Sunday , June 16 2019
Home / Tag Archives: Monetary Policy

Tag Archives: Monetary Policy

Futures forecasts

Torsten Slok at DB updates this lovely graph on occasion. Here's what it means. Fed fund futures are essentially bets on where the Federal funds rate will be at various points in the future. Thus, you can read from the dashed lines the market's guess about where the federal funds rate will go -- assuming that the bets are priced to have an even chance of winning or losing.Reading it that way, the market was systematically wrong from 2009 to 2016. It's something like springtime in Chicago --...

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Fed Nixes Narrow Banks Redux

J. P. Koning at AEIR writes well on the Fed's efforts to quash narrow banks, more clearly than my previous efforts here here and here. As a quick review: Narrow banks take your money and invest it 100% in interest-paying reserves at the Fed. They are completely immune from runs, failures, and financial crises. You would get a lot higher interest than the big banks currently pay.  The Fed should be giving them a non-systemic medal. Instead, the Fed is fighting them tooth and...

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An Apocalyptic View of Central Banks

In the department of genuinely terrible, and terrifying, ideas, I just got the a request from Simon Youel, the Media and Policy Officer at Positive Money, regarding the appointment of Mark Carney's successor as Governor of the Bank of England.  Positive money is organizing a "joint letter to the Financial Times, calling on the Chancellor to appoint someone who’ll foster a pluralistic policy-making culture at the central bank." The proposed letter:Applicants to be the next Governor...

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Financial Inflation?

Torsten Slok sends this lovely picture of the S&P500 and the price index for portfolio management and investment advice services. Torsten explains that "50% of the decline in core PCE inflation since the peak in July has been driven by financial services, and with the stock market rebounding, we should expect to see the financial services component move higher again."What's going on? I think it's this: Most portfolio management payments are a percent of value -- you pay a fee, say 1%, of...

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Smith, MMT, and science in economics

Many blog readers have asked for my opinions of "Modern Monetary Theory." I haven't written yet, because I try to read about things in some detail, ideally from original sources, before reviewing them, which I have not done. Life is short.From the summaries I have read, some of the central propositions of MMT draw a false conclusion from two sensible premises. 1) Countries that print their own currencies do not have to default on excessive debts. They can always print money to pay off debts....

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Fiat Bling

I visited a country where people wore paper money as jewelry. Richer people wore larger denomination notes, to signal how wealthy they were, and poorer people wore smaller denomination notes. Only the very poorest wore none at all. Then I learned the paper money wasn't used as money. They only produced one homogeneous good called "corn", so didn't need a medium of exchange. What I thought was money was in fact bling. Bling was issued by the central bank. It wasn't bling unless it had the...

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Moore on Gold and Commodities

TweetApril 30, 2019 —   A century ago, the gold standard was considered a guarantor of monetary stability.  That golden era is long-gone.  (If it ever really existed at all.  The general price level fell 53% in US and 45% in the UK during 1873-1896 due to a dearth of gold deposit discoveries.) Continuing my thoughts on the Fed candidacy of Stephen Moore: he has said several times that he favors a return to gold.  In true Trumpian fashion, he recently denied having said it despite the...

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Moore Troubles for the Fed

TweetApril 30, 2019 — Of the two men whom Donald Trump had intended to nominate to empty seats on the Federal Reserve Board, Herman Cain has now withdrawn his name.  This leaves the other one, Stephen Moore. The Senate would have to decide whether to confirm Moore. He has some problems roughly analogous to Cain’s:  he is considered to be under an ethical cloud and he often gets his economic facts wrong.  Cynics might respond that he would thereby fit right in with the roster of Trump...

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Perpetually wrong forecasts

Torsten Slok of Deutsche Bank sends along the following fascinating graphsThe titles seem a little off. Yes, the market is expecting rate cuts (forward rate) but the market has been exactly wrong about everything for 10 years (and longer) first forecasting the recovery that never came, then forecasting much slower interest rate rises than actually happened.  Survey expectations seem to match the forward curves well except perhaps at the very end.Mechanically, a rising forward curve and...

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Interest Rates and Money Growth; Two Types of Central Bank

I want to imagine two different types of central bank. The first type of central bank cuts nominal interest rates to increase money growth. The second type of central bank raises nominal interest rates to increase money growth. In both cases the increase in money growth causes Aggregate Demand to start growing, and eventually causes the inflation rate to rise. But the initial change in interest rates is the opposite in the two cases. Here is a simple example of the first type of central...

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