tag:blogger.com,1999:blog-5713178645208582139.post2116411753408199993..comments2024-03-22T02:37:15.030-05:00Comments on Macro Musings Blog: Why is There Still a Shortage of Safe Assets?David Beckworthhttp://www.blogger.com/profile/04577612979801459194noreply@blogger.comBlogger19125tag:blogger.com,1999:blog-5713178645208582139.post-87268516512870603712013-02-01T08:13:15.909-06:002013-02-01T08:13:15.909-06:00Thanks for sharing the information. That’s a aweso...Thanks for sharing the information. That’s a awesome article you posted. I found the post very useful as well as interesting. I will come back to read some more. <a href="http://capitalbuilder.in/commodity.asp" rel="nofollow">commodity tips </a>commodity tipshttp://capitalbuilder.in/stocktips.aspnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-89009644942156504682013-02-01T07:56:07.043-06:002013-02-01T07:56:07.043-06:00A good idea. Thinking safety first will lead you t...A good idea. Thinking safety first will lead you to a better deals and transaction.escrow ithttp://escrowit.com/noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-68728576702055063902013-01-31T17:41:43.999-06:002013-01-31T17:41:43.999-06:00Hi David
I am struggling to follow this discussio...Hi David<br /><br />I am struggling to follow this discussion. I think that the term "safe asset" itself confuses me a lot. As such, I have some questions on and would be very grateful if you could comment on these:<br /><br />Literally, a "safe asset" does not exist. Even government issued money solely offers nominal safety, but not safety in real (i.e. purchasing power) Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-3619649218048543722013-01-31T07:39:45.296-06:002013-01-31T07:39:45.296-06:00Frances, that is a great point and one I should ha...Frances, that is a great point and one I should have mentioned. Steve Hanke has made the same point http://www.cato.org/publications/commentary/rethinking-conventional-wisdom-monetary-tour-dhorizon-2013.<br /><br />David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-82090323040083513622013-01-31T05:40:09.252-06:002013-01-31T05:40:09.252-06:00David,
Generally I agree with you that the marke...David, <br /><br />Generally I agree with you that the market appears bifurcated - "risk-on, risk-off" as Izabella Kaminska puts it. <br /><br />You may want to consider the impact of regulation on the availability of safe assets. Regulatory changes are forcing banks and institutional investors to hoard safe assets and shorten collateral chains, and the risk-averse regulatory stance (&Frances Coppolahttps://www.blogger.com/profile/09399390283774592713noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-21945035091286556702013-01-30T20:46:15.695-06:002013-01-30T20:46:15.695-06:00Much of the "safe asset" demand is comin...Much of the "safe asset" demand is coming from entities that want to use those assets to do things that don't add much to the economy. Trading existing financial assets, for example, is a zero sum game. <br /><br />More to the point, the notional amount of financial instruments has grown enormously compared to the real economy. You have to wonder how it was that the economy of say, Jeffhttps://www.blogger.com/profile/11691315256618262530noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-71568658798428694382013-01-30T14:01:55.846-06:002013-01-30T14:01:55.846-06:00Bruce, I see the increase in yields as a step in t...Bruce, I see the increase in yields as a step in the right direction, a step away from the inordinately high risk premiums and the safe asset shortage. The day the bond vigilantes arrive, the day the economy will be liberated from its current morass. See <a href="http://macromarketmusings.blogspot.com/2012/11/bond-vigilantes-and-risk-premium.html" rel="nofollow">here</a> for more on this point. <David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-84255083767456031692013-01-30T12:52:00.453-06:002013-01-30T12:52:00.453-06:00"shouldn't the FED pay negative interest ..."shouldn't the FED pay negative interest rates"<br /><br />I don't not disagree with the opposite of the converse of that statement.Major_Freedomnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-20018631995538540262013-01-30T12:49:39.033-06:002013-01-30T12:49:39.033-06:00Sometimes, one can find oneself "slipping&quo...Sometimes, one can find oneself "slipping"...uphill.Major_Freedomnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-34334754923093557282013-01-30T10:46:40.740-06:002013-01-30T10:46:40.740-06:00Wow. I didn't think it was ever going to happe...Wow. I didn't think it was ever going to happen, but it just did. For the first time ever, I completely agree with a Major Freedom comment.<br /><br />One of us must be slipping.Jeffhttps://www.blogger.com/profile/11691315256618262530noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-7968399833436220112013-01-30T05:20:54.700-06:002013-01-30T05:20:54.700-06:00Question: Do the excess reserves deposited by ban...Question: Do the excess reserves deposited by banks with the FED represent the demand for safe assets? If so, shouldn't the FED pay negative interest rates on excess reserves?Anonymoushttps://www.blogger.com/profile/07968342557143521132noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-87825748446720591562013-01-30T04:55:59.401-06:002013-01-30T04:55:59.401-06:00If there is such a shortage of this safe "stu...If there is such a shortage of this safe "stuff" why has it all been going down in price the last 3 three months?<br /><br />The 10 Year is at 2.02. German, Swiss yields have gone positive. Even Japanese bands have been falling.<br /><br />Me? I think we are transitioning from a shortage to an excess. If I'm right, you'll hate it....Bruce Krastinghttps://www.blogger.com/profile/04520490753581692767noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-76186493959393139632013-01-30T01:00:30.324-06:002013-01-30T01:00:30.324-06:00I would be very cautious with this line of thinkin...I would be very cautious with this line of thinking, because when that logic is expounded, we invariably end up including a very number of heterogeneous commodities as mediums of exchange, as we look to other narrow spheres of activity to the particular confines in which a good is liquid. <br /><br />For example, in my house, we all use chocolate as a "bribing" tool. We all like Major_Freedomnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-36488384222355883442013-01-29T22:17:26.480-06:002013-01-29T22:17:26.480-06:00JP, here is my initial (probably incomplete) reply...JP, here is my initial (probably incomplete) reply. Since the true weighted average maturity of treasuries is only 4 years and the median is 3 years, most treasuries are already close to the zero bound. Longer-date securities are just too small a share of the total for them to make much difference.<br /><br />On your second question, the answer as I laid in the post, is that the market for David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-31706260304580596772013-01-29T22:03:22.909-06:002013-01-29T22:03:22.909-06:00I wasn't as thorough here as I have been in ot...I wasn't as thorough here as I have been in other post, so to be clear I do believe in a rather broad definition of money. Here is why. Gary Gorton and others have shown that repos, for examples, provide the same transaction services for institutional investors that checking accounts provide for retail investors. In both case, these transaction assets are highly liquid private financial David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-26678290257960343322013-01-29T21:24:17.717-06:002013-01-29T21:24:17.717-06:00David, thanks for answering my question. I underst...David, thanks for answering my question. I understand where you're coming from.<br /><br />Empirically, I agree that t-bills have hit the zero-lower bound. But don't longer-dated treasuries have a way to rise before they hit the zero lower bound? See my earlier comment <a href="http://macromarketmusings.blogspot.ca/2013/01/why-we-need-more-private-safe-assets.html?showComment=JP Koninghttps://www.blogger.com/profile/02559687323828006535noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-13309207680409062022013-01-29T21:23:09.531-06:002013-01-29T21:23:09.531-06:00"Let me begin my answer by recalling why the ..."Let me begin my answer by recalling why the ongoing shortage of safe assets is such a big deal. Safe assets facilitate transactions for institutional investors and therefore effectively acts as their money. During the crisis, many of these transaction assets disappeared just as the demand for them was picking up. Since these institutional money assets often backstop retail financial Major_Freedomnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-5883329384324553812013-01-29T09:46:13.249-06:002013-01-29T09:46:13.249-06:00Bill, if a central bank signals that it intends to...Bill, if a central bank signals that it intends to purchase enough risky assets to satiate the demand for safe assets, it should trigger a portfolio rebalancing that automatically satiates the excess safe asset demand. That is, if credible, the announced purchasing plan would raise expected nominal income and reduce the precautionary demand for safe assets. This is the whole point of a NGDP levelDavid Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-29676721594935410662013-01-29T08:05:54.526-06:002013-01-29T08:05:54.526-06:00Suppose the central bank just buys enough risky as...Suppose the central bank just buys enough risky assets so that the quantity of resreve balances (and checkable deposits) is sufficient to meet the demand for safe assets?<br /><br />Clearly, those investment banks who underwrite new issues of secured commercial paper would find this undesirable. Dealers and brokers who buy and sell these financial assets might find this undesirable. Those Bill Woolseyhttps://www.blogger.com/profile/06330232724290161369noreply@blogger.com