An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
Pages
▼
Pages
▼
Saturday, November 2, 2013
Christina D. Romer — MONETARY POLICY IN THE POST-CRISIS WORLD: LESSONS LEARNED AND STRATEGIES FOR THE FUTURE
Sumerlin Lecture, Johns Hopkins University, October 25, 2013
The other key difference is the way Treasury bills pay interest. Like a zero-coupon bond, T-bills are sold at a discount to par. This discount is determined at the auction. “Par” is $100, or the value at which all T-bills mature. For instance, an investor could pay $98 for a bill that will eventually mature at $100. The $2 difference between the auction price and the maturity price represents the interest on the T-bill. The New York Federal Reserve Bank’s website provides a brief explanation of how to calculate the effective yield of a T-bill based on its price and time until maturity.
In contrast, both Treasury notes and bonds pay a traditional “coupon,” or interest payment, every six months. When these securities are auctioned, they may sell at a price that translates to a yield to maturity higher, or lower, than that of the coupon. link
"Bank capital requirements specify how much of the money loaned out by a bank needs to come from shareholders rather than from depositors and other lenders."
A... peculiar take on lending. Also capital. With a dash of reserve oddness.
Romer has accepted the monetarist re-writing of the New Deal, and again in this piece ties the surge in stock prices to a rise in inflation expectations which was in turn the consequence to the US going off the gold standard.
But the stock price surge took place immediately in March of 1933. In other words, it happened as soon as the new President took office (inaugurations were in March in those days.) The most commonsense conclusion from the data is that public confidence soared as soon as the new President they had elected took office.
The series of actions that are sometimes described as the US "going off the gold standard" took place over the next several months. Some of those actions were secret, and they were not presented to the public as the elimination of the gold standard. So it is hard to see that movements in stock prices were tied to inflation expectations in turn based on an an expectation of monetary expansion. Those policies were also mixed in with a large package of other measures, so it is impossible to isolate them and claim them as a major factor in changing public expectations.
Also, the key action along these lines, Executive order 6102, which ordered the public to surrender all their gold to Federal Reserve Banks in exchange for dollars, was viewed by almost everyone at the time as an anti-hoarding act.
It was anti-hoarding. Gold was being hoarded and as a result, deflation was rising as saving rose. On a convertible fixed rate system, government did not have the policy space to offset and the US was headed for social revolution. TPTB realized it was TINA in order to avoid social dysfunction and the onset of dystopia. In the context of the time, that could have provoked a socialist revolt. This was the time that many looked to the USSR as a paradigm rather than as a pariah. Keynes composed the General Theory and worked politically to forestall this and he was successful in convincing enough of the TPRB at the time to do it. One has to read historical data in context. The Great Depression was as much or more social and political as economic. Now we tend to see it as chiefly economic and disregard the social and political context.
This comment has been removed by the author.
ReplyDeleteThe other key difference is the way Treasury bills pay interest. Like a zero-coupon bond, T-bills are sold at a discount to par. This discount is determined at the auction. “Par” is $100, or the value at which all T-bills mature. For instance, an investor could pay $98 for a bill that will eventually mature at $100. The $2 difference between the auction price and the maturity price represents the interest on the T-bill. The New York Federal Reserve Bank’s website provides a brief explanation of how to calculate the effective yield of a T-bill based on its price and time until maturity.
ReplyDeleteIn contrast, both Treasury notes and bonds pay a traditional “coupon,” or interest payment, every six months. When these securities are auctioned, they may sell at a price that translates to a yield to maturity higher, or lower, than that of the coupon.
link
"Bank capital requirements specify how much of the money loaned out by a bank needs to come from shareholders rather than from depositors and other lenders."
ReplyDeleteA... peculiar take on lending. Also capital. With a dash of reserve oddness.
This comment has been removed by the author.
ReplyDeleteRomer has accepted the monetarist re-writing of the New Deal, and again in this piece ties the surge in stock prices to a rise in inflation expectations which was in turn the consequence to the US going off the gold standard.
ReplyDeleteBut the stock price surge took place immediately in March of 1933. In other words, it happened as soon as the new President took office (inaugurations were in March in those days.) The most commonsense conclusion from the data is that public confidence soared as soon as the new President they had elected took office.
The series of actions that are sometimes described as the US "going off the gold standard" took place over the next several months. Some of those actions were secret, and they were not presented to the public as the elimination of the gold standard. So it is hard to see that movements in stock prices were tied to inflation expectations in turn based on an an expectation of monetary expansion. Those policies were also mixed in with a large package of other measures, so it is impossible to isolate them and claim them as a major factor in changing public expectations.
Also, the key action along these lines, Executive order 6102, which ordered the public to surrender all their gold to Federal Reserve Banks in exchange for dollars, was viewed by almost everyone at the time as an anti-hoarding act.
It was anti-hoarding. Gold was being hoarded and as a result, deflation was rising as saving rose. On a convertible fixed rate system, government did not have the policy space to offset and the US was headed for social revolution. TPTB realized it was TINA in order to avoid social dysfunction and the onset of dystopia. In the context of the time, that could have provoked a socialist revolt. This was the time that many looked to the USSR as a paradigm rather than as a pariah. Keynes composed the General Theory and worked politically to forestall this and he was successful in convincing enough of the TPRB at the time to do it. One has to read historical data in context. The Great Depression was as much or more social and political as economic. Now we tend to see it as chiefly economic and disregard the social and political context.
ReplyDeleteI got TINA and TPTB but TRTB has me stumped.
ReplyDeleteTypo. Should be TPTB (the powers that be). Sorry about that.
ReplyDeleteOne after the other these members of the establishment prove they have nothing.
ReplyDelete