An economics, investment, trading and policy blog with a focus on Modern Monetary Theory (MMT). We seek the truth, avoid the mainstream and are virulently anti-neoliberalism.
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Friday, July 30, 2021
Fed RRP now over $1T daily
What say MMT on this? crickets as far as I can tell… 5% of annual GDP daily currency transfer… pretty substantial… One has to assume they don’t understand it… unqualified? Art degrees? What?
UK DMO does repo and reverse repo to drain all government additions to the banking system every day to 'balance the flows'. The actual Gilt auctions really swap repos for longer term Gilt holdings, not cash per se.
Not really … I assume Monetarists think that “injecting money!” is somehow constructive to economic activity, which is what the current policy of the CB is stated as… but this facility is (to them) “draining money!” everyday a rate equivalent to 5% annual GDP … which would (to them) retard economic activity…
Bill wrote this the other day: “ MMT is an economic framework for understanding how the macroeconomy works and the role of the currency-issuer in the monetary economy.”
This is I assume the USD “currency issuer” doing this everyday in its role… having never done this before (new policy) so I would naturally think the theorists there at the MMT would have some sort of opinion on this activity of the currency issuer…
It's not a new policy in the rest of the world. It's standard cash management practice to buy short and sell various lengths depending upon what the market 'desires'.
It's all part of the belief in monetary policy and the yield curve having magic investment causing powers. Nothing to do with monetarism, but the 'setting the interest rate' nonsense in New Keynesianism.
The MMT view follows from Post Keynesianism
"Post Keynesians have long held that the link between interest rate changes and capital formation is weak and that monetary policy is not an effective tool for counter-stabilisation.
MMT builds on that view."
http://bilbo.economicoutlook.net/blog/?p=43556
The MMT view is that they may as well shake they juju stick. Or in more diplomatic language: "monetary policy has uncertain distributional characteristics"
See http://bilbo.economicoutlook.net/blog/?p=42332 on yield curve control.
Well then why is German 10-yr at -0.4% and US 10-yr at 1.25% almost 200 bps higher?
They both have about the same policy rate… US at 0.05% and EZ at 0% iirc…
If they are attempting “yield curve control” so called… they are not doing a very good job of it…
Why don’t you just explain why they are having such problems to them?
I guess they are primarily trying to argue back and forth with those people but even in argument you can point out the technical problems with your adversary’s thesis no? Is that not allowed?
The MMT view is that they may as well shake they juju stick
Right. The MMT position is when the cb is setting the policy rate all that is needed is to provide the reserves to clear. The rest of the function of the cb is just settlement. Furthermore, at least some MMT economists recommend setting the policy rate permanently at zero, which is the "natural rate" (Forstater & Mosler) and only issue short terms tsys (cash equivalents) for cash balances.
"Well then why is German 10-yr at -0.4% and US 10-yr at 1.25% almost 200 bps higher?
They both have about the same policy rate… US at 0.05% and EZ at 0% iirc… "
Why are you comparing a currency user bond to a currency issuer bond?
You have to synthesise a Eurobond to compare, since the Eurozone doesn't issue its own bonds. It delegates them to its states.
Why do you think the approach in the ECB and the Fed is the same. Aren't they allowed to have differing opinions? Isn't that the problem?
And why the bait and switch? Altering the quantity of maturities available doesn't necessarily affect the ten year. They can drag the ten year down to -0.4% any time they feel like it by offering that price in the market. You know that.
The fact that the Fed is only just doing reverse repos, when the UK does it every day shows that there are different beliefs within the monetary policy uber alles cult.
“ Why are you comparing a currency user bond to a currency issuer bond?”
That observation is over rated by the MMT people… it obviously has no effect Germany is a “currency user” so called and they have a negative bond rate… while US is a “issuer” so called and they still have a high interest rate.. I think even Greece has lower rates than the US…
Look my point here is one of methodology… you have the Fed doing this jury rigged thing here where they add trillions of reserves now they are at the same time having to reduce reserves (that they just added) otherwise the system crashes …a lot of analysts are writing about it and they seem to have no comment…. after claiming their theory explains how the monetary system is operating….
I think this is more than odd…
Then Tom defends them saying “they don’t say to do that” which ok they don’t but that is what CBs are doing so where is the value added?
Well they aren’t getting anywhere with their theory as we speak their beloved entire Democrat leadership thinks we’re “out of money!” and is trying to figure out how not to take all the blame for more “borrowing from the future!” … so you tell me..,
"What say MMT on this?"
ReplyDeleteIn what sense?
UK DMO does repo and reverse repo to drain all government additions to the banking system every day to 'balance the flows'. The actual Gilt auctions really swap repos for longer term Gilt holdings, not cash per se.
It's all monetary policy belief.
“ It's all monetary policy belief.”
ReplyDeleteNot really … I assume Monetarists think that “injecting money!” is somehow constructive to economic activity, which is what the current policy of the CB is stated as… but this facility is (to them) “draining money!” everyday a rate equivalent to 5% annual GDP … which would (to them) retard economic activity…
Bill wrote this the other day: “ MMT is an economic framework for understanding how the macroeconomy works and the role of the currency-issuer in the monetary economy.”
This is I assume the USD “currency issuer” doing this everyday in its role… having never done this before (new policy) so I would naturally think the theorists there at the MMT would have some sort of opinion on this activity of the currency issuer…
"having never done this before (new policy) "
ReplyDeleteIt's not a new policy in the rest of the world. It's standard cash management practice to buy short and sell various lengths depending upon what the market 'desires'.
It's all part of the belief in monetary policy and the yield curve having magic investment causing powers. Nothing to do with monetarism, but the 'setting the interest rate' nonsense in New Keynesianism.
The MMT view follows from Post Keynesianism
"Post Keynesians have long held that the link between interest rate changes and capital formation is weak and that monetary policy is not an effective tool for counter-stabilisation.
MMT builds on that view."
http://bilbo.economicoutlook.net/blog/?p=43556
The MMT view is that they may as well shake they juju stick. Or in more diplomatic language: "monetary policy has uncertain distributional characteristics"
See http://bilbo.economicoutlook.net/blog/?p=42332 on yield curve control.
Well then why is German 10-yr at -0.4% and US 10-yr at 1.25% almost 200 bps higher?
ReplyDeleteThey both have about the same policy rate… US at 0.05% and EZ at 0% iirc…
If they are attempting “yield curve control” so called… they are not doing a very good job of it…
Why don’t you just explain why they are having such problems to them?
I guess they are primarily trying to argue back and forth with those people but even in argument you can point out the technical problems with your adversary’s thesis no? Is that not allowed?
The MMT view is that they may as well shake they juju stick
ReplyDeleteRight. The MMT position is when the cb is setting the policy rate all that is needed is to provide the reserves to clear. The rest of the function of the cb is just settlement. Furthermore, at least some MMT economists recommend setting the policy rate permanently at zero, which is the "natural rate" (Forstater & Mosler) and only issue short terms tsys (cash equivalents) for cash balances.
"Well then why is German 10-yr at -0.4% and US 10-yr at 1.25% almost 200 bps higher?
ReplyDeleteThey both have about the same policy rate… US at 0.05% and EZ at 0% iirc…
"
Why are you comparing a currency user bond to a currency issuer bond?
You have to synthesise a Eurobond to compare, since the Eurozone doesn't issue its own bonds. It delegates them to its states.
Why do you think the approach in the ECB and the Fed is the same. Aren't they allowed to have differing opinions? Isn't that the problem?
And why the bait and switch? Altering the quantity of maturities available doesn't necessarily affect the ten year. They can drag the ten year down to -0.4% any time they feel like it by offering that price in the market. You know that.
The fact that the Fed is only just doing reverse repos, when the UK does it every day shows that there are different beliefs within the monetary policy uber alles cult.
I don't see why it is relevant. None of it works.
“ Why are you comparing a currency user bond to a currency issuer bond?”
ReplyDeleteThat observation is over rated by the MMT people… it obviously has no effect Germany is a “currency user” so called and they have a negative bond rate… while US is a “issuer” so called and they still have a high interest rate.. I think even Greece has lower rates than the US…
Look my point here is one of methodology… you have the Fed doing this jury rigged thing here where they add trillions of reserves now they are at the same time having to reduce reserves (that they just added) otherwise the system crashes …a lot of analysts are writing about it and they seem to have no comment…. after claiming their theory explains how the monetary system is operating….
I think this is more than odd…
Then Tom defends them saying “they don’t say to do that” which ok they don’t but that is what CBs are doing so where is the value added?
You can see the futility of their methodology…
A methodology either works well, poorly, or not at all. Which is it?
ReplyDeleteWell they aren’t getting anywhere with their theory as we speak their beloved entire Democrat leadership thinks we’re “out of money!” and is trying to figure out how not to take all the blame for more “borrowing from the future!” … so you tell me..,
ReplyDelete