Issuing government securities that pay interest to offset deficits is not necessary operationally under the current floating rate monetary regime. Paying interest to park wealth in a "safe asset" constitutes a government subsidy for savers. Not being necessary operationally, it can be argued that it is wasteful unless it serves public purpose.
Axios
Democratic economist: US should run deficits without debt
Axios
Democratic economist: US should run deficits without debt
Felix Salmon interviews Stephanie Kelton
A better solution is just to require by law that the entire yield curve (including fiat account balances at the Central Bank, aka "bank reserves") be negative with the shorter maturity waits costing more, i.e. shift the entire yield curve into the negative quadrant.
ReplyDeleteThat way, sovereign debt can be a REVENUE producer for government. And it's only fair since the MOST a risk-free asset should return is ZERO percent minus overhead costs = NEGATIVE.
That said, individual citizens should be shielded from negative interest via debit accounts of their own at the Central Bank or Treasury up to a reasonable account limit.
“If you replace those dollars with Treasuries, you're replacing them with an interest-bearing currency, and that's got to impart a higher inflationary bias than just leaving the non-interest-bearing dollars in the system.“
ReplyDeleteThat’s not the way the NPV function works... lower risk free rate creates higher asset values...
https://en.wikipedia.org/wiki/Net_present_value
NPV at zero risk free rate = sum of all the cash flows as the exponent of the denominator is 0
Monetarists have put the current risk free rate overnight (IOR) at 0.1% in response to covid look at what’s happened to financial asset values...
Finance 101...
There is a whole other Department in the academe that teaches Finance Science ... maybe go talk to those people..,,
Well Milton Friedman agreed with Kelton, for what that's worth.
ReplyDeleteFiat is a public utility so large users/holders of it should PAY for that privilege - just like large trucks are required to pay for use of the public highways.
ReplyDeleteSo zero percent is still a giveaway to the banks and the rich though it is obviously better than positive rates.
Our money system is almost exactly up-side down from what it should be. No wonder it causes so much trouble.
Also, when did Mr. "Free to Choose" ever advocate that citizens be free to use their Nation's fiat in inherently risk-free account form at the Central Bank or Treasury? Thereby freeing them from dependence on private depository institutions?
ReplyDelete