At different times, the manias spread through the world’s financial and economic commentariat. We have had regular predictions that Japan was about to collapse, with a mix of hyperinflation, government insolvency, Bank of Japan negative capital and more. During the GFC, the mainstream economists were out in force predicting accelerating inflation (because of QE and rising fiscal deficits), rising bond yields and government insolvency issues (because of rising deficits and debt ratios) and more. And policy makers have often acted on these manias and reneged on taking responsible fiscal decisions – for example, they have terminated stimulus initiatives too early because the financial markets screamed blue murder (after they had been adequately bailed out that is). In the last week, we have had the ‘inverted yield curve’ mania spreading and predictions of impending recession. This has allowed all sorts of special interest groups (the anti-Brexit crowd, the anti-fiscal policy crowd, the gold bug crowd, anti-trade sanctions crowd) to jump up and down with various versions of ‘I told you so’. The problem is that the ‘inverted yield curve’ is not signalling a future recession but a total failure of the dominant mainstream macroeconomics. The policy world has shifted, slowly but surely, away from a dependence on monetary policy towards a new era of fiscal dominance. We are on the cusp of that shift and bond yields are reflecting, in part, the sentiment that is driving that shift....Bill Mitchell – billy blog
Inverted yield curves signalling a total failure of the dominant mainstream macroeconomics
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
"The policy world has shifted, slowly but surely, away from a dependence on monetary policy towards a new era of fiscal dominance."
ReplyDeletethere is no evidence of this... wishful thinking AT BEST from Bill here...
If we start to see wages/compensation increase in earnest and their "CPI!" or "PPI!" or wtf these people look at show large increases... these morons will IMMEDIATELY start to increase the IOR policy and restart the reduction of system Reserve Balances... no way in hell they are not going to do that...
"A currency-issuing government could stop issuing debt at any time it wanted and the bond markets would have to create their own benchmark, low-risk asset to replace the risk-free government assets."
ReplyDeleteWhat would the CB designate for the Accounting Abstraction "assets" then? What would the Depositories designate as the abstraction Tier1 Assets to comply with bank regulations then?
If there are no govt issued liabilities then what can the non-govt designate as 'non-risk assets"????
mass measures of gold or silver of a USD/oz. designated by govt law?
"negative equity!" ????
What would prevent these same unqualified liberal art morons from saying instead of "pump in the reserves!" they would just say "pump in the equity!" ??? "govt is pumping in too much equity!!!"
So changing the accounting terms is going to all of a sudden make these unqualified morons not be morons any more???
I dont think so....
Not sure if this will be read, but I'd really like to get in touch with Matt to ask some clarifying questions about the reserve effect on bank leverage ratio you have spoke of in other posts.
ReplyDeleteMy question is when Fed increases reserve balances it seems that bank assets rise (reserves go up), but what happens to liabilities and capital? Do they stay the same or does capital/equity also go up since assets (reserves increased) and Assets = Liabilities + equity. Apologies if this is a novice question but just trying to make sure I'm on the same page with some of the excellent info you have posted. Thanks!