Asymptosis: Always Approaching

Asymptosis: always approaching

  • Michael Woodford and Adair Turner Agree: CBs Won’t (and Shouldn’t) Sell the Bonds Back

    Old news: April 3. But still: Following up on yesterday’s post, see here from Ambrose Evans-Pritchard in The Telegraph (emphasis mine): “All this talk of exit strategies is deeply negative,” [Woodford] told a London Business School seminar on the merits of Helicopter money, or “overt monetary financing”. He said the Bank of Japan made the mistake of…

  • Defining “Reserves”

    I’ve run into quite a bit of confusion in conversations discussing bank reserves, and found occasion to get precise on the usage in recent comments. I thought I’d share it with others. This has been vetted by several who are more worthy than I, so I feel quite confident in offering it up. 1. “Reserve…

  • About that “Wealth Effect”: Not so Much…

    Economists like to say that their discipline is the study of scarcity, or even the science of scarcity. But I’d like to suggest that — acknowledging that it’s a behavioral, social “science” — it’s actually the study of human reaction functions: If X happens, how do people (individually and as groups) react? But unlike other…

  • The Market Doesn’t Think the Fed Will Ever Sell Those Bonds Back

    You know the trillion dollars a year of Treasury and GSE bonds that the Fed’s buying up? (And the $3-trillion+ it’s already holding?) It’s driving up bond prices and suppressing yields, right? And if it starts selling them back, it will drive down prices and increase yields, right? The market should be front-running that, right?…

  • Do Collateral Chains Create Real Value?

    Some of the keenest monetary thinkers out there, over at FT Alphaville — Izabella Kaminska, Cardiff Garcia, etc. (I’ll even throw in Tyler Durden at Zero Hedge, with qualifications) — have been pointing us for years towards the work of IMF Senior Economist Manmohan Singh on collateral chains in financial markets. He provides wonderfully cogent explanation of…

  • If Interest Rates Rise, We Can Plummet the National Debt!

    Dean Baker makes what seems to be a stunningly obvious point, one that I haven’t seen discussed anywhere. Condensed and with emphasis added for your consideration: …the value of our [government] debt will plummet if interest rates rise… we could buy back long-term debt issued today at interest rates of less than 2.0 percent for discounts of…

  • Does Steady GDP Growth “Prove” that Market Monetarists Are Right About Ineffective Fiscal Policy and Foolish Keynesianism?

    You’re seeing a lot of crowing these days from the likes of Scott Sumner, David Beckworth, Lars Christensen, et al., claiming that fiscal austerity has obviously had no effect on GDP growth. “Look!” they say: “Even with the sequester and all the other government spending cuts, growth in 2013 has been the same as 2012!…

  • Why Libs and Cons Should All Love Milton Friedman’s Corporate Tax Proposal

    I’m constantly astounded that nobody on the left or the right ever mentions Milton Friedman’s proposal for taxes on corporate profits. On page 174 of (my edition of) Friedman’s libertarian bible Capitalism and Freedom, he proposes what seems a simple and sensible plan (transcription here): …the abolition of the corporate income tax, … with the requirement…

  • “Public” Debt and Safe Assets: A View from Space

    In my ongoing efforts to clarify national-accounting-speak (for myself and others), I’d like to take a stab at some language that is often used ambiguously: the notion of “public” debt. (See also Thinking About the Fed.) If you don’t think anyone is confused by that term, understand: in “public debt,” “public” means government. In “debt…

  • Just What Exactly Do You Mean by “Money,” Buster? #23

    I was poking around at the very interesting Divisia measures of money, and came up with the following chart. Update: Spreadsheet error in original graph. Result: this has little to impart. Never mind. Thanks to Mark Sadowski for pointing it out. Which has me, once again, asking monetarists the question in the title of this post.…

  • Quantitative Easing: Like “trying to kill James Bond with a shark”

    This line by Matt McOsker, in a comment on one of my recent posts, now reigns as the best line of the year in my personal pantheon. QE’s only direct effect is on the financial sector. It only affects the real sector — where people work to produce, buy, and sell real goods, and produce…

  • How The Great Moderation Destroyed the Fed’s Credibility

    Much ado is made of the Fed’s “credibility,” which is dog-whistle-speak for its ability, willingness, and decided inclination to jump all over any (expected or imagined) whiff of that horrifying threat — inflation! — especially the most terrifying bogeyman, “wage inflation.” You won’t, on the other hand, find “credibility” discussed when people speak of the…

  • Rules? In Knife Fight?!

    Allan Marks, in a comment on a Krugman post, reminds me of one of my favorite scenes in filmdom. Krugman’s complaining that he doesn’t understand the rules that his detractors are arguing by, and Marks suggests he watch this (55 seconds; hit refresh if you don’t see it below): Is anyone else wishing our esteemed…

  • Fed’s Dudley Agrees: QE is Not About the Reserves, or “Printing Money”

    Or: “Dudley Makes Mock of the Monetarists.” In my post The Fed is not “Printing Money.” It’s Retiring Bonds and Issuing Reserves, I said: …when the Fed gives the banks reserves and retires bonds, it’s taking on market risk/reward, replacing it with absolutely nonvolatile, risk/reward-free assets (at least in nominal terms). It’s removing leverage and volatility from…

  • The Fed Is not Printing Money: Two Updates

    I’d like to reply to one confusion and one set of pushbacks on yesterday’s post: Currency and Reserve Balances I buried one fact: banks can reduce total Fed reserve balances by withdrawing currency — physical cash — from their Fed reserve accounts. I only gestured toward this in a parenthetical and a link. It’s a trivial…

  • The Fed is not “Printing Money.” It’s Retiring Bonds and Issuing Reserves.

    Update 5/21: See two updates to this post here. Mark Dow had a great post the other day: There is zero correlation between the Fed printing and the money supply. Deal with it. He points out (emphasis mine): From 1981 to 2006 total credit assets held by US financial institutions grew by $32.3 trillion (744%).…

  • How Wall Street Stole Main Street

    This graph speaks volumes: Profits as a Percent of GDP: Financial Corporations vs. Nonfinancial Corporations We saw a big decline in real businesses’ profit share in the 40s, then a slower semi-steady decline through the 70s, as wages constituted a larger share of GDP. Financial corps doubled, expanding and increasing profits, but they remained small…

  • More American Exceptionalism: Drowning the Baby in the Bathwater

    The OECD has finally updated their national account data with 2011 info for most countries, so I thought I’d update this post from a couple of years ago. If you’re thinking that the current (overblown) hoo-ra-ra about U.S. government deficits is a result of too much spending, or that U.S. taxes are insanely high and…

  • Money Velocity Since 1869: Somebody Please Tell Me What to Think About This

    Wow:   Related posts: Quasi/Market Monetarists: Will You Tell Me a Story?

  • Bleg: What’s Wrong with the MPC/Spending-Velocity Argument?

    I’ve ground the axe quite a bit over the years for the argument that Kevin Drum makes — and dismisses — here. In brief: poorer people spend a larger share of their income/wealth than richer people. So if poorer people have more income/wealth — if the distribution is more equal — there will be higher…

  • Edward Lambert on Effective Demand, Labor Share, Capacity Utilization, and Growth

    He’s only been blogging since March. His credentials? “Independent Researcher on the equation for Effective Demand.” That may explain why, aside from a lonely Steve Randy Waldman link, I’ve seen no mention of his work out there. Just another internet econocrank? I’m wildly unqualified to pass judgment, but Lambert’s built what strikes me as a…