Comments on: Half a Dozen Thoughts on Monetary Policy http://alephblog.com/2008/05/03/half-a-dozen-thoughts-on-monetary-policy/ Helping Institutions and Ordinary People Invest Better by Focusing on Risk Control Fri, 25 May 2012 21:31:47 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: flow5http://alephblog.com/2008/05/03/half-a-dozen-thoughts-on-monetary-policy/comment-page-1/#comment-17563 flow5 Mon, 05 May 2008 21:53:17 +0000 http://alephblog.com/?p=681#comment-17563 Galbraith: Monetarism has never been tried. The best Fed paper ever written: There were 7 years of deliberation in which the the 1931 Fed. Res. Committee’s recommendation to change the method of computing reserve requirements was: (1) uniform percentage requirements against the volume of deposits of all classes at all banks, (2) requirements against debits to deposits. This significant and yet confidential document wasn’t de-classified (released to the public) until Mar 23, 1983. Galbraith: Monetarism has never been tried. The best Fed paper ever written:

There were 7 years of deliberation in which the the 1931 Fed. Res. Committee’s recommendation to change the method of computing reserve requirements was: (1) uniform percentage requirements against the volume of deposits of all classes at all banks, (2) requirements against debits to deposits. This significant and yet confidential document wasn’t de-classified (released to the public) until Mar 23, 1983.

]]> By: flow5http://alephblog.com/2008/05/03/half-a-dozen-thoughts-on-monetary-policy/comment-page-1/#comment-17562 flow5 Mon, 05 May 2008 21:47:52 +0000 http://alephblog.com/?p=681#comment-17562 Re: paying interest on reserves. The bankers have always had their hands in the cookie jar. If the New York Fed through its open market power adds a dollar of legal reserves to the system, cummulatively the bankers acquire c. $100 of earning assets. The return on $100 dwarfs the interest foregone on idle reserves [sic]. The conclusion is obvious. Legal reserevs are not a tax, they are like manna from Heaven. And it doesn't stop there. The Fed turns over 90+ per cent of the earnings to the Treasury (from SOMA). These profits are obscene. And payment to the banks would come from tax payer dollars. What a racket. If the banks want to increase their profitability then they should have zero interest rates (Reg Q in reverse but just for commercial banks), not zero reserves. The net result would be higher profits, an increase in the supply of loan-funds, a more favorable capitalization on earnings, etc. Re: paying interest on reserves. The bankers have always had their hands in the cookie jar. If the New York Fed through its open market power adds a dollar of legal reserves to the system, cummulatively the bankers acquire c. $100 of earning assets. The return on $100 dwarfs the interest foregone on idle reserves [sic]. The conclusion is obvious. Legal reserevs are not a tax, they are like manna from Heaven. And it doesn’t stop there. The Fed turns over 90+ per cent of the earnings to the Treasury (from SOMA). These profits are obscene. And payment to the banks would come from tax payer dollars. What a racket.

If the banks want to increase their profitability then they should have zero interest rates (Reg Q in reverse but just for commercial banks), not zero reserves. The net result would be higher profits, an increase in the supply of loan-funds,
a more favorable capitalization on earnings, etc.

]]> By: Estragonhttp://alephblog.com/2008/05/03/half-a-dozen-thoughts-on-monetary-policy/comment-page-1/#comment-17561 Estragon Mon, 05 May 2008 19:12:09 +0000 http://alephblog.com/?p=681#comment-17561 Following on your point 6 (asset/goods inflation vis savings/consumption), why consider this in binary terms? It seems to me that an asset is distinguished from a consumption good mainly in duration of utility. A consumption good has a presumed very short duration of utility (near zero). An asset has a duration of utility extending into the future. A can of tuna is lunch (zero duration). A warehouse of canned tuna is inventory (shortish duration). A fleet of ships to catch tuna is a capital asset (longish duration). The stock of a company proposing to buy ships to catch tuna is a speculative asset (very long duration). It seems to me the binary distinction of price changes between my can of tuna (consumption good) and the case of tuna from which my can was purchased (inventory asset) is arbitrary and possibly misleading. The point here is that there may be insight in looking at changes across the duration curve of asset prices. For example, it seems to me that while bubbles have been appearing in assets rather than consumption goods, these bubbles have been appearing at progressively shorter durations (i.e. stocks to housing to commodities). Following on your point 6 (asset/goods inflation vis savings/consumption), why consider this in binary terms? It seems to me that an asset is distinguished from a consumption good mainly in duration of utility. A consumption good has a presumed very short duration of utility (near zero). An asset has a duration of utility extending into the future.

A can of tuna is lunch (zero duration). A warehouse of canned tuna is inventory (shortish duration). A fleet of ships to catch tuna is a capital asset (longish duration). The stock of a company proposing to buy ships to catch tuna is a speculative asset (very long duration). It seems to me the binary distinction of price changes between my can of tuna (consumption good) and the case of tuna from which my can was purchased (inventory asset) is arbitrary and possibly misleading.

The point here is that there may be insight in looking at changes across the duration curve of asset prices. For example, it seems to me that while bubbles have been appearing in assets rather than consumption goods, these bubbles have been appearing at progressively shorter durations (i.e. stocks to housing to commodities).

]]> By: REWhttp://alephblog.com/2008/05/03/half-a-dozen-thoughts-on-monetary-policy/comment-page-1/#comment-17558 REW Mon, 05 May 2008 13:24:21 +0000 http://alephblog.com/?p=681#comment-17558 David, I take issue a little with point number 5. Republicans are jumping on one of the few themes catching on with the electorate. The most vocal critic of the Fed (there are far too few of them) has likely been Representative Ron Paul. He, like you is an Austrian, and he has pointed repeatedly to the rise in commodity prices as evidence of the Fed's mismanagement of the dollar. You point to increases in demand from emerging market countries. Gold is up more than 100% since 2005. Has demand really outpaced supply by that much in this time period? Very doubtful. The decline the dollar is the more likely answer. Ditto for other roaring commodities. David,
I take issue a little with point number 5. Republicans are jumping on one of the few themes catching on with the electorate. The most vocal critic of the Fed (there are far too few of them) has likely been Representative Ron Paul. He, like you is an Austrian, and he has pointed repeatedly to the rise in commodity prices as evidence of the Fed’s mismanagement of the dollar.
You point to increases in demand from emerging market countries. Gold is up more than 100% since 2005. Has demand really outpaced supply by that much in this time period? Very doubtful. The decline the dollar is the more likely answer. Ditto for other roaring commodities.

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