Sunday, November 5, 2017

Brian Romanchuk — Initial Comments On Zero Rate Policy And Inflation Stability

This article represents my initial comments on the question of the stability implications of locking interest rates at zero. Martin Watts, an Australian academic, had an interesting presentation at the first Modern Monetary Theory (MMT) conference (link to videos of presentations). Although MMT fits within a broad-tent definition of "post-Keynesian" economics, there are still sharp debates with other post-Keynesians. One topic of debate is the effect of permanently locking the policy interest rate at zero, which is a policy advocated by many MMT economists. In my view, this is a debate that is best approached by using stock-flow consistent (SFC) models.
Bond Economics
Initial Comments On Zero Rate Policy And Inflation Stability
Brian Romanchuk

8 comments:

Matt Franko said...

Here’s Warren latest:

“Maybe people over 65 do want to work?”

LOL... Yeah when rates are zero for last 10 years... wtf???? Yeah let people work till they’re 90 and keep gen next out of the workforce even longer... good idea!!!!


Neil Wilson said...

"Yeah let people work till they’re 90 and keep gen next out of the workforce even longer"

Simple solution to that isn't there.

The problem is that retirement is a fallacy of composition, and society has shown that it won't allow people to retire for every long relative to their working lives. Even in an era of increasing automation and increasingly stupid private sector jobs the retirement age continues to go up.

So retirement is a result of reciprocation requirements, not how many paper tokens you nominally have to your name.

Matt Franko said...

Neil even defined benefit type retirement programs here in US ultimately depend on ROI of some ERISA fund established on the workers behalf ... which is depending on the risk free rate the govt sets...

Ie set it to zero and you have system underperformance/failure..

Neil Wilson said...

"Ie set it to zero and you have system underperformance/failure.."

Set it to zero and you have reality. That saving for retirement is a fallacy of composition. That there is no such thing as 'private pensions'. They all rely on government handouts.

You have no justifiable argument for social welfare only for rich people. Stop trying to come up with one.

Matt Franko said...

Not everybody who saves is "the rich!" Neil so we dont need to bring in the class warfare appeal...

Not all pensions (here) rely on (direct) govt handouts...

What about conservation? iow somebody who practices conservation (deferred consumption) vs. somebody who doesnt with the same job would have savings which would not be financially rewarded with a ZIRP...

iow me and some other guy have the same job I buy a Prius and he buys an F-250 Super Duty for daily driving... I save the USDs on the fuel difference and the vehicle cost ... I dont get rewarded for that? I'm also taking more physical risk of serious injury in an auto accident... I am not to be compensated?

Its not as simple as Warren is making it out to be... there is a cohort who will always save/conserve and they should expect to be financially compensated for this deferment ...

Warren sez 'if somebody saves then we cant buy all of our output..." which is true imo but this is a feature that cannot be changed... youre never going to get some people to not save....

what does he think that if we set it to ZIRP then people wont save? the last 9 years is evidence that will never be true...

We are not all spendthrifts....

Noah Way said...

Unless you don't make enough to have any savings, like 50% of the population. Many with 401k plans lost because they were screwed out of their "investment", not because rates are low.

Debt is a tax on the working class that is paid directly to the 1%. The 300k house that cost 900k by the time mortgage interest was paid would have been a pretty nice 'savings'.

Economics is class warfare.

Matt Franko said...

Well the Fed shouldn’t have forced over $1T of assets into them in like a month and they obviously would have become insolvent...

Not the banks fault...

Matt Franko said...

Would NOT have been insolvent...