tag:blogger.com,1999:blog-2499715909956774229.post3212569199567417259..comments2024-03-22T22:37:02.639-07:00Comments on Stephen Williamson: New Monetarist Economics: #mintthecoinStephen Williamsonhttp://www.blogger.com/profile/01434465858419028592noreply@blogger.comBlogger7125tag:blogger.com,1999:blog-2499715909956774229.post-42663521225366730022013-02-18T01:21:17.004-08:002013-02-18T01:21:17.004-08:00Imagine an economy with no credit risk -- only dur...Imagine an economy with no credit risk -- only duration risk. That risk accrues to intermediaries engaging in maturity transformation. The question then becomes frictions are created when those intermediaries become insolvent as a result of (real) interest rate movements. <a href="http://www.wholesalingjerseys.us/index.php?main_page=index&cPath=600" rel="nofollow">cheap nfl football jerseys</a><br /><a href="http://www.wholesalingjerseys.us/" rel="nofollow">Cheap Nike NFL Jerseys USA</a>Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-73376795633800539942013-01-18T14:20:30.704-08:002013-01-18T14:20:30.704-08:00Thanks for the post which provides useful informat...Thanks for the post which provides useful information. Recent debate reminds me 2011 debt ceiling crisis. I think "mint the coin" will only delay the problem rather solving it. Given that the Treasury spends $100bn per month, issuance of $1tr averts the FED debt ceiling only for a year or so. In fact, we will exactly be at the same point with no solution as we were in 2011. Plus, it would lead the inflation to undesirable levels. That's why I think "mint the coin" is not a reasonable strategy to mitigate the debt ceiling problem. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-19554748075231052452013-01-14T08:42:12.658-08:002013-01-14T08:42:12.658-08:00Imagine an economy with no credit risk -- only dur...Imagine an economy with no credit risk -- only duration risk. That risk accrues to intermediaries engaging in maturity transformation. The question then becomes frictions are created when those intermediaries become insolvent as a result of (real) interest rate movements. <br /><br />At one extreme, the banking system holds all the duration risk. If capital is insufficient to cover potential losses, then depositors will seek alternative assets: mainly currency. This is deflationary.<br /><br />At the other extreme, the consolidated gov't balance sheet holds all the duration risk. The balance sheet's "capital" is the fiscal authority's willingness/ability to raise future tax revenues. If that "capital" is insufficient to cover losses, "depositors" will seek alternatives: goods, assets, and other currencies. This is inflationary.Anon1noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-64509265356462067432013-01-14T08:06:52.877-08:002013-01-14T08:06:52.877-08:00"This balance sheet is highly exposed to incr..."This balance sheet is highly exposed to increases in real interest rates."<br /><br />If the (consolidated) government was only concerned with the cost of servicing debt, on average they would want to borrow short - based on the observation that the yield curve is typically upward-sloping. However, currently the government could borrow for 30 years at a lower rate than the average 1 month T-bill rate we have observed for the last 20 years, so this would seem like a good time to increase the maturity of the outstanding government debt, rather than reducing it.<br /><br />I'm not sure though, as the government's goal isn't simply to minimize debt service costs. What are the consequences for the sharing of aggregate risk of the composition of the government debt? Economists have not thought enough about this problem for us to give good answers.Stephen Williamsonhttps://www.blogger.com/profile/01434465858419028592noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-51983112682524327462013-01-12T14:24:20.242-08:002013-01-12T14:24:20.242-08:00In a consolidated Fed/Treasury balance sheet, Fed ...In a consolidated Fed/Treasury balance sheet, Fed actions only affect the duration of gov't liabilities. T-bond QE shortens the duration considerably since ER's have effectively overnight duration.<br /><br />At the extreme, the gov't is funded by o/n duration ER's. This balance sheet is highly exposed to increases in real interest rates. <br /><br />Such a huge public-sector duration bet would signal to markets that the "consolidated" entity would not stomach the higher tax liabilities (duration losses) generated by positive real rates. The result is a Latin American-style real rate-velocity feedback loop: facing persistent future negative real rates, agents hedge against real wealth erosion, causing prices to rise and real rates to drop further, causing more hedging, etc.<br />Anon1noreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-72668575314670714582013-01-11T12:55:36.206-08:002013-01-11T12:55:36.206-08:00Very nice post, thanks! Do you think there is any ...Very nice post, thanks! Do you think there is any chance we can get rid of the idiotic debt limit altogether? CAnoreply@blogger.comtag:blogger.com,1999:blog-2499715909956774229.post-48127430587217511702013-01-11T12:37:38.603-08:002013-01-11T12:37:38.603-08:00Good post. Like the historical flourishes.
Bernan...Good post. Like the historical flourishes.<br /><br />Bernanke could always refuse to accept the coin. The Federal Reserve Act doesn't obligate him to accept deposits from the government, he "may" accept them. Bernanke is required to protect his balance sheet by properly collateralizing the note issue. A $1,500 coin hardly collateralizes $1 trillion in new reserves. Lastly, legal tender can be refused in transactions - it's only necessary to accept it in the settlement of debts, never in spot. <br /><br />"2) The playing-card or clearinghouse certificate option: Federal government departments could issue their employees certificates promising payment in the future, in lieu of salary."<br /><br />Wow, you're agreeing with Krugman. See <a href="http://krugman.blogs.nytimes.com/2013/01/07/moral-obligation-coupons/" rel="nofollow">Moral Obligation Coupons</a>.<br /><br />Not sure that IOUs would qualify as legal tender, so government creditors wouldn't *have* to accept them. That might hurt their ability to get off the ground.JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.com