Looks like the US is ready to go first, if so then UK will likely soon follow. Looks like Mike's prediction in this regard is turning out to be correct.
Still no mention of pulling back on the QE, only discussion is about rates. Via this continuing QE, the Fed is still stepping in front of savers and taking probably $100B of interest income from them even at today's near zero rates.
Janet Yellen still expects U.S. interest rate rise this year http://t.co/2ufFYW7Sif pic.twitter.com/K2OfWnCbh1
— Bloomberg Business (@business) September 25, 2015
21 comments:
At this point (well, always been about this) QE is more about creating price floors for certain synthetic assets classes than anything else. Makes no sense to raise rates and keep QE otherwise.
I, imo these institutions need the interest income they get from these securities to pay themselves...
Same with the ECB (they have 100's of $B in US bonds as EZ rates are negative), IMF, SNB, BOJ, etc... so they are going to hold on to them and maintain them at non-zero rates..
You would think they would do a LIFO (last in first out) last thing they did was the QE now they are leaving that alone and just focusing on rates ...
I wish some reporter would call them on it...
"Via this continuing QE, the Fed is still stepping in front of savers and taking probably $100B of interest income from them even at today's near zero rates."
Considering that those savers are mainly the high income people who would not spend the interest, I would rather see it go to the government as it does now, if they would only spend it on infrastructure projects instead of war.
"Considering that those savers are mainly the high income people who would not spend the interest,"
elwood this is propaganda from the top end of the MMT town....
Matt
Propensities to consume is a real thing not mmt propaganda. The info on who own tsy cds is publy available, and its not the working class that owns the cds
I didnt say it was the "working class".... what about pension funds? life insurance/annuities? savings account interest? CDs? govts?
And look it up there are 13T issued, f-ing foreigners have been allowed to obtain 6T so toss that out...
Leaves 7B... Fed has 2.5T so toss that out.... leaves 4.5T
govt and private employees retirement savings has 2T
state and local govts have 650B,
Life insurance people have 200B,
Property & Casualty people have 100B,
etc....
So probably 75% of USTs are owned for the benefit of certainly less than the 1%....
This position by the top end of the MMT town is like cutting off your nose to spite your face and not well thought out.... it completely disrespects savers among us... many of whom are not wealthy...
Wait till they start to raise and see what happens....
Largest holders of US Debt and the translation into progressive political speech:
Social Security Administration, Various Government Pension Funds and other intragovernmental holdings in federal, state and local governments 35% (Democratic Rhetoric: Bureaucrats and esteemed Professors)
Foreign governments: 50% (Democratic Rhetoric: Trading partners, Iphone craftsmen and Fair trade Organic Quinoa producers)
Private pension funds: 500 billion (Democratic Rhetoric: Union brothers)
Banks 400 billion: (Democratic Rhetoric: Fat Cat Banksters)
Mutual funds: 1 trln (Democratic Rhetoric: Hard working middle class)
Insurance companies: 270 bln (Democratic Rhetoric: Rentiers)
All other: Poor and rich individuals, government-sponsored enterprises, brokers and dealers, bank personal trusts and estates, all corporate and non-corporate businesses, and other investors
~1.1 trln ( Democrat code: high income people who would not spend the interest )
beat me to it, Matt! :P
Matt-
You have proven my point here and undermined you own.
Foreigners own $6T of the $13T and they arent spending the extra interest income=low propensity to consume.
The Fed owns $2.5T of the $13T and they arent spending the extra interest income (except to pay IOR which would all go to the banks)= low propensity to consume
Govt and private employee pensions own $2T and since those pension plans are defined benefit, retirees dont get much\any extra money if the fund makes more interest income. Sure, insufficient funding due to low tsy CD returns can cause the workers to lose income if the funds go bankrupt but that doesnt help your argument.
Life insurance companies dont pay out more in settlements\action just because the insurance companies make more interest. These are fixed value contracts, not dependent on the returns that the life insurance co makes on its asset investments. Again, if the insurance co goes bust due in part to low interest income from TSY cds, the policy holders would lose but thats not a plus on your column of the argument.
So according to the data, it looks like the claim that TSY CD holders have a lower propensity to consume than most other recipients of Govt largess is true, and like I said its not MMT propaganda to point out this basic observable fact.
"Wait till they start to raise and see what happens...."
Now this is something we can agree on; any intellectually honest, rational, scientific thinker welcomes experiments so that their beliefs can be tested against reality. This way if your beliefs\claims are dont fit the evidence, you have an opportunity to learn and evolve your position. This is the difference between ideological and objective based philosophies.
Ryan-
Given that we know who the holders of Tsy Cds are and we know who the recipients of Govt fiscal action are, dont you think it is quite easy to compare and contrast the relative propensities to consume of the two groups?
Would you agree with these statements:
Suspend FICA and return $1.2 Trillion to a very large portion of Americas would result in a higher GDP multiplier than a $1.2 Trillion increase in Federal Govt TSY CD payments?
Invest $1.2 trillion in renewable energy investment, infrastructure, and R&D would result in a higher GDP multiplier than a $1.2 trillion increase in Federal Govt Tsy CD payments?
Thats all the so-called "top end of the MMT town" have said. That it would be better to spend a dollar on something else worthwhile other than TSY cd holders.
I have never seen a single MMT article or interview that states: 'increasing interest spending by the Federal Govt will have no positive effect on the economy vai GDP multiplication.' and neither you nor matt have either.
Why is it controversial to say that the banks through IOR and their own TSY holdings, life insurance companies, large S&P 500 companies that hold alot of the short term Cds (bank deposit equivalents that have infinite deposit guarantees and not a measly $250K from the FDIC) foreign govts\people, are part of the 1%? Or that a dollar thats given to these people would be less stimulative than a dollar given to a concrete laborer or scientist?
We import their Iphones and BMWs and foreigners get debt because we don't actually produce anything that foreigners want to buy in return. Instead of celebrating that we just got a foreigner to give us real goods for numbers in a fed account, we complain that foreigners are earning negative real returns on their debt and have a negative propensity to spend. That is exactly the point. We will never pay back the bonds, inflation will eat away at their value and they will become worthless. We got Iphones and BMWs for free. Having a reserve currency allows us to eat our cake, eat their cake, have a starbucks and then go surfing, turn up at the office for an hour and go home and no one is any the wiser. We make big marketing and sales 'innovations'. We are disruptivators! And get stinking rich while other people do all the innovation and hard work and we cry about it? Unbelievable.
Government pensions that don't earn enough interest income, mean higher taxes to ensure they meet the federal requirements for funding their pensions. Pay them more interest from government and you get lower property taxes, income taxes, and sales taxes.
" Fair trade Organic Quinoa producers"
ooooooooooo...... I would definitely have a hard time topping that one! ;)
(FD I eat Quinoa and like it....)
Ryan but what is happening in my area is the govts are diverting current period revenues into the pensions and putting traffic cams on every corner... the cops are on commission I swear...
Then services are shit as they dont dare raise taxes as they get thrown out of office ... they dont even cut the grass on the roadsides...
God forbid you get a flat you better have a weed wacker in the trunk because you cant get to the tire in the 3 foot tall grass...
So if they get the rates up this is going to start to swing the other way....
State and Local govts and moderate income senior savers are going to be waaaaaay better off... this will feed into education social services and many other left causes....
this lady I know has a 501 she is running dealing with summer youth programs and just got zeroed by the county govt.. "out of money!"....
imo we need higher rates pronto...
Auburn,
Yes those would be good too (btw and hardly realistic with morons in control...) but the position is completely dismissive of savers of all types... which imo is missing the mark...
c'mon grandma getting 5% on her CD is outrageous?!?!?! we cant have that?!?!? please.....
Ryan-
"Government pensions that don't earn enough interest income, mean higher taxes to ensure they meet the federal requirements for funding their pensions. Pay them more interest from government and you get lower property taxes, income taxes, and sales taxes."
I agree with this premise. And I'm really glad you brought this up since I overlooked it. In my comment, I only looked at the spending side of the defined benefit pension payments and what increased TSY cd interest payments would or would not do there. The taxes to support the pensions necessarily being raised to offset the interest income decrease is a very important issue. On this specific point, I recant my original comment.
with regard to your second comment above, my point was simply that tsy cd holders as an aggregate have a lower propensity to consume then the public recipients of Govt spending in aggregate. I dont believe this statement is controversial.
"my point was simply that tsy cd holders as an aggregate have a lower propensity to consume then the public recipients of Govt spending in aggregate."
I agree but it is a purely technical point and to advocate for permanent zero is not only another loser politically, it is actually dismissive and very damaging to current left wing causes... it actually gives me pause to think about whether these MMT top-enders actually know what they are talking about.... similar to Wray's "$29T" thing... doesnt inspire a lot of technical confidence....
It's pure Keynes without the monetarism that Keynes was infected with. Zero interest is in effect euthanizing the rentiers. Keynes advocated low rates not only to euthanize the rentiers but also to make investment less costly, you know, like mortgages rates, which helps ordinary people and squeezes the mortgage lenders.
Far better to get funding to where it is best employed and it timely way using functional finance rather than interest rates, which are a key piece in sound finance. Fiscal can be tightly targeted and disbursed in a timely way through automatic stabilizers. Interest rates are a shotgun approach that misses many important targets.
There are very good reasons that MMT economist prefer low interest rates coupled with functional finance to sound finance using monetary policy instead of fiscal.
Matt=
I think the idea of spending $500 billion on infrastructure or FICA reductions instead of on TSY CD holders is an easy sell politically. Why give $100s of billions of dollars to foreigners instead of Americans sounds like something that would resonate even with the right wing of the nation.
I regularly hear people on the right complain about foreign aid spending, but we pay out way more to foreigners via TSY interest payments. Thats just one example.
If Bernie were to come out and say he wanted interest rates to remain at zero forever he would never win...
People (who vote) have saved for the last 40+ years of ERISA, now you tell them they will forever get NOTHING on their savings? You will lose in a landslide...
Its just further evidence that they havent thought all of this through perhaps technically and certainly politically...
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