Yield curve control -- setting bond yields by the central bank -- has returned to discussion. Mainstream economics over-emphasises the role of interest rates in guiding the economy, and based on previous experience, it seems entirely likely that some form of new policy will be attempted to counter-act economic weakness. The main options appear to be negative interest rates and yield curve control, and it seems clear that Fed officials prefer yield curve control to negative rates, Yield curve control will either accomplish very little, or be viewed as a mistake in retrospect. That said, it is still a more sensible policy that large scale purchases of Treasurys by the Fed (Quantitative Easing)....
Important post on MMT, monetary policy and conventional beliefs, attitudes and expectations.
Barring a miracle cure for COVID-19, the United States is drifting into a multi-year period of extremely depressed activity. There does not appear to be capacity to eradicate the virus, nor are older consumers or office workers willing to take meaningful health risks to benefit capitalism. Unless there is a magical transformation in the attitudes of the ruling elites, the fiscal policy response will remain reactive, and ineffectual. The Fed is the only entity in the United States that takes any responsibility for the effectiveness of policy, and so we should expect to see greater leaps in its policy framework.
Although yield curve control is the most likely next step, negative interest rates cannot be ruled out. Health worries might strengthen the hand of those advocating the abolishing of paper money, removing one institutional barrier to negative interest rates.
Bond Economics
The Incoherence Of Yield Curve Control
Brian Romanchuk
Brian Romanchuk
" the United States is drifting into a multi-year period of extremely depressed activity."
ReplyDeleteok Ive written that one down...
Negative yields and interest are a natural for the inherently risk-free debt of a monetary sovereign like the US since the MOST they should return is ZERO percent MINUS overhead costs = NEGATIVE.
ReplyDeleteOtherwise, we have welfare proportional to account balance - a moral disgrace.
Brian lost his chance to be Trump's or Biden's campaign manager.
ReplyDeleteHealth worries might strengthen the hand of those advocating the abolishing of paper money, removing one institutional barrier to negative interest rates. Brian Romanchuk
ReplyDeleteNegative interest is GOOD (Mathew 25:14-30) but individual citizens should be shielded from it to a reasonable account limit (Proverbs 31:16) since SOME risk-free savings are legitimate for initial capital formation and liquidity needs.
And the most straight forward way to shield individual citizens from negative interest is inherently risk-free debit accounts of their own at the Central Bank.