tag:blogger.com,1999:blog-5713178645208582139.post8458240953035316976..comments2024-03-22T02:37:15.030-05:00Comments on Macro Musings Blog: The Long Unwind of Excess Money DemandDavid Beckworthhttp://www.blogger.com/profile/04577612979801459194noreply@blogger.comBlogger10125tag:blogger.com,1999:blog-5713178645208582139.post-75736612040277594012015-06-28T11:35:41.754-05:002015-06-28T11:35:41.754-05:00David,
I think we could debate several points. On...David,<br />I think we could debate several points. On innovation, I'm hard pressed to think of liquidity enhancing products that were not already widespread by 1997. A list: credit cards, money market and brokerage a/c's with checking, automatic overdraft lines, 401k loans... The new innovation post-'00 was essentially the 100% LTV HELOC. There was nothing "technological"Diegohttps://www.blogger.com/profile/18084671738464414141noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-47648281810876569712015-06-26T19:34:27.463-05:002015-06-26T19:34:27.463-05:00Diego,
The 1990s change was a structural one tha...Diego, <br /><br />The 1990s change was a structural one that occurred as a result of innovation allowing household to more easily tap into equity. If you take deviations around the trend of the liquidity ratio series since the 1950s you will see similar deviations (though not as big) for other recessions. <br /><br />But here is the bigger point. Your question is moot because this ratio has beenDavid Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-36712055263909958202015-06-26T14:58:21.659-05:002015-06-26T14:58:21.659-05:00"more normal levels of liquidity"
How d..."more normal levels of liquidity"<br /><br />How do you define normal? A look further back shows liquidity levels collapsed between 1990 and 2006. The 2013 level matched that of the late 90's, a more prosperous time than normal, I would argue. <br /><br />Some of this was due to sustained innovation (credit cards, automatic overdrafts). The latter part, however, was arguably Diego Espinosanoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-69361960633523374472015-06-25T21:28:40.047-05:002015-06-25T21:28:40.047-05:00Kevin, yes, there is something interesting here an...Kevin, yes, there is something interesting here and I don't want to claim the denominator played no role. What I am saying is that if you believe monetary policy played the key role in causing the bust--and I think we both do here--then it had to work <i>initially</i> through changes in the numerator. No doubt the subsequent declines in the denominator reinforced changes in the numerator.<br David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-30347583573192795522015-06-25T19:25:07.423-05:002015-06-25T19:25:07.423-05:00Thanks for the links.
I think there is still some...Thanks for the links.<br /><br />I think there is still something to think about here, though. As a start, rising home values would both increase the denominator and decrease the numerator, as households increased their access to home equity lines of credit.<br /><br />Also, regarding this sentence: "Had the interest rates been allowed to reach their negative market clearing (or 'Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-84094182345896185152015-06-25T16:19:29.966-05:002015-06-25T16:19:29.966-05:00I think the implication of this post is that finan...I think the implication of this post is that financial seizures need not be that bad if fiscal/monetary policy response is appropriate.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-88116679586410881362015-06-25T15:50:27.146-05:002015-06-25T15:50:27.146-05:00It does take this long to unwind when the financia...It does take this long to unwind when the financial seizure is that bad. Instead of jogging at a good speed, it ends up being gingerly moving through the forest. Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-33973503244650722372015-06-25T14:47:04.090-05:002015-06-25T14:47:04.090-05:00Kevin, the numerator is very much a problem. Below...Kevin, the numerator is very much a problem. Below is a link that shows the numerator--cash, checking, savings, time deposits, mmmfs, treasuries, and agencies--held by households. https://research.stlouisfed.org/fred2/graph/?g=1kW9<br /><br />Note from this figure that the liquid assets continue to grow even though overall household assets have declined. In normal times, we think of the demand David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-73757289248052981542015-06-25T13:29:21.661-05:002015-06-25T13:29:21.661-05:00Here's the same graph with real estate market ...Here's the same graph with real estate market values instead of equity.<br /><br />https://research.stlouisfed.org/fred2/graph/?g=1kTE<br /><br />Home balance sheets would be doing just fine if we allowed housing markets to function efficiently.Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-53254906252000317482015-06-25T13:26:06.478-05:002015-06-25T13:26:06.478-05:00It's the denominator that's the problem, n...It's the denominator that's the problem, not the numerator. We destroyed the housing market. Mortgage markets still aren't growing. So, there is $10 trillion or so in home equity that is missing from household balance sheets. Liquid assets/Total assets would be recovered if we let home values recover. In fact, I think that's the only way for it to recover, because it is home Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.com