tag:blogger.com,1999:blog-2499715909956774229.post2928365382652392058..comments2024-03-09T02:22:57.289-08:00Comments on Stephen Williamson: New Monetarist Economics: Sovereign Money, Narrow Banks, Digital Currency, etc.Stephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-2499715909956774229.post-34851212282583850282018-06-20T06:30:08.346-07:002018-06-20T06:30:08.346-07:00“…Adopt narrow banking and transactions deposits a...“…Adopt narrow banking and transactions deposits are safe - you can do away with deposit insurance. What's the problem with that? ... If people are forced to hold their transactions balances in accounts backed by central bank or government liabilities, then real interest rates will be higher on loans and other private debt instruments..."<br /><br />Very much agree. You may be interested in this old (but sitll valid) work: <br />www.imf.org/external/pubs/ft/wp/2001/wp01159.pdf <br />Biagio Bossonehttps://www.blogger.com/profile/12192990143588037522noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-71383868277121107462018-06-19T08:17:51.367-07:002018-06-19T08:17:51.367-07:00[continuation ...]
One can, as John Cochrane has d...[continuation ...]<br />One can, as John Cochrane has done, construct elaborate hypotheses around the relationship between nominal interest rates, real interest rates, and expected inflation rates, but the foundation is the concept that the government debt obligations outstanding are supported by expectation that the government will eventually retire that debt by producing future primary surpluses of sufficient quantity and duration in the future. If, instead, the government has no intention or capacity to do so then the models collapse and the hypothesized relationships are rendered meaningless. <br /><br />What then is money? If government bonds are worthless, as they would be under such a scenario, then it must be the case that paper money and coin would be equally worthless for they are naught but government obligations in a different form. Thus, the essential question comes down to the intentions of government with respect to its capacity to produce the primary surpluses necessary to support the value of its debt obligations. No amount of mathematical construction or theorizing, however elegant, will answer that which is at its core a political problem of considerable import. To John Cochrane’s credit, he, along with some others, realizes this.<br />Old Eagle Eyehttps://www.blogger.com/profile/05270080708077871311noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-82233190999336572052018-06-19T08:17:06.225-07:002018-06-19T08:17:06.225-07:00"... in the US, the repo market loves Treasur..."... in the US, the repo market loves Treasury securities. So, we might imagine central banks issuing an array of interest bearing obligations - from overnight assets like the reverse repos issued by the Fed, to three month bills, to 10-year bonds - to finance a portfolio of government debt. In principle, those central banks should be able to target short-term market interest rates, just as they do now."<br /><br />This is how banks get into trouble. The federal reserve bank system is a network of 12 private banks that issue currency, take deposits from their member institutions (national chartered commercial banks, and state chartered commercial banks that have elected to become members), pay dividends at a rate of 6% on permanent capital to the members, set interest rates and engage in money-market operations. If the federal reserve banks were to issue debt securities in their own name in order to fund government operations, i.e., to fund primary deficits, what would prevent the federal reserve banks in connivance with politicians from engaging in a never ending yet legal Ponzi scheme relating to the federal government debt? But isn't this the situation we have today, with the notable exception that the federal reserve banks do not yet issue long-term debt in order to fund the government's primary deficits?<br /><br />John Cochrane, in a sequence of learned papers, places at the core of his theory of interest rates and inflation the relationship between the government's current outstanding debt and the value of that debt as a function of the current period expectation of the discounted time sequence of future government primary surpluses over time stretching from today to infinity. The value of the debt securities (Treasury notes and 'bonds'), in his view, is predicated on the notional existence of future government primary surpluses of sufficient quantity and duration to give meaningful substance to the debentures the government has issued. <br /><br />Now, let us suppose that there is no meaningful likelihood that future governments will produce those primary surpluses, and, further, let us suppose that this becomes broadly known to investors. Then applying John Cochrane's valuation formula, the current value of the government debt obligations is nil (zero). But how could this happen, if the government's banker is able to issue currency notes in fulfillment of the government's debt obligation? By printing paper money, the government fulfills its obligations and passes onto to its citizens the cost of those primary deficits in the form of depreciation of the purchasing power of their currency and credit deposit holdings. In nominal currency units, the value of real assets increases under such a regime. We describe this as 'inflation'.<br /><br />Adam Smith, in his Wealth of Nations, referred to it as the 'corn price of gold' in connexion with the money inflation in Spain and Portugal that resulted from the transfer of commodity silver and gold that flooded into the Iberian Peninsula from the Americas in his time. The principle is the same. A 2% inflation target is akin to monetizing the federal debt and facilitating a political Ponzi scheme whereby the government is relieved of the obligation to produce primary surpluses of sufficient quantity and duration to retire those debts.<br /><br />[... cont'd.]<br />Old Eagle Eyehttps://www.blogger.com/profile/05270080708077871311noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-3437182708044191422018-06-14T12:24:19.246-07:002018-06-14T12:24:19.246-07:001. The Pre-1935 Canadian banking system had multip...1. The Pre-1935 Canadian banking system had multiple liability. Of course, post-1935 Canadian banks don't have that restriction, and they have been remarkably stable.<br /><br />2. The McMillan proposal is a new one to me. Didn't know there were people who wanted to get rid of banking altogether. How could that go wrong?Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-29224628164758673472018-06-14T01:00:38.795-07:002018-06-14T01:00:38.795-07:00This is the good old boundary problem by Charles G...This is the good old boundary problem by Charles Goodhart at work:<br />«Some regulator puts restrictions on some type of financial intermediary activity, and some enterprising banker finds a way to design a financial product that performs roughly the same function as what is being regulated, but the new product falls outside of the regulation.»<br /><br />As a result, John Nugée has thought about reconsidering basic concepts instead of issuing rules after rules…<br />http://laburnum-consulting.co.uk/reflections-on-banking-regulation/<br /><br />In the same spirit, Jonathan McMillan thought that Positive Money (another narrow banking strand) is asking for too little in the end:<br />https://www.endofbanking.org/2014/12/05/why-todays-monetary-reformists-ask-for-too-little/<br />Anonymousnoreply@blogger.com