tag:blogger.com,1999:blog-5713178645208582139.post996783043682982911..comments2024-03-22T02:37:15.030-05:00Comments on Macro Musings Blog: The Inadequacy of the Balance Seet Recession ViewDavid Beckworthhttp://www.blogger.com/profile/04577612979801459194noreply@blogger.comBlogger23125tag:blogger.com,1999:blog-5713178645208582139.post-84759563523021732292011-07-21T16:04:35.226-05:002011-07-21T16:04:35.226-05:00David:
Thank you. Notice, I did qualify my solutio...David:<br />Thank you. Notice, I did qualify my solution with the caveat, "if I had the power." (Insert Cowardly Lion dialogue here. If I were the king of the forest....)<br /><br />So many good options to stop the bleeding, and no one with the political will like FDR to step up to the plate. What to do? Sit back and watch the train wreck. It will seem as though it is in slow motion. nanutenoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-58042783998125804832011-07-21T13:41:40.830-05:002011-07-21T13:41:40.830-05:00Warren Mosler (leading light of the Modern Monetar...Warren Mosler (leading light of the Modern Monetary Theory movement) has advocated a Fed funded payroll tax reduction for a long time. While this benefits a wide section of the population it does not benefit EVERYONE, e.g. the unemployed or pensioners. So ideally unemployment benefits need to rise in proportion, and in countries with a state pension, that can be raised.<br /><br />Re the amount Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-91921198571835027632011-07-21T13:05:13.221-05:002011-07-21T13:05:13.221-05:00Nanute:
Yep, you are sharpening my thinking. A pa...Nanute:<br /><br />Yep, you are sharpening my thinking. A payroll tax holiday funded by the Fed until some nominal level target is hit seems reasonable to me. So I am with you on the direct money transfers to the public. The longer this morass goes on, the more sympathetic I am becoming to some kind of debt forgiveness program too. These, though, seem like politically infeasible. And so does a David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-23315061479712118192011-07-21T12:31:59.919-05:002011-07-21T12:31:59.919-05:00David:
Are you conceding my point? lol. I think yo...David:<br />Are you conceding my point? lol. I think you've answered the question; via an FDR style price level target. The problem with this solution is political in nature. Things are going to have to get much worse before this approach will gain any traction on the fiscal side (congressional) of the equation. The Fed has the power to expand the money supply, but even here, political and nanutenoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-67809174129841654862011-07-21T11:00:36.940-05:002011-07-21T11:00:36.940-05:00Anonymous:
Actually, most of the deleveraging is ...Anonymous:<br /><br />Actually, most of the deleveraging is not occurring through default. See this New York Fed report:http://libertystreeteconomics.newyorkfed.org/2011/03/have-consumers-become-more-frugal.html<br /><br />Either way, though, money demand remains elevated. Either (1) the consumers defaults, hang on to their money, and do not spend or (2) the consumers pay down their debts, the David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-42648557410614243432011-07-21T10:46:43.611-05:002011-07-21T10:46:43.611-05:00Anonymous:
You make a fair point that banks thems...Anonymous:<br /><br />You make a fair point that banks themselves may be deleveraging given the "lurking liability" problem. I think that was Nanute's point above too.<br /><br />But on your first question, the answer is that if the Fed did something as radical as what FDR did in 1933 (say adopt NGDP level targeting) it could in principle change expectations that would kick start David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-19880615081616632882011-07-21T10:22:06.323-05:002011-07-21T10:22:06.323-05:00And a follow up to my previous comment (confusion ...And a follow up to my previous comment (confusion over how creditors can spend cash from repayments in a zero-interest rate environment)...another factor you have missed is that a large proportion of the deleveraging is occurring through default and foreclosure, meaning capital is getting hit at the same time as debt is "paid down."Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-43293197793874842682011-07-21T10:11:02.046-05:002011-07-21T10:11:02.046-05:00I'm confused - how are the creditors supposed ...I'm confused - how are the creditors supposed to "spend" the cash they are receiving from loan repayments if there's very little demand for loans by potential debtors? We are already near the zero bound of interest rates, not sure what more banks can do. Of course, this also ignores potential "lurking liability" on bank balance sheets that could cause them to desire toAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-69206848521136615622011-07-21T09:56:16.742-05:002011-07-21T09:56:16.742-05:00Nanute:
What do you think it would take to solve ...Nanute:<br /><br />What do you think it would take to solve this paradox?David Beckworthhttps://www.blogger.com/profile/04577612979801459194noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-12964715109294501702011-07-21T05:13:01.348-05:002011-07-21T05:13:01.348-05:00David,
A couple of questions and observations: As ...David,<br />A couple of questions and observations: As you noted, both creditors and debtors seem to be deleveraging simultaneously. The question in my mind, is which side is deleveraging more? If creditors are understating liabilities, (I think they are), then it would stand to reason that the effect of excess demand on the creditor side is where the problem lies. When does an asset become a nanutenoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-45136921618916010472011-07-20T19:32:18.631-05:002011-07-20T19:32:18.631-05:00Lord:
"if we can't manage to do that then...Lord:<br />"if we can't manage to do that then fiscal monetary policy in the form of a free money drop may be more effective."<br /><br />Everyone laughs at me, but I say we we drop grocery bags of money onto street corners in lower-middle income neighborhoods all across America. They would spend the money, stimulating growth.<br /><br />The inflationary impact would be minor, and Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-90480623939176241532011-07-20T14:06:19.658-05:002011-07-20T14:06:19.658-05:00It would be easy to call this a matter of semantic...It would be easy to call this a matter of semantics but I view semantics as more important to thought than most realize. My problem is with the phrase excess demand for money. If anything, creditors have an excess demand for higher return investments or higher future consumption. It is that these demands cannot be fulfilled by themselves that lead to what can be equally cslled, an excess Lordnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-6980873252019000632011-07-20T12:01:15.629-05:002011-07-20T12:01:15.629-05:00What a terrific blog--and so painful to read.
We ...What a terrific blog--and so painful to read.<br /><br />We have met the enemy, and he is us. Or Richard Fisher of the Dallas Fed, a living menace to the US recovery.Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-34813971674273565372011-07-20T08:46:31.343-05:002011-07-20T08:46:31.343-05:00Ralph,
It isn't about saving vs. consumption....Ralph,<br /><br />It isn't about saving vs. consumption. The problem is an increase in money demand without a proportional increase in money supply.<br /><br />The "paradox of thrift" is a misnomer: it has little to do with saving and everything to do with money demand. In fact, it is possible for total savings to be <i>falling</i> while the so-called paradox of thrift occurs.<br />Lee Kellyhttp://criticalrationalism.netnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-48828685223094807882011-07-20T08:28:38.302-05:002011-07-20T08:28:38.302-05:00Anonymous,
An excess demand for money makes money...Anonymous,<br /><br />An excess demand for money makes money scarcer. The efforts one must exert to earn a given quantity of money is greater than before. In other words, the "price" of money increases relative to all other goods. This increases the real burden of nominal debts; debts which were manageable before the excess demand for money become overwhelming. The poor state of Lee Kellyhttp://criticalrationalism.netnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-55335849721099844422011-07-20T08:08:41.224-05:002011-07-20T08:08:41.224-05:00I think I should also point out, that the class of...I think I should also point out, that the class of creditors who like to accumulate wealth, could of course start making real productive investments with their money instead of spending it on luxuries or lending it again. But then they would need an international financial system that ensured appropriate (to trade flows) real exchange rates or consumers willing to increase their spending! Giving reasonhttps://www.blogger.com/profile/10958786975015285323noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-82488782716500537092011-07-20T08:01:53.572-05:002011-07-20T08:01:53.572-05:00BBUUUTTT ..... isn't a lot of the deleveraging...BBUUUTTT ..... isn't a lot of the deleveraging due to insolvency or foreclosure which doen't result in cash piling up in the hands of creditors?<br /><br />And in the great depression isn't part of the secret that make work programs helped with the deleveraging by keeping up the flow of wage income.<br /><br />I happen to agree with you (and Paul Krugman for that matter) that an reasonhttps://www.blogger.com/profile/10958786975015285323noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-42704149347277297982011-07-20T07:44:32.647-05:002011-07-20T07:44:32.647-05:00David, I agree that the Leonhardt article and the ...David, I agree that the Leonhardt article and the AP Survey article, both of which you link to, are nonsense. I also agree that your proposal WOULD WORK. But I’m still not happy with boosting an economy via a relatively small proportion of households: the cash rich or any other small group (i.e. I rather agree with the comments by Anon just above).<br /><br />Also there is the question as to Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-67274260370760341062011-07-19T22:49:13.938-05:002011-07-19T22:49:13.938-05:00"What can explain it is a more nuanced view t..."What can explain it is a more nuanced view that acknowledges creditors with excess money demand were confronted by FDR's original quantitative easing program. This QE program was far better than recent ones in that FDR clearly signaled a price level target and backed it up by devaluing the gold content of the dollar and allowing unsterilized gold inflows. In otherwords, FDR signaled Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-49361316196255053692011-07-19T18:22:07.445-05:002011-07-19T18:22:07.445-05:00For a non-economist like me, the most striking thi...For a non-economist like me, the most striking thing about the excess demand for money story is that it is not <i>the default explanation</i> for these kind of events. It's just a supply and demand analysis, but with a few kinks because money doesn't have a market of its own.<br /><br />Perhaps it's too simple to be impressive.Frank Buttermanhttps://www.blogger.com/profile/02164374874036975006noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-37269630511126237642011-07-19T17:49:34.260-05:002011-07-19T17:49:34.260-05:00James,
Bernanke is the chairman of the FOMC; he i...James,<br /><br />Bernanke is the chairman of the FOMC; he is not the supreme dictator of monetary policy. The Federal Reserve is a complex institution: its policies cannot be reduced to the whims of one man. In any case, the Federal Reserve's much vaunted "independence" is a matter of degree. Moreover, that independence is like your right to privacy -- it will disappear whenever itFrank Buttermanhttps://www.blogger.com/profile/02164374874036975006noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-18906812807858730232011-07-19T16:08:12.982-05:002011-07-19T16:08:12.982-05:00I don't really get the point about the Fed usi...I don't really get the point about the Fed using up political capital. Perhaps they would need to spend political capital if they needed permission to do OMOs, but they don't. Bernanke can say he ate eggs for breakfast, and therefore he's doing $200 billion of OMOs. He does not need to explain or justify his actions to anyone outside of the Fed. I guess my question is, why does theJames Oswaldhttps://www.blogger.com/profile/06341537292469972279noreply@blogger.comtag:blogger.com,1999:blog-5713178645208582139.post-13876466940416746182011-07-19T15:53:22.380-05:002011-07-19T15:53:22.380-05:00I just want to get a big red stamp with the words ...I just want to get a big red stamp with the words "FALLACY OF COMPOSITION" and a picture of a winking Bill Woolsey. Then I want to stamp in David Leonhardt's forehead.Lee Kellyhttp://criticalrationalism.netnoreply@blogger.com