We told you this years ago… now WSJ finally catching up…
WSJ parroting Mike’s long held opinion; saying it would cause a “political problem” but imo negative equity position technically implies insolvency or a pending insolvency…
It’s also funny here that WSJ refers to “rising interest rates!” as if the Fed itself doesn’t control the interest rate…
All they have to do to avoid this problem is not increase the rates above what their short term liabilities will allow… which is about another 1%…
Rising interest rates could one day lead the central bank to pay out more in interest than it earns, creating a political headache https://t.co/qY0bC5SvVQ
— WSJ Central Banks (@WSJCentralBanks) May 23, 2022
Mike beaks it down in a YouTube here along with his daily markets summary:
24 comments:
They'll have to adopt the approach taken by the BoE - automatic recapitalisation by Treasury.
Ha! I'd LOVE to see how lawmakers in Congress would react to that!
GOP will just add it to the list: $7 gas, botched Afghan, crime out of control, ports blocked up, southern border cartel chaos, WW3, no baby formula, inflation out of control.. and then here “they bankrupted the central bank and now it needs a bailout!”…
It's one of the advantages we have in the UK. "Supply and Appropriation Acts", ie the spending bit, are just passed "on the nod". In other words they are waved through without debate. Recapitalisation of the Bank of England is just a line entry in the spreadsheet produced by HM Treasury.
The argument in Parliament in the UK is only ever over the Finance Act - the act that raises taxes.
They are separate bills, and the two never meet.
What do they top the capital up to Neil?
US has a law that says Fed equity cannot exceed about 8B…. So if it gets above that they have to remit excess back to TGA…
I guess negative equity balance would be not in excess of $8B…
MAGA and the GOP are just as bad
https://www.heritage.org/monetary-policy/report/inflation-and-the-fed-how-congress-should-approach-monetary-policy
Slash taxes for the those at the top
Slash deficit and debt
Get rid of regulations
Same old, same old that never works.
Even talking about getting rid of the dual mandate at the FED give it just one mandate- To to achieve monetary neutrality.
" Instead, Congress should give the Fed a mandate with the single goal of achieving monetary neutrality by stabilizing overall spending in the economy. A central bank that targets total spending has the best chance of achieving monetary neutrality because it effectively requires it to respond to changes in money velocity"
“ Same old, same old that never works.”
LOL it’s just worked under Trump…
UE 3.8% and falling with participation rate increasing… “inflation!” nonexistent, -$35 oil, lowest minority UE rate ever, etc…
Very low rates for borrowers zero rates for “the rich!” you commies are always complaining about…
This is the madness they believe in..
The ole "Quantity Theory of Money?"
Give the Fed a Single Mandate: Monetary Neutrality
https://www.heritage.org/monetary-policy/report/give-the-fed-single-mandate-monetary-neutrality
" Optimally, the central bank would maintain a neutral stance by supplying exactly the quantity of money people need. In other words, the central bank would loosen or tighten its policy stance to precisely offset corresponding changes in the demand for money. While this task may seem daunting, a central bank can approximate a neutral stance by relying on how changes in money demand show up in the economy.
The key is that an increase in money demand is revealed when people hold on to more of their money (maintaining larger idle balances), thus spending less on goods and services. Conversely, a decrease in the demand for money reveals itself when people spend more on goods and services rather than hold on to it. Thus, when their demand for money falls, people spend down idle cash balances. Put differently, when total spending in the economy rises, it signifies that the supply of money must be rising faster than the demand for money.
Unless otherwise noted, all references to total spending refer to total nominal spending rather than inflation-adjusted (real) spending.
In contrast, when total spending in the economy falls, it indicates that the demand for money must be growing faster than the supply of money. "
And they promise it will.......
The general public will more easily reap productivity gains. As productivity improves, the costs of production decline, thus putting downward pressure on the prices of goods for sale (output prices) relative to the prices of inputs used to produce the goods. Targeting total spending is the best way to accommodate these price changes because a central bank cannot easily—if at all—use monetary policy to target only the prices of outputs. Targeting total spending also allows the price level (overall prices) to decline as productivity improves, thus allowing people to enjoy the benefits of more goods for sale at lower prices.
The central bank will respond correctly to negative supply shocks. Negative supply shocks, such as a trade embargo or a trade war that severely limits the amount of goods in the economy, cause prices to rise. A central bank that targets total spending responds correctly in such a situation: It allows prices to rise, thus signaling that goods have become relatively scarce and that there is a strong demand for such goods. Should total spending fall as a result of the supply shock, the central bank would loosen its stance, thus increasing the amount of money in the economy. This policy action provides the money people need to maintain their level of spending in the face of the supply shock.
The central bank will promote ideal conditions for maximum employment. According to the Fed, the “maximum level of employment is largely determined by nonmonetary factors that affect the structure and dynamics of the job market. These factors may change over time and may not be directly measurable.”
Because nonmonetary factors determine maximum employment, and because these factors are difficult (if not impossible) to measure, it is better for a central bank to focus on variables that it can directly measure and that are determined by monetary factors. Total spending is just such a variable—it is directly measureable, and monetary policy directly affects it. Moreover, keeping the level of total spending on a stable trend helps to smooth out economic downturns and avoid artificial booms, thus fostering the economic conditions that are most conducive to maximum employment. Separately, when employment falls and inflation rises, an inflation-targeting central bank is faced with tightening its policy stance in an already slowing economy, thus worsening the economic downturn and increasing unemployment.11
The most recent example of such a problem is during the beginning of the 2008 financial crisis. See Matthew Obrien, “How the Fed Let the World Blow Up in 2008,” The Atlantic, February 26, 2014, https://www.theatlantic.com/business/archive/2014/02/how-the-fed-let-the-world-blow-up-in-2008/284054/ (accessed March 31, 2019).
A central bank that targets total spending avoids this policy error and focuses, instead, on stabilizing the overall economy in order to promote the ideal conditions for maximum employment.
The public will more easily understand how the central bank conducts monetary policy. Targeting total spending provides clear signals to a central bank, allowing it to change its policy stance with minimal information problems. A central bank simply loosens its stance when total spending falls, and tightens when total spending rises. It avoids all of the information problems associated with inflation targeting, such as estimating the potential output of an economy (an unobservable variable), defining maximum employment, forecasting the productivity of the economy, or determining whether price-level changes were supply- or demand-driven (a virtually impossible task until long after the fact). This new framework would greatly improve the transparency of monetary policy for the general public.
Bannons better way...
:)
Complete delusion..
"LOL it’s just worked under Trump…"
Trump broke every US government spending on record. Ran HUGE deficits.
These guys want MASSIVE deficit reduction and debt reduction. With just enough bank lending to keep the economy ticking over.
Well now you are getting into the QT part of the policy this article is just about the risk free policy rate….
QT supposed to start in 2 weeks.. “less money to lend out!” …
Rather Should be helpful for credit provision imo…
We’ll see, and these Art Degree QTM monetarist people with their reification will never “change their mind” …
“ Ran HUGE deficits.”
So what? He got a big tax cut passed and deficit increased short term…
It worked…
A simple summary would be they don't want households to " save "
They think we all live in a goldilocks world where the money supply will be " just right "
Leave everything to the free market it will sort it out.
Bob Murphy's view of the world.
Had nothing to do with his tax cuts at the top. A complete fairytale.
Was all to do with his record government spending. He spent more than any President before him.
MMT 101.
The mandate they plan to give to the FED is pure QTM. No ifs no buts.
I've already showed you the budget they have laid out.
Massive deficit reduction and slash entitlements.
Same old, same old ideology ...
You Art Degree commies keep trying to make this a political problem when both sides advocating for deficit reduction and “out of money!”, etc..,
It’s a technical problem being created by unqualified Art Degree people first in the academe and then govt…
Here's me thinking the populations who keep voting for it and expecting a different outcome after 7O years of doing the same thing are the problem.
Hypnotized by the disco lights come election time based on the pure hatred of each other.
Think whoever they vote for are on their side and going to save them. Without recognising they now live in a one party nation state.
Ah well, commie art degree morons in control it is then who get their jobs on pure merit. Not on who they serve or what stocks they buy.
It is extraordinary to me Matt that you simply refuse to accept that they have set up the monetary system to serve both themselves and their political donars When for me it is clearly so obvious.
And you ignore all of that and blame art degree thinking instead.To create An off ramp for yourself to keep your belief in democracy alive.
For me it as if you have been living in a cave for the last few decades.
Ah well, let's wait and see after doing the exact same ideology of tax cuts and deficit and debt reduction and the slashing of entitlements as before. If things will be different next time around.
If it narrows inequality and benefits anybody else apart from the top 1%.
We won't have to wait long to find out. You free market tooth fairy believers will soon have the keys to the nuthouse. We'll all wait with great anticipation to see the results.
"What do they top the capital up to Neil?"
£3.5 billion currently
The floor is £0.5 billion and the ceiling is £5.5 billion
https://www.gov.uk/government/publications/financial-relationship-between-the-treasury-and-the-bank-of-england
Targeting spending is just monetarism dressed up in new clothes.
Quite how the central bank can directly influence spending - other than by buying things which is fiscal policy - is anybody's guess.
Amusingly what they will find is that all they can do is buy up spare labour hours with new money...
When you look at GDP growth since Jimmy Carter in 77
https://d3fy651gv2fhd3.cloudfront.net/charts/united-states-gdp-growth@2x.png?s=gdp+cqoq&v=202204281329V20220312&d1=19220618
There's been 4 democratic presidents and 4 Republican presidents 20 years for Democrats and 25 years for Republicans.
What's different ?
Who benefited and who was worse off under the low economic growth of both parties?
There was no difference.
It looks and Sounds and smells like a one party nation state to me.
And looking at growth Regan and Trump are the 2 most over hyped Republican presidents ever. In the last quarter before the pandemic everybody was screaming recession.
https://d3fy651gv2fhd3.cloudfront.net/charts/united-states-gdp-growth@2x.png?s=gdp+cqoq&v=202204281329V20220312&d1=20120526
John T Harvey was screaming recession throughout 2019 in Forbes.
John T Harvey Forbes
https://www.forbes.com/sites/johntharvey/?sh=31e6654e685c
Employment Report Does Little to Allay Recession Fears.
US economy struggling but not quite dead.
US economy splitters into holiday season.
Is falling investment spending the last nail in the coffin.
Are we nearing end of record stock market record expansion. Trade war signals recession.
John T Harvey wasn't the only MMT'r saying it. The pandemic saved Trump from a recession.
You could probably dig deeper and work out GDP growth under 20 years for Democrats and compare it with 25 years for Republicans.
Probably very little difference between the 2.
And trickle down was trickle up no matter who was in charge.
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