tag:blogger.com,1999:blog-2761684730989137546.post8204726732940008721..comments2024-03-29T09:32:34.853-04:00Comments on Mike Norman Economics: Why can't we get it right?mike normanhttp://www.blogger.com/profile/03296006882513340747noreply@blogger.comBlogger3125tag:blogger.com,1999:blog-2761684730989137546.post-91896312347666860372009-08-26T23:07:54.944-04:002009-08-26T23:07:54.944-04:00Mike, it is really scary that the vast majority of...Mike, it is really scary that the vast majority of our nation, including our elected officials, believe that the government is out of money and that taxes fund spending.<br /><br />I think politicians prefer it this way. If they perpetuate this false belief, they succeed in keeping the American people ignorant of how government spending truly works, thereby perpetuating their agendas on both sides of the aisle. <br /><br />This is scary and bad for us and our kids!The Jokerhttps://www.blogger.com/profile/17307990096852365358noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-72687061769534061882009-08-26T15:26:19.663-04:002009-08-26T15:26:19.663-04:00Yes that would make sense from the perspective tha...Yes that would make sense from the perspective that the Fed won't have to sell securities to manipulate reserves. They just decide on an interest rate and credit reserve accounts. Simple. However, Warren does point out that the Treasury is not allowed to run an overdraft in its account at the Fed, therefore, from a cash management perspective, security sales would still need to be conducted. But I hear you, yes....it seems as if the amount of issuance should go down now that interest is being paid on reserve balances.mike normanhttps://www.blogger.com/profile/03296006882513340747noreply@blogger.comtag:blogger.com,1999:blog-2761684730989137546.post-84585256689214599462009-08-26T13:58:43.788-04:002009-08-26T13:58:43.788-04:00Mike,
Warren says: "Bernanke has already sai...Mike,<br /><br />Warren says: "Bernanke has already said that it would likely be years before it would be considering raising interest rates"---now that the Fed has authority to pay interest on reserves, all the FOMC has to do when that time comes is raise this rate paid on reserves and they have instant control of policy rates correct? Traditional open market operations via buying/selling Gov. securities may now be reduntant or unnecessary...<br /><br />Warren also says: "Why not call the market's bluff and in effect say, "Okay, you're worried about bond supply overwhelming demand and the impact that this will have on rates, so we just won't issue any this year". Perhaps they are already doing this...we've been following the Feds (ie Govt Sector) MBS/Treasury/Agency bond purchases this year and they are right on track to buy in (redeem?) $1.75T of these Gov. securities this year and that looks like it will be how much the Gov sector so called "borrows" to fund the deficit this year. Warren has said that the Govt sector buying Govt securities is equivalent to not having issued them at all. So could one look at this as on net, the Govt sector will NOT issue any Govt securities this year?<br /><br />So there you have it, they can pay interest on reserves directly to control policy rates, and they will have shown how unnecessary Treasury issuance is because in the year when supposedly they "borrowed the most money in history", they havent on net issued any Govt securites at all!<br /><br />You're correct that the political case will still have to be made, but it may then be easier after a year of effectively operating in the mode that Warren and you have been advocating.Matt Frankohttps://www.blogger.com/profile/11978352335097260145noreply@blogger.com