global economic growth over the past few decades has outpaced the capacity of the world economy to produce truly safe assets
Really? The U.S. could have just deficit-spent more, crediting people’s/businesses’ checking accounts and thereby increasing the global stock of the world’s safest asset: U.S. dollars.
It could (by U.S. law is required to) simultaneously issue bonds in/borrow an equivalent amount, but it comes to the same thing as regards the inflationary impact. (Issuing bonds is actually a bit more inflationary because of the future money-creation needed to pay the interest.)
That fear of inflation — and the resultant unwillingness to provide the safe assets that Beckworth thinks the world needs — is the only constraint on Beckworth’s “capacity.”
If he is correct that the supply of dollars is, has been, insufficient to meet global demand, then inflation is not currently a concern — arguably quite the contrary.
Cross-posted at Angry Bear.
Comments
5 responses to “A Surfeit of Dearth Revisited: The Global Shortage of Safe Assets”
[…] Cross-posted at Asymptosis. […]
If you change the sentence to global economic growth over the past few decades has outpaced the willingness of the world economy to produce truly safe assets, the market monetarist and the MMT argument become fairly congruent.
The real chasm I see, is not between MTT & MMs but between the M&Ms and the other schools of thought, because they question the effectiveness of providing those safe assets – period.
From an MMT perspective, one could classify all types of government assets as ‘safe but useless’. Useless in the sense that there is nothing productive directly funded by these assets, other than convenience and a warm fuzzy feeling of knowing that one owns fiat wealth (savings desires). The reason it is economically viable is precisely because the accommodation of these savings desires gives people the security to pursue economically useful tasks. Other schools outside the M&Ms seem to have a completely different view of the phenomenon of money altogether. Certainly it isn’t something one would, let alone could come up with at the push of a button.
@Oliver “If you change the sentence to global economic growth over the past few decades has outpaced the willingness of the world economy to produce truly safe assets, ”
Yes! Very nice.
“there is nothing productive directly funded by these assets, other than convenience ”
On “convenience,” here’s an image I’ve been forming:
A wide flat stone bowl. The inside bottom of the bowl is quite irregular.
Pour in a little olive oil (money, safe assets), and a handful of mexican jumping beans (economic actors).
With so little oil, the beans are quite constrained in their movement. They’re constantly bumping against the irregular bottom. They get stuck all the time, can’t move as they’d like.
Add another cup or two of oil. The beans are much less constrained in their movement, can move more freely.
The “convenience” of money, safe assets — literally in this image, liquidity — provides lubrication, freedom, friction-reduction.
That friction — the rough bottom — might be expectations? (People spend more when their future looks bright, and the best predictor of their future is their present) If there’s not as much money, safe assets, as people want, they worry about their future abilities to purchase/consume. So they don’t “move around” — spend. They stay put — save (aka don’t spend).
I haven’t figured out how too much oil in this imagi-world creates inflation.
Yay, mexican jumping beans! I’ll add my own little story while we’re at it :-):
If you think of the economy as nodes (individual stocks) with pathways that connect them (flows), then different types of asset have different functions. It is mostly currency and deposits that function as building blocks for pathways (in a non-barter world). These pathways then enable the assets sitting on the nodes (which include the currency and deposits themselves!) to move from one node to the other. Other assets that can be exchanged are either representatives of real (e.g. houses), corporate (company stock), or government wealth (gvt. bonds) or the goods themselves (consumption / investment). Government bonds do not function as pathways, but they do add to the stocks of wealth, thus encouraging the building of pathways and they can be exchanged for money at short notice, so they are certainly no impediment to exchange.
Asset price inflation occurs when the willlingness of the financial and corporate sectors to issue any of the above mentioned financial assets outpaces the ability of the economy to deliver the goods they represent (growth). It’s a mismatch of the nominal and real sides of the economy and tends to go unnoticed for a while but usually comes undone with a bang that then causes a correction to the other extreme (depression).
Demand pull inflation occurs when willingness of individuals to exchange (newly produced) assets outpaces the ability of the economy to deliver them (output capacity). I see it as a traffic jam along a pathway. It’s something that people will notice immediately and is thus also a good tool for politicians to (ab)use.
There is a positive but non-linear relation between the perceived size of one’s mountain of assets and the willingness to exchange them for other assets, especially wrt perishable ones (consumption). So asset prices will eventually feed into CPI. If they don’t collapse first, that is.
Actually, forget the traffic jam analogy. It’s the opposite – too many pathways fighting over too few assets.