tag:blogger.com,1999:blog-1892824566694270102.post2624561718154907876..comments2024-01-27T00:46:34.345-08:00Comments on How Fiat Dies: Phillips Curve FallacyVincent Catehttp://www.blogger.com/profile/06502618776820144289noreply@blogger.comBlogger91125tag:blogger.com,1999:blog-1892824566694270102.post-5663620933476946372014-02-13T22:19:41.775-08:002014-02-13T22:19:41.775-08:00I replied here:
http://pragcap.com/about-that-192...I replied here:<br /><br />http://pragcap.com/about-that-1929-chart-the-details-matter/comment-page-1#comment-167562<br /><br />... but I'll add that it's not the money supply itself that should remain stable, it's the value of the MOA that should at least move in a predictable way: the money supply should remain flexible. Because even a moderate volatility in the value of the MOA combined with sticky wages & prices moves you far away from the Say's Law barter ideal, and this is regardless of the stability of the stock of MOE. We are much better off having an MOA whose value is completely predictable, and a flexible stock of MOE. Any surprises in the value of the MOA are really the same thing as nominal shocks. Uncompensated nominal shocks mean you can forget about Say's Law even appearing to be true. Nick Rowe says it well here:<br /><br />"What is the problem with fluctuations in AD around that trend? Fluctuations in real activity, (plus maybe fluctuations in inflation)."Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-67387381176655451392014-02-13T19:34:18.147-08:002014-02-13T19:34:18.147-08:00I made a new post for this thread to move onto:
h...I made a new post for this thread to move onto:<br /><br />http://howfiatdies.blogspot.com/2014/02/preventing-crises.htmlVincent Catehttps://www.blogger.com/profile/06502618776820144289noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-50922326585706618622014-02-13T18:30:21.590-08:002014-02-13T18:30:21.590-08:00Ok, I joined in.
http://worthwhile.typepad.com/wo...Ok, I joined in.<br /><br />http://worthwhile.typepad.com/worthwhile_canadian_initi/2014/02/tiff-macklem-retail-competition-flexible-it-vs-ngdplt.html?cid=6a00d83451688169e201a73d779bc0970d#comment-6a00d83451688169e201a73d779bc0970dVincent Catehttps://www.blogger.com/profile/06502618776820144289noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-12312280089287065212014-02-13T18:21:23.463-08:002014-02-13T18:21:23.463-08:00Tom, I answered you over on pragcap but am putting...Tom, I answered you over on pragcap but am putting my answer here as well.<br /><br />If when the USA was founded they required banks to sell 10 year bonds to get cash to use for 10 year loans (can't use demand deposits, must have matched duration bonds, so banks could not make new money) and never went off a gold/silver coin money (no paper money or central bank) then I think that there would not have been anywhere near the number of inflations/booms/busts/deflations/crisis between then and now. If regular banks and central banks can make and destroy money then the money supply is not stable and you get crisis after crisis.Vincent Catehttps://www.blogger.com/profile/06502618776820144289noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-51396122248543068142014-02-13T16:05:38.297-08:002014-02-13T16:05:38.297-08:00Vincent, I'm simultaneously having an ongoing ...Vincent, I'm simultaneously having an ongoing debate w/ Mike Sax (author of the blog "Diary of a Republican Hater") about whether or not being an MMist necessarily means you have to hate gov, want to lower taxes on the rich while imposing a consumption tax on the poor, etc. Mike seems to think that MM = you're really an arch neo-liberal conservative at heart, and want to "drown government in a bathtub and dance on Keynes' grave."<br /><br />Well he's had plenty of pushback on that from me, and now some from Nick Rowe and Mark Sadowski too (even a bit from Sumner once). But government hater Morgan Warstler rides to Mike's defense (as his unnatural ally) here:<br /><br />http://worthwhile.typepad.com/worthwhile_canadian_initi/2014/02/tiff-macklem-retail-competition-flexible-it-vs-ngdplt.html?cid=6a00d83451688169e201a5116c2467970c#comment-6a00d83451688169e201a5116c2467970c<br /><br />He really likes to highlight the discipline aspect I was getting at earlier. :DTom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-85843056101244396062014-02-13T14:51:51.954-08:002014-02-13T14:51:51.954-08:00Vincent, I like this article by Sumner (it ties in...Vincent, I like this article by Sumner (it ties into our discussion of bubbles above):<br /><br />http://www.themoneyillusion.com/?p=26140<br /><br />... especially the last bit about current account deficits.Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-42297979152641417602014-02-13T12:24:25.891-08:002014-02-13T12:24:25.891-08:00But wait: 5% a year in the growth of NGDP is not t...But wait: 5% a year in the growth of NGDP is not the same as 5% a year growth in the monetary base. Actually I'm partly with you regarding growth of the base... I suspect that there might be a more efficient way to achieve 5% annual growth in NGDP. I know that many MMists would agree with me too: that if the US or Japan would just explicitly adopt NGDPLT, for example, then they wouldn't have to do so much QE. But I'll even step outside outside of MM orthodoxy and state that perhaps ... just perhaps ... a smarter use of fiscal policy combined with monetary ... combined with being very explicit about the target, is really what's required. Shoot, I'm not even that far outside of orthodox MMism in saying that... David Glasner has suggesting something similar (regarding using fiscal too) and David Beckworth has on numerous occasions described his version of a "helicopter drop" (to be used only in extreme emergencies... Lol) which also folds in a fiscal element.<br /><br />Also, apparently Japan is one of the few oddball nations (along with the US) that has both an RR > 0, and IOR facilities: so they could conceivably pull a stunt like I already referred to, and raise RR > 100% to put the kabash on any run-away inflation. (Sadowski says that raising the RR is contractionary). That's very painless for the CB to do (although to be fair, it's clear to Sadowski favors using IOR instead of RR, but he acknowledges they can both do essentially the same thing)..Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-79612077668451458602014-02-13T11:04:36.443-08:002014-02-13T11:04:36.443-08:00Tom, Japan is doubling the base money supply in 2 ...Tom, Japan is doubling the base money supply in 2 years. The average 10 day period it goes up about 1.6%. They are so far from a disciplined 5% per year it is like a whole other planet. The US is similar really.Vincent Catehttps://www.blogger.com/profile/06502618776820144289noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-46956586525689468122014-02-13T09:21:53.393-08:002014-02-13T09:21:53.393-08:00In other words MMs like discipline. Austrians are ...In other words MMs like discipline. Austrians are more masochistic and prefer bondage and discipline. :DTom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-1959413070048433062014-02-13T09:18:54.493-08:002014-02-13T09:18:54.493-08:00I think Austrians would like us to have a discipli...I think Austrians would like us to have a disciplined economic system, and that's what reintroducing the gold standard is in some sense intended to do. Same w/ outlawing FRB.<br /><br />MMs are equally interested in discipline, but their form of discipline I think is an inherently better one: keep NGDP levels on trend, growing at 5% a year. It's not tied to the volatile relative value of some arbitrary commodity: a commodity very few of us actually use for anything.Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-5321419648986305182014-02-13T09:10:27.277-08:002014-02-13T09:10:27.277-08:00... maybe they will "kick the can down the ro...... maybe they will "kick the can down the road" indefinitely and never get hyperinflation. In fact I suspect that is what will happen... because "kicking the can down the road" just amounts to growing the monetary base, which will always happen if NGDP levels grow 5% a year (for example).<br /><br />I think we live in a dynamic world... and we should shoot for stability in trends and rates... not absolute values. I'm completely comfortable with an ever swelling monetary base as long as we avoid other problems.Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-80943991415252117042014-02-13T09:10:05.100-08:002014-02-13T09:10:05.100-08:00I think all the big investors know it was never re...I think all the big investors know it was never really going to end. In the long run, once they start printing like crazy they never really stop.<br /><br />Read the paper off to the right about the French hyperinflation. I think they made a QE1 and it felt good, then they needed more and made a QE2, then that wore off and they needed a QE-infinity. Then things fell apart. It is very similar really. It is a very good read.Vincent Catehttps://www.blogger.com/profile/06502618776820144289noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-70134184248307145492014-02-13T09:08:01.733-08:002014-02-13T09:08:01.733-08:00What you have to understand is that the shock to t...What you have to understand is that the shock to the system was all the new money created by both banks and central banks during the boom. Trying to keep this shock from having a hangover take more and more shock, till the currency dies. Best to just take the hangover. The more drugs you take the worse the hangover will be eventually.Vincent Catehttps://www.blogger.com/profile/06502618776820144289noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-75174971942310346732014-02-13T09:04:33.343-08:002014-02-13T09:04:33.343-08:00"QE has not ended" ... the purchasing pr..."QE has not ended" ... the purchasing programs associated with each phase of QE. Look where QE1 and QE2 end:<br /><br />http://1.bp.blogspot.com/-BAnvd5XkIkc/UnKFj667RyI/AAAAAAAAAyM/-xbQBsjqcm0/s1600/QE+Rates.pngTom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-87430930138622013882014-02-13T09:01:53.273-08:002014-02-13T09:01:53.273-08:00suffering through a recession seem to me a destruc...suffering through a recession seem to me a destructive way for the economy to reach steady state again after an AD shock.... wages are sticky, but not immovable... eventually they and prices will fall, and we can get back on track again: after a lot of pain. That seems totally unnecessary and a huge departure from the Say's Law ideal.Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-4278379229408199032014-02-13T09:00:04.156-08:002014-02-13T09:00:04.156-08:00QE has not ended.
What Schiff and I both think is...QE has not ended.<br /><br />What Schiff and I both think is that if the government switched to living just on the taxes they collected there would be a recession but they would avoid hyperinflation. If they keep going the way they are going (which we expect) they will eventually get hyperinflation. We think in the long run you are better off choosing the recession but that since on any given week that looks worse, they will keep trying to kick the can down the road by printing more money till we get hyperinflation.<br /> Vincent Catehttps://www.blogger.com/profile/06502618776820144289noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-11097267901307421212014-02-13T08:55:00.334-08:002014-02-13T08:55:00.334-08:00I think Sumner would say that low interest rates a...I think Sumner would say that low interest rates are a sure sign of tight money. Notice in that graph the interest rate dropped every time a QE program ended.<br /><br />I also don't think Peter Schiff has our best collective interests in mind. He just seems like a constant drum beat of negativity. He gives me the same fuzzy feeling inside as those emails I get from Nigerian princes, needing my bank account to transfer multiple million dollars with. Sometimes he'll be right (the broken clock scenario) and when that happens he makes as much hay out of it as possible. The rest of the time, he comes up with excuses like inflation doesn't have anything to do with the price level, it's only about the base money supply, and therefore he's been right about inflation all along.<br /><br />I don't buy the argument that what we really need is a good recession, because it'll be good for us. Good for him maybe, but not the rest of us. Is that really what Schiff thinks?Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-36540036088321190852014-02-13T08:22:57.173-08:002014-02-13T08:22:57.173-08:00Tom, rates went from 4% down to 1.5% on 10 year bo...Tom, rates went from 4% down to 1.5% on 10 year bonds, lowest rates in forever, even back when they were on a gold standard, and you don't see any effect? You think this 1.5% is a natural free market interest rate for a currency that is being printed like crazy?<br /><br />The right thing to do, as Peter Schiff often says, is to stop printing money an accept the recession that will follow. That is not what I expect the US to do. I expect they will keep printing money.<br /><br />The feedback loops involve more money printing as prices for government obligations go up (poor people, retired people, government employees, etc) not less money printing. It is positive feedback loops that blow up. Negative feedback loops are under control. Vincent Catehttps://www.blogger.com/profile/06502618776820144289noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-77958599995152951512014-02-13T07:33:13.626-08:002014-02-13T07:33:13.626-08:00Personally I think that between declining deficits...Personally I think that between declining deficits, and the Fed's control over IOR, OMOs and RRs (and capital requirements too), things look good for avoiding out of control inflation. I guess we'll see. Plus there's a new "reverse repo rate" tool:<br /><br />http://www.piie.com/publications/interstitial.cfm?ResearchID=2558<br /><br />which I don't understand yet.Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-61872123438708527662014-02-13T07:25:39.866-08:002014-02-13T07:25:39.866-08:00Vincent, it seems like you've argued before th...Vincent, it seems like you've argued before that the Fed might be forced to unwind their BS, which leads to a hyperinflationary feedback loop. But now you say that if they don't ever unwind their BS, then this will also lead to inflation (hyperinflation or just inflation?). Some people would be happy if it led to a little more inflation (as that might help get NGDP back on trend).<br /><br />Also notice that Mark documents cases where GDP declined when QE was unwound... and those cases didn't involve hyperinflation.Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-77523563301769843932014-02-13T07:02:32.611-08:002014-02-13T07:02:32.611-08:00Vincent, you should also read this:
http://www.th...Vincent, you should also read this:<br /><br />http://www.themoneyillusion.com/?p=26159&cpage=1#comment-318483<br /><br />I go on to ask him if raising reserve requirements (RRs) is a good alternative for putting the brakes on inflation since he says that raising the RR is contractionary. Offhand it seems like it would be since it involves no OMOs (no BS unwinding) and no payout of IOR.<br /><br />Plus if we raise the RR to 167%, nobody could claim we had a fractional reserve banking system, at least not one with a fraction less than 1. :D<br /><br />Also, you write:<br /><br />"Printing money and buying bonds can reduce interest rates in the short term"<br /><br />but did you see the chart he included?:<br /><br />http://1.bp.blogspot.com/-BAnvd5XkIkc/UnKFj667RyI/AAAAAAAAAyM/-xbQBsjqcm0/s1600/QE+Rates.png<br /><br />I don't see even a short term affect there. Perhaps smart people at the Fed realized that was never the goal of QE: it was always about long term expectations, which resulted in raising rates. What do you think?Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-62520810908674292522014-02-13T05:01:09.255-08:002014-02-13T05:01:09.255-08:00Oh, the point being that the odds are the US will ...Oh, the point being that the odds are the US will never withdraw their QE. So eventually it will cause inflation. Only question is how long till "eventually" gets here.Vincent Catehttps://www.blogger.com/profile/06502618776820144289noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-17977331209689376582014-02-13T04:59:30.162-08:002014-02-13T04:59:30.162-08:00So only Japan has really tried to withdraw QE and ...So only Japan has really tried to withdraw QE and it seems clear this contributed to their downturn. <br /><br />I like him saying that QE increases long term inflation expectations. "... why anyone would expect QE to “significantly reduce long-term yields” is beyond me.". Printing money and buying bonds can reduce interest rates in the short term, but long term it increases them. It is a short term fix with a long term problem. Mark is a smart guy. :-)Vincent Catehttps://www.blogger.com/profile/06502618776820144289noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-79568253330594940962014-02-13T04:23:54.349-08:002014-02-13T04:23:54.349-08:00i.e., I don't hear you disputing wage & pr...i.e., I don't hear you disputing wage & price stickiness: just the volatility of gold, should your advice be followed. And should your advice be followed, then it would take both stickiness & gold volatility to undo Say's Law (in practice).Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-1892824566694270102.post-78724449859449494062014-02-13T04:14:14.334-08:002014-02-13T04:14:14.334-08:00Vincent, I asked Sadowski about what the evidence ...Vincent, I asked Sadowski about what the evidence has to say regarding unwinding QE, specifically in regards to yields (he'd previously left a comment about the effect of QE itself on yields). His responses start here:<br /><br />http://www.themoneyillusion.com/?p=26159&cpage=1#comment-318434<br /><br />Here was his previous comment on QE and yields:<br /><br />http://www.themoneyillusion.com/?p=26159&cpage=1#comment-318301<br /><br />Within the response he leaves a link to a previous Sumner article based on other comments of Mark's regarding Sweden vs Denmark on the same subject. I thought it made for some fascinating reading. His conclusion: don't unwind QE. Do you take issue with his evidence (granted there's not a lot of it)?Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.com