Friday, September 20, 2019

The natural rate of interest is not zero

Title a play on words of the MMT platonistic thesis "the natural rate of interest is zero!".

This is expanded upon in the whitepaper here:

Government taxing and security sales drain (subtract) reserves from the banking system. When the government realizes a budget deficit, there is a net reserve add to the banking system. 
That is, Government deficit spending results in net credits to member bank reserves accounts. If these net credits lead to excess reserve positions, overnight interest rates will be bid down by the member banks with excess reserves to the interest rate paid on reserves by the central bank.

This is NOT happening as witnessed this week...  cue the crickets...