Proposals to abolish the (central) government bond market is one of the striking features of Modern Monetary Theory. In the current context, it is debatable how much difference that such a change would make. I avoid attempting to be a forecaster, but it is safe to say that it would not be a true “surprise” if developed economy policy rates remained below 1% for a good portion of the 2020s. (This observation is consistent with bond market pricing at the time of writing.). This is a basic extrapolation of behaviour of past cycles. This time could be different, but it is no surprise if it is not. Meanwhile, some neoclassical economists are agitating for negative policy rates, which makes the MMT proposal look much more sensible by contrast....Bond Economics
Primer: MMT And Abolishing Government Bond Issuance
Brian Romanchuk
Zero percent is not low enough since large scale users/hoarders of fiat, a public utility, should pay for that privilege, i.e. NEGATIVE interest.
ReplyDeleteMeanwhile, some neoclassical economists are agitating for negative policy rates, which makes the MMT proposal look much more sensible by contrast....
ReplyDeleteNot really; it shows that MMT thinking wrt interest rates is incomplete to stop at zero percent interest. What about, for example, overhead costs? Those, if applied, would make interest rates at least slightly negative. Or should large scale users/hoarders of fiat be gifted those overhead costs?
Andrew, I agree that "user/holders" should pay all relevant costs. But those costs in the case of large users (say those depositing a million dollars or more) are negligible aren't they? 0.1% I'd say at a wild guess. Though I'm not an expert on this.
ReplyDeleteFiat is a public utility just like the highways are. It is meant to serve citizens, not to serve citizens to the banks by undercharging them for their large scale use of fiat.
ReplyDeleteOverhead costs were just an example to prove that interest rates for large* users/hoarders should be at least slightly negative. But as a policy choice there's really no limit to how negative rates might be to prevent the abuse of fiat to enslave and oppress fellow citizens.
*Otoh, individual citizens should be able to use fiat in account form FOR FREE up to reasonable limits as a natural right of citizenship and never have to use private bank deposits.