tag:blogger.com,1999:blog-2499715909956774229.post1954993942039464387..comments2024-03-22T22:37:02.639-07:00Comments on Stephen Williamson: New Monetarist Economics: The World Supply of Liquid AssetsStephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-2499715909956774229.post-28750579787352571352010-07-09T11:32:09.153-07:002010-07-09T11:32:09.153-07:00I have a question about this, if you don't min...I have a question about this, if you don't mind:<br />"However, if the government is no better than the private sector at collecting on its debts, private sector economic agents will run away from their tax liabilities just as they run away from their private debts. If that is the case, this government fiscal program will not even get off the ground."<br /><br /><br />Maybe I misunderstand what you're saying, but it seems to me that you're saying that if people disregard the risk of having to pay higher taxes in the future, they'll spend the money the government's been handing out. So how does that keep the fiscal stimulus from getting off the ground? Wasn't the whole point of the stimulus program to get people to spend the money the government's handing out?<br /><br />Thanks,<br />DaveAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-32233296054108218482010-06-16T07:36:17.544-07:002010-06-16T07:36:17.544-07:00"Of course, we know we are not in a Ricardian..."Of course, we know we are not in a Ricardian equivalence world. The financial crisis was about frictions - the frictions that make studying financial and monetary arrangements interesting."<br /><br />Yeah, but it's a lot more than frictions. Very few members of the public have are expert in economics, finance and government. They know nothing about Ricardian equivalence and think this way little, if at all. Plus, they are not infinitely long lived. They consider something like this very little if at all. This type of evaluation done accurately takes a great deal of expertise, info, time and self discipline. Few have the expertise, and few want to spend huge amounts of all too rare free time doing calculations like this instead of spending some time with their families and on other leisure. Few people don't make decisions like this.<br /><br />It's not just a matter of rationality. It's that so much of the behavior assumed of the public in models requires a high level of specialized expertise that few have, and even if you have it, a high level of information, a high cost of very rare and valuable time, and a high level of self discipline. Often, few people have all of these things.<br /><br />So I hope new monetarists take all of this into account, and don't take models that assume these things away overliterally.Richard H. Serlinhttps://www.blogger.com/profile/09824966626830758801noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-55150964571618577592010-05-30T17:47:03.734-07:002010-05-30T17:47:03.734-07:00Caballero means that government could sell insuran...Caballero means that government could sell insurance against adverse macroeconomic events. He thinks that government would be an efficient producer of such insurance. I have serious doubts about it, as private company AIG has severely mispriced tail risk insurance before the crisis, quasi-public Fannie and Freddie did the same. <br /><br />I think it is much better if government would ex-post intervene in credit markets, as suggested by Michael Woodford (see http://themoneydemand.blogspot.com/2010/05/michael-woodford-inflation-targeting.html ) Woodford hopes that authorities could select the specific targets for intervention according to microeconomic considerations. I think he ignores information problems. I think central banks should purchase market portfolio during credit interventions. ECB is now buying Greek bonds, they should be buying Eurozone sovereign and private bond index instead.The Money Demand Bloghttp://themoneydemand.blogspot.com/noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-42604669183794382712010-05-30T10:40:10.932-07:002010-05-30T10:40:10.932-07:00Caballero claims there is a shortage of safe asset...Caballero claims there is a shortage of safe assets due to flight to safety. Perhaps. The alternative view is that: <br /><br />1) this is inconsistent with the performance of emerging market, non-AAA corporate, and high yield bond spreads in the past six months. All of these "risky" securities have seen spreads decline to levels that are considered "normal". This should not be the case if there were "flight to safety" demand for AAA securities.<br /><br />2) production of AAA-rated securities (in the form of ABS and CDO tranches) skyrocketed prior to the crisis. Roughly 80% of ABS and CDO issuance were tranched at AAA, which implied, at the time, that they were extremely safe. If Caballero is right, then what explains the rising demand for "safe" securities BEFORE the crisis began?<br /><br />The alternative view is that Fed policy causes demand for safe assets. There are two ways to structure a portfolio: combine assets of varying volatility; or lever a portfolio of low-volatility stocks. The risk to the latter is that the Fed will raise the cost of that leverage in an unexpected manner. Enter the Fed. With its "extended period" and "measured pace" language, the Fed increases the demand for carry trades in safe securities. This was true from 2002-2006, and it is true again today.David Pearsonnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-28370695278732802652010-05-30T07:32:01.444-07:002010-05-30T07:32:01.444-07:00Please explain to me how one draws a distinction b...Please explain to me how one draws a distinction between "asset shortage" and "liquidity surfeit?" Might not the illusion of an "asset shortage" stem an extended period of official suppression of interest rates in the pursuit of never-correcting asset markets?Briangobosoxhttps://www.blogger.com/profile/14148390121361560544noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-12751987172650698362010-05-30T03:42:55.270-07:002010-05-30T03:42:55.270-07:00"With less liquid assets, there has to be les..."With less liquid assets, there has to be less trade"<br /><br />Well "less trade" is fine, but don't we still prefer "FEWER assets".<br /><br />Although a radical progressive in economics, I guess I'm still a reactionary on grammar.Anonymousnoreply@blogger.com