfer policies together already reduced income inequality more in 2011 than in 1979.(see “The Distribution of Household Income and Federal Taxes 2011” from Congressional budget office).
Yes, there has been an increase in top 1%. I think this is more the result of the changes in the workforce and workforce requirements and the economy than any government policy or any monopolistic businesses. The world is hyper competitive today, this is not the 1950s in America anymore. The left in this country is so obsessed over this issue that I think they would rather have another recession than do anything to foster higher growth rates that may increase it, afterall 2008 had the biggest decline in income/wealth inequality ever…is that not a good thing?
12. June 2016 at 06:44
Harding, You said:
“-4%? I’m sure that would have caused a financial crisis of its own, as money would have flown away from banks into cash.”
Did you read the post?
Thanks Saturos.
Ray, You said:
“Negative interest rates won’t work when there’s cash in people’s mattresses.”
So I see you didn’t read the post.
Vak, You asked:
“Would German savers have had a higher *real* average real rate over the current decade if the ECB had been more accommodating in 2011?”
Probably, as real rates tend to be procyclical.
Brian, If extremely large asset purchases were not inflationary then a central bank could buy up the entire world with no inflation. The citizens of that country would be incredible rich, incredibly lucky. Too good to be true? Yes, because NGDP would rise sharply.
Thanks Patrick, I really like Stillman’s work.
On Epstein, I wonder if it’s really the culture wars. Trump favors transgender rights, for instance.
12. June 2016 at 08:48
“Did you read the post?”
-Did you read the comment?
12. June 2016 at 15:21
Good new post by Tim Duy:
http://economistsview.typepad.com/timduy/2016/06/janet-yellens-inflation-problem.html
12. June 2016 at 18:23
Harding, Why would a negative 4% interest rate cause people to hold cash?
Travis, Thanks. That is a good post.
12. June 2016 at 21:38
@Engineer You said:
“If you are proposing using helicopter money for a massive redistribution of income, and are thinking that this is going to help the economy, I think you are very misguided. It would also quickly result in Fed losing its independence.”
Real helicopter money is base money. It has nothing to do with taxation, redistribution or government fiscal policy.
@Patrick So, you knew Irving Kristol. You must be familiar with Oded Yinon and regime change as being the essence of the Greater Israel doctrine.
I believe the neocons, from the University of Chicago, like Leo Strauss, were not against lying to the people. The government has lied so much as regime change is the real policy, not the war on terror. The war on terror is either a diversion or often even fake. These shootings are mostly fake under Obama.
So, I will say upfront that I don’t support the bigot Trump. But you sound like you fear for your neocon war criminal friends, as if Trump will expose their involvement in 9/11.
I am willing to be corrected, but William Kristol Sh**ts bricks when contemplating a Trump presidency. And don’t be mistaken, I think Trump is a dangerous person, and I will never vote for him. They are all NWO types, but Trump is crazy and a hater.
So, having said all that, Patrick, you know all about PNAC don’t you, and regime change?
12. June 2016 at 21:39
So, Engineer, don’t mix up guaranteed income with Helicopter money. Guaranteed income requires redistribution. A little of it is harmless, but a lot could be a problem for the economy. The Fed couldn’t do it because government would have to do UBI.
12. June 2016 at 21:44
Sumner: “In place of negative rates the central bank may need to buy an awful lot of assets. … Which is why we need to set an NGDPLT path high enough so that the central bank doesn’t end up owning the entire economy.”
It seems that there is no bound on the amount of manipulation which is proposed here. Adjust this, depreciate that, cause inflation, and create other incentives (losses) to direct people to invest more than they want to. The government enforces its monopoly on money, then the discussion is how to manipulate money to coerce people, because they are not doing what they should be doing.
Investing is the purchase of assets and services. It amazes me that the money falls out of the discussion here as if the cash used for an investment disappears. Cash is a placeholder asset which comes into equilibrium with other assets. Some group is always holding the cash in circulation. If cash is deteriorating at a negative interest rate, then that is an imposed tax, to be used for what? What are all of the effects that would be created by these policies?
Ultimately, why not have the central bank own all of the economy? According to sentiment here, that would logically be fine, and much better than having to manipulate incentives. The government could run the economy in detail and get a much better result than individual, fearful investors. Why settle for half measures? The economy is too important to be entrusted to whoever happens to hold cash. Isn’t that the underlying assumption?
12. June 2016 at 22:09
“Why would a negative 4% interest rate cause people to hold cash?”
Hold cash? I was thinking of people holding gold or something. If you put a pile of money in the bank and are going to have much less of it in ten years, why not put your money into something that isn’t automatically destroyed in quantity or quality every year? Gold fits the bill. In any case, with a 4% negative interest rate, I think there would be mass exodus from the monetary system as a whole, like in situations of hyperinflation. Maybe folks will resort to barter.
The only thing that could save the currency under 4% negative nominal interest rates is falling prices, which could make it tolerable.
12. June 2016 at 22:52
E. Harding:
You did initially say that “…money would have flown away from banks into cash.”
12. June 2016 at 22:54
When Sumner says “negative 4% interest”, he is talking about the very limited and narrow context of what the Fed does with reserves that the member banks hold with the Fed.
He isn’t talking about Joe Sixpack paying 4% for the privilege of lending money to banks.
13. June 2016 at 01:06
@Scott
One other thing, if you have a liquid NGDP futures market, the FOMC can be replaced with an iPhone app. Considering human behavior (and I think Morgan has pointed this out,) you’re shooting yourself if the foot if you’re proposing a solution which is an existential threat to the organization that must adopt the solution.
13. June 2016 at 05:10
Garland, You said:
“It seems that there is no bound on the amount of manipulation which is proposed here. Adjust this, depreciate that, cause inflation, and create other incentives (losses) to direct people to invest more than they want to.”
You are in way over your head. Don’t worry, no one is proposing that people be directed to invest more than they want to. I’m a libertarian.
Harding, You said:
I’m sure that would have caused a financial crisis of its own, as money would have flown away from banks into cash.”
Then you said:
Hold cash? I was thinking of people holding gold or something.”
There’s a reason I assumed you said hold cash. It’s because you said “money would have flown away from banks into cash. Gold is not cash.
In any case, the Fed would be happy if people flew away from cash into gold. And as for hyperinflation—why would the Fed do negative interest during hyperinflation?
dtoh, The Fed would still have plenty to do. And I’m not that cynical about the Fed.
13. June 2016 at 06:55
“Trump favors transgender rights, for instance.”
I think everyone favors rights for transgender people. Do you mean he came out in support of laws that anyone can use any bathroom they choose?
13. June 2016 at 08:56
“There’s a reason I assumed you said hold cash. It’s because you said “money would have flown away from banks into cash. Gold is not cash.”
-Freedom, Sumner, you got me, I guess. Excuse me. Shouldn’t comment in the middle of the night.
13. June 2016 at 09:12
Dr. Sumner,
NGDP-adjusted treasury debt would be even cleaner than the futures market. The FED could simply peg the spreads with traditional bonds.
13. June 2016 at 17:06
Scott,
Yes, I’d love the Democratic Party to move heavily in a direction toward people like you and Kimball. I’m not as hard on the Democratic Party as you are, because I know that ignorance, and some stupidity, is what leads many Democrats to support stupid polices like minimum wages, price controls, excessive regulations, etc. I don’t have a problem with the values of most Democratic voters, although I think the party focuses way too much on “helping” the middle class and not nearly enough on the poor.
I consider myself a supply-side liberal and sometimes wonder why you’re so much harder on Democrats than I am. Perhaps it’s generational? I’m 40 years-old.
For example, you wrote that you “despise” Hillary Clinton. I can understand not liking her or not voting for her, but despise? I don’t understand the use of such a strong word.
13. June 2016 at 18:33
@ ray lopez says… “I’d like to hear Sumner’s views on abolishing cash. Cash has become very dirty here in Greece, where I’m posting at the moment,”
Speaking of abolishing cash…I think you will find this guy’s stuff interesting…
http://blog.supplysideliberal.com/post/62693219358/how-and-why-to-eliminate-the-zero-lower-bound-a
13. June 2016 at 22:15
@Bill Ellis You said: Speaking of abolishing cash…I think you will find this guy’s stuff interesting…
But Miles Kimball is the subject of Sumner’s article!!
I think he is nuts, Kimball, that is: http://www.talkmarkets.com/content/financial/miles-kimballs-sneaky-way-of-destroying-cash-the-importance-of-zero?post=86308&uid=4798
As far as Sumner’s views of negative rates, banks could push them through to depositors but probably would not do so until things got seriously negative. Miles just wants to steal from cash holders.
14. June 2016 at 02:55
Some new polling seems to show Brexit gaining momentum.
Any thoughts on that?
14. June 2016 at 02:56
It seems that if there is a Brexit, Cameron would have to step down and it would end up with a pro Brexit PM-Boris Johnson, etc.
14. June 2016 at 02:57
“Cash has become very dirty here in Greece…”
Sounds like they need more money-laundering…
14. June 2016 at 02:59
“I’m not as hard on the Democratic Party as you are, because I know that ignorance, and some stupidity, is what leads many Democrats to support stupid polices like minimum wages, price controls, excessive regulations, etc. I don’t have a problem with the values of most Democratic voters.”
Wow, now that is a ringing endorsement…was this sarcasm or is this serious? In my opinion, while it is very easy to deride the Republican voters for nominating Trump, in reality, if the Democratic party primary system was more “Democratic”, Bernie Sanders would have been the nominee. How any rational person can look at Bernie Sanders as presidential material is beyond my comprehension…I can only think that “despise” for Hilary is pretty common within the Democratic party as well…
Johnson/Weld…the only rational choice….
14. June 2016 at 04:13
engineer you are simply wrong that Bernie Sanders should be the nominee.
She got 3.7 million more votes and won by 300 pledged delegates.
The idea that Bernie ‘really won’ is an Urban Legend of the Bernie Bros.
No most Democrats don’t despise she is viewed more favorably than Bernie-which is logical as he got almost 4 million fewer votes.
If you want to hear a ringing endorsement listen to what Mitch McConnell says about Trump. His Administration wont be a constitutional crisis because ‘we in Congress will restrain him.’
14. June 2016 at 07:31
‘For example, you wrote that you “despise” Hillary Clinton. I can understand not liking her or not voting for her, but despise? I don’t understand the use of such a strong word.’
Well, we could ask a man who had to work with her;
http://www.j-bradford-delong.net/movable_type/2003_archives/001600.html
————quote————
My two cents’ worth–and I think it is the two cents’ worth of everybody who worked for the Clinton Administration health care reform effort of 1993-1994–is that Hillary Rodham Clinton needs to be kept very far away from the White House for the rest of her life. Heading up health-care reform was the only major administrative job she has ever tried to do. And she was a complete flop at it. She had neither the grasp of policy substance, the managerial skills, nor the political smarts to do the job she was then given. And she wasn’t smart enough to realize that she was in over her head and had to get out of the Health Care Czar role quickly.
So when senior members of the economic team said that key senators like Daniel Patrick Moynihan would have this-and-that objection, she told them they were disloyal. When junior members of the economic team told her that the Congressional Budget Office would say such-and-such, she told them (wrongly) that her conversations with CBO head Robert Reischauer had already fixed that. When long-time senior hill staffers told her that she was making a dreadful mistake by fighting with rather than reaching out to John Breaux and Jim Cooper, she told them that they did not understand the wave of popular political support the bill would generate. And when substantive objections were raised to the plan by analysts calculating the moral hazard and adverse selection pressures it would put on the nation’s health-care system…
Hillary Rodham Clinton has already flopped as a senior administrative official in the executive branch–the equivalent of an Undersecretary. Perhaps she will make a good senator. But there is no reason to think that she would be anything but an abysmal president.
—————endquote—————
14. June 2016 at 08:39
Cliff. I meant that he took the transgender side in the recent North Carolina dispute over bathroom use.
Randomize, There a liquidity premium that affects the spread between conventional bonds and indexed bonds.
Engineer, You said:
“if the Democratic party primary system was more “Democratic”, Bernie Sanders would have been the nominee.”
No, Hillary got many more votes.
Patrick, Yes, I expect her to be a really bad (one-term) president.
14. June 2016 at 09:27
“Patrick, Yes, I expect her to be a really bad (one-term) president.”
Scott, I think Mr. Trump has uncovered the true GOP. They won’t want to be put back in the politically correct box after he’s “liberated” them from the “cuckservative” insiders who used to run the party. I hope he’s the nominee again in 2020 and 2024, and that his running mate David Duke gets the nod in 2028. =)
14. June 2016 at 09:58
Scott says…. “Yes, I expect her to be a really bad (one-term) president.”
From your perspective…better or worse than Obama ?
14. June 2016 at 13:01
You are a sick puppy, Tom Brown. Trump is supported by Adelson. There is nothing that indicates he understands Obama’s globalism, and desire to please Israel as well. 40 billion over 10 years? Trump would probably increase that amount.
14. June 2016 at 13:26
@Gary, I didn’t say I was hoping Trump (or Duke) would win, just that he’d (they’d) be the nominee(s).
15. June 2016 at 06:58
Great Tom. My apologies.
15. June 2016 at 08:36
Tom, You don’t recall what happened after the Goldwater and McGovern debacles? After Trump loses there will be a massive backlash against Trumpism. Remember that his calling card is not his views on various policy questions, (which change daily), but rather that he is a winner. And yet the GOP may have found the only candidate who even Hillary can beat. He’ll be totally discredited, and all the GOP pundits will say “I told you so.” The Hardings of the world will have no response, because they assured us that Trump was a winner.
Trump may be the best friend that “open borders” ever had.
Bill, Much worse.
15. June 2016 at 19:10
engineer:
“Johnson/Weld…the only rational choice….”
You mean your preferred choice. Calling what you subjectively prefer as “rational” is arrogant and silly.
15. June 2016 at 20:29
Johnson/Weld…the only rational choice….
If you’re in favor of Nazi wedding cakes.
15. June 2016 at 20:31
Tom, You don’t recall what happened after the Goldwater and McGovern debacles? After Trump loses there will be a massive backlash against Trumpism.
There might be a reason ‘Tom’ does not ‘recall’ that Nelson Rockefeller was the Republican nominee in 1968 or that Henry Jackson was the Democratic nominee in 1976.
17. June 2016 at 10:15
Art, Even by your standards that’s pretty clueless. Nixon was far to the left of Goldwater, and Carter was clearly to the right of McGovern.
Nixon supported civil rights laws, detente with China, OSHA, EPA, massive growth in entitlements, affirmative action, etc. etc.
17. June 2016 at 11:12
Art, Even by your standards that’s pretty clueless. Nixon was far to the left of Goldwater, and Carter was clearly to the right of McGovern.
Nixon supported civil rights laws, detente with China, OSHA, EPA, massive growth in entitlements, affirmative action, etc. etc.
Nixon was a careerist and opportunist with weak commitments. He did what was expedient. His actual policy preferences were likely more aligned with those of Rockefeller than Goldwater, but his visceral sense of affiliation was not. Same deal with Spiro Agnew, who attended the 1964 Republican convention as a Rockefeller delegate but was an acidulous critic of social sectors with which Rockefeller was congenial, matters not ripe in 1964.
Had the Republican Party wished to repudiate Barry Goldwater, they could have nominated Nelson Rockefeller. Nixon, with his talent for multidirectional placation and the visceral contempt fancy people maintained for him, was not a repudiation but a parry. The 1976 nominee was Gerald Ford, a careerist whose worldview you might find in the Jaycees. The subsequent nominee was Ronald Reagan, a Goldwater partisan. The only Rockefeller Republicans who competed well after 1964 were Rockefeller himself (in 1968) and John Anderson (in 1980). There were no new Rockefeller Republicans elected to Congress after 1982 and the last of them retired in 2007. Every Republican nominee after 1984 has genuflected to Reagan bar the present one.
Jimmy Carter was described by his press secretary as one who would ‘run conservative and govern liberal’. He had no abiding constituency in the Democratic Party and no one at all like him has been nominated or competed well since his retirement. He never pretended to subscribe to the norms of adhered to by Democratic federal politicians re foreign relations during the period running from 1948 to 1968. Recall someone’s assessment of George McGovern’s 1972 acceptance speech (“it’s pure Methodist Federation for Social Action”). Carter’s the Southern-fried edition of that. Walter Mondale and Gary Hart lacked McGovern’s red haze past and disputed his inclination to arbitrarily slash the military budget by 25%, but they (particularly Hart) were a lot closer to McGovern than they were to Henry Jackson in their basic dispositions. The last of Henry Jackson’s acolytes in Congress retired in 1993, bar Joseph Lieberman.
Trumpism may evaporate. Neither the Goldwater nor the McGovern campaigns are a precedent for that. Walter Mondale was a decent person, which cannot be said of any Democratic nominee post-1988. However, his basic inclination was to be a broker for the competing interests in the Democratic camp. That hasn’t disappeared and will not. The industrial unions are a great deal weaker than they were when Walter Mondale secured their endorsement. They still had enough clout to get the egregious auto industry bailout in 2009.