tag:blogger.com,1999:blog-5713178645208582139.post3220299952267161997..comments2024-03-17T03:26:42.785-05:00Comments on Macro Musings Blog: What George Bailey Can Teach Us About QEDavid Beckworthhttp://www.blogger.com/profile/04577612979801459194noreply@blogger.comBlogger9125tag:blogger.com,1999:blog-5713178645208582139.post-48934671859613428772013-10-04T12:47:08.977-05:002013-10-04T12:47:08.977-05:00David,
Many, many commentators don't get tha...David, <br /><br />Many, many commentators don't get that point. It is one of the reasons Josh and I did the paper I sent you. David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-45644694757299118222013-10-04T10:45:37.019-05:002013-10-04T10:45:37.019-05:00David,
Well, alright. I just did not see where th...David,<br /><br />Well, alright. I just did not see where the logic was living in the quote I made reference to. <br />Yes, one believes that the Fed, via QE, raise future growth prospects, then fine. Anything that raises future growth prospects will also alleviate the safe asset shortage. David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-31745542381493756672013-10-04T10:25:45.105-05:002013-10-04T10:25:45.105-05:00David, let me expound a little more. The safe asse...David, let me expound a little more. The safe asset shortage exist because of (1) reduction in the supply of safe assets (private label ones) and (2) and a sharp increase in safe asset demand because of flight to safety. <br /><br />The immediate effect of LSAPs is to remove safe assets (treasuries). I This, however, is offset by (1) the LSAPs increasing the supply of private safe assets as David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-16370028035457108342013-10-04T10:15:52.367-05:002013-10-04T10:15:52.367-05:00David,
Thanks, but I don't see that argument....David,<br /><br />Thanks, but I don't see that argument.<br /><br />For are start, I'm not sure that it's correct to see borrowers as constrained by a safe asset shortage. It's not like the safe assets have just magically disappeared - they've been sold for cash. The reason funding has gone down is nobody uses cash as collateral for borrowing cash - they just don't Nick Edmondshttps://www.blogger.com/profile/15342983814699700396noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-57559284619481759952013-10-04T09:48:51.489-05:002013-10-04T09:48:51.489-05:00Nick, the argument is that if the shadow banking o...Nick, the argument is that if the shadow banking or wholesale funding is constrained, it in turn will limit funds to retail banking and reduce the amount of loans and inside money creation.David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-9626258083717885392013-10-04T09:46:55.798-05:002013-10-04T09:46:55.798-05:00David,
Note that asset prices have positively re...David, <br /><br />Note that asset prices have positively responded to QE2 and QE3. This has created a wealth effect that in turn has improved balance sheets, increased financial intermediation, and lowered risk premiums relative to where they would otherwise be. All the lamenting about the Fed creating news bubbles speaks to this point. So is the fact that the supply of safe assets has <b>grown<David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-26436781054395419892013-10-04T09:22:10.242-05:002013-10-04T09:22:10.242-05:00Now back to the counterfactual point. Are QE criti...<i>Now back to the counterfactual point. Are QE critics really making the same mistake as George Bailey? To answer that question, let's think through the counterfactual of no QE2 and QE3. First, assume the Fed's share of marketable treasuries was constant over this period. Also, assume that the shocks from the Eurozone crisis, China slowdown, debt limit and fiscal cliff talks still David Andolfattohttps://www.blogger.com/profile/12138572028306561024noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-56743155840227625512013-10-04T03:44:12.154-05:002013-10-04T03:44:12.154-05:00Side question: We hear a lot about market demand f...Side question: We hear a lot about market demand for safe assets. From people who usually espouse the virtues of free markets (which I also espouse!).<br /><br />Okay then--why does not the free market generate safe assets, if there is such a torrid demand for such? <br /><br />It seems to me that a real estate loan in the under 30 percent loan-to-value range is a safe asset. Even in this last Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-32555862793970941292013-10-04T03:30:20.777-05:002013-10-04T03:30:20.777-05:00"....it is actually restricting the funding c..."....it is actually restricting the funding capabilities of the shadow banking system and creating a drag on the economy."<br /><br />Do you mean that the restriction of funding opportunities of the shadow banking system is actually the cause of the drag on the economy?<br /><br />It is fairly easy to see that a reduction in the supply of safe assets is going to be associated with a Nick Edmondshttps://www.blogger.com/profile/15342983814699700396noreply@blogger.com