Monetary fiscal US UK Can Fed BoE BoC Brazil


unherd.com 3-5-2022 Is this the beginning of the end for the US dollar? – China is threatening to dump dollar reserves to protect them from seizure – by Philip Pilkington

…”On Saturday The Financial Times reported that the Chinese central bank and finance ministry held an internal conference discussing how to protect against potential US seizures of foreign currency reserves. Around the same time, leading Communist Party intellectuals were discussing the possibility of dumping US dollar reserves to protect them from seizure. …”…


reuters.com 31-3-2022 IMF warns Russia sanctions threaten to chip away at dollar dominance – FT

March 31 (Reuters) – Financial sanctions imposed on Russia threaten to gradually dilute the dominance of the U.S. dollar and could result in a more fragmented international monetary system, Gita Gopinath, IMF’s First Deputy Managing Director, told The Financial Times. Russia has been hit with a plethora of sanctions from the United States and its allies for its late-February invasion of Ukraine. Russia has called the invasion a ‘special operation’ to disarm its neighbour.

“The dollar would remain the major global currency even in that landscape but fragmentation at a smaller level is certainly quite possible,” Gopinath told the newspaper in an interview, adding that some countries are already renegotiating the currency in which they get paid for trade. She said that the war will also spur the adoption of digital finance, from cryptocurrencies to stablecoins and central bank digital currencies. … Gopinath told the FT that the greater use of other currencies in global trade would lead to further diversification of the reserve assets held by national central banks. …”…


maroonmacro.substack.com 8-2-2022 Monetary Mechanics#41 The Origins and Evolution of the Modern Monetary System – Part 6: “Liability Management” – Bank Holding Companies (BHCs) by Maroon Macro

Recall that there are a few fundamental innovations that have radically transformed our monetary and banking system in the post-WWII era:

-1- Liability Management (a.k.a. “wholesale finance”) – the expansion of banking strategy that transformed banks from passive acceptors of deposits to aggressive operators in the money market. This includes federal funds borrowing/lending, repo, commercial paper, money market funds, eurocurrency/eurodollar banking, and much more.

-2- Securitization (a.k.a. “market-based finance”) – the disintermediation of traditional commercial bank lending in favor of bonds and the pooling of illiquid, untradable loans to form liquid, tradable securities. This includes the proliferation of mortgage-backed securities, high-yield bonds, increased IG corporate bond issuance vs. loans, and other asset-backed securitizations. This also coincided with the advent of the pension system, which indirectly funneled America’s future retirement savings into the financial market.

-3- OTC Derivatives and Value-at-Risk (VaR) – combined with Basel risk-weightings, these innovations introduced increasingly esoteric and mathematical definitions of “money-ness,” resulting in the redefinition of money as “bank balance sheet capacity.” This also cemented the shift of bank business models towards fee-generating, off-balance sheet banking activity as opposed to maturity transformation based on net interest margin or balance sheet expanding arbitrage.

In the first issue of this installment, I covered “asset management” (the traditional model of banking, in the form of deposit-taking and lending), which we can build upon to begin to understand exactly how and why our modern financial system is so different from the textbook description of deposits, reserve requirements, and money multiplication. In the second issue of this installment, I covered the first part of “liability management” and the re-emergence of wholesale finance, focusing on the development of the domestic federal funds market. In the third issue of this installment, I covered the second part of “liability management” and the re-emergence of wholesale finance, focusing on the development of the international Eurocurrency/Eurodollar banking system. In the fourth issue of this installment, I continued covering the development of the international Eurocurrency/Eurodollar banking system, focusing on the entrance of US banks into the Eurocurrency/Eurodollar borrowing and lending market. In the fifth issue of this installment, I covered the third part of “liability management” and the re-emergence of wholesale finance, focusing on the development of large negotiable certificates of deposit (CDs).

If you have not had a chance to read Issue #8, Issue #11, Issue #16, Issue #28, and Issue #33 of Monetary Mechanics yet, I suggest you do before continuing below, as it contains important information, but here is a brief review for you if you need it: …”… read more at source: maroonmacro


reuters.com 17-1-2022 Bank of England to get more powers over clearing and settlement By Huw Jones


ft.com 22-1-2022 The Lords of Easy Money — where the Fed went wrong

nytimes.com 16-1-2022 A Fascinating Page-Turner Made From an Unlikely Subject: Federal Reserve Policy By Jennifer Szalai – book review – The Lords of Easy Money – How the Federal Reserve Broke the American Economy – By Christopher Leonard

book review – The Lords of Easy Money
How the Federal Reserve Broke the American Economy
By Christopher Leonard

There’s something undeniably gratifying about an elegantly crafted morality tale — and the business reporter Christopher Leonard has written a good one, even if you suspect that the full shape of it isn’t quite as smooth as he makes it out to be. “The Lords of Easy Money” is a fascinating and propulsive story about the Federal Reserve — yes, you read that right. Leonard, in the tradition of Michael Lewis, has taken an arcane subject, rife with the risk of incomprehensibility (or boredom), and built a riveting narrative in which the stakes couldn’t be any clearer.

The stakes, that is, as Leonard and his protagonist define them, which is the fulcrum on which this entire book turns. “The Lords of Easy Money” filters an argument about the Fed through the experience and worldview of a retired central banker named Thomas Hoenig, who joined the Kansas City Fed in 1973, first as a bank regulator, then ascended the ranks to earn a seat in 1991 at the Federal Open Market Committee, where real decisions about monetary policy get made.

For years, Hoenig — described by Leonard as a “rule-follower” — fit right in. With few exceptions, he voted yes to what Alan Greenspan, the chairman at the time, wanted to do, and then voted yes to what the next chairman, Ben Bernanke, wanted to do. Then came 2010, when Hoenig cast a string of lone dissenting votes on a committee of 12 where unanimity was prized.

What Hoenig adamantly objected to was the Fed’s decision to keep interest rates at zero and begin a new round of buying long-term government debt, a policy known as “quantitative easing,” which effectively injected trillions of new dollars into the banking system — the “easy money” of the book’s title. An inflation hawk (so troubled by the prospect of rising prices that he was keen to limit the Fed’s reach), Hoenig had been fine with such measures during the 2008 financial crisis, when markets were cratering; but he didn’t think that an unemployment rate of 9.6 percent amounted to the kind of emergency that called for turning extraordinary methods for expanding the money supply into a matter of course.

A large part of “The Lords of Easy Money” is given over to trying to rehabilitate Hoenig’s reputation, which took a hit when, year after year, the inflation he warned about failed to happen. But inflation did happen, Leonard repeatedly emphasizes, just not in the form that people thought it would take.

The last third of the book introduces us to one of the many: John Feltner, who in 2013 landed a unionized job at Rexnord, a manufacturer of heavy-industry equipment, just a few years before the company decided to move his Indianapolis plant to Mexico. Leonard has chosen Rexnord as an example advisedly. First, starting in the 1980s, a string of private equity firms saddled Rexnord with so much debt that the company’s reason for being became the servicing of that debt. Second, one of the private equity firms that acquired Rexnord in the early 2000s was the Carlyle Group, and one of the partners of the Carlyle Group at the time was Jerome Powell, currently the chair of the Federal Reserve. Powell was appointed as the chair in 2018 by then-President Donald Trump — the same Donald Trump whose populist rhetoric had gotten the vote of a frustrated Feltner two years before.

All of this usefully highlights how extreme financialization has transformed (or deformed) the economy and our politics, even if Powell’s connection to Rexnord ended long before Feltner worked there and his job was moved to Mexico. Powell, who last week signaled a willingness to raise interest rates if inflation persists, is depicted as someone so protean that it’s almost as if he’s the personification of the financial system writ large — an improvisational, politically astute operator to Hoenig’s principled but doomed Cassandra. Powell’s good standing among the Washington establishment comes across as suspect, though Leonard has no patience for anti-establishment conspiracy theories either, and he laments that criticisms of the Fed’s easy-money policies in the last decade have mainly been the purview of “right-wing cranks.” He takes a great deal of care making Hoenig’s hawkishness sound like good old common sense — as if it’s simply the inevitable conclusion drawn by a stalwart steward of “prudence and integrity.”

Which it very well may be, though Hoenig’s hard-line position glides through this book mostly uncontested, with only a scant sense of why it didn’t win over the other economists at the Fed. You wouldn’t know that there have been any serious developments in economic ideas since Hoenig was deeply influenced by the inflationary spiral of the 1970s. There is no mention at all of modern monetary theory, advocated most prominently by the economist Stephanie Kelton, which takes to heart a line from John Maynard Keynes: “Anything we can actually do, we can afford.” Even if Hoenig thinks it’s utter garbage, it would have been good to see exactly how, when pressed, he makes his case.

Nor does Leonard address what could have happened if Hoenig had gotten his way back in 2010. What the economic historian Adam Tooze calls the “deflationary misery” of the 1930s loomed understandably large in the Fed’s institutional memory, a terrible reminder of what could happen when the institution failed to counteract a collapsing banking system by buoying the money supply. Not to mention that in 2010 the Fed’s actions indicated that it had become a guarantor not just for the American economy but for the global financial system. Tooze’s recent books, “Crashed” and “Shutdown,” suggest that the relationships between the Fed, the U.S. economy and the global system have all been torqued to the point where an urge to stand athwart it all, yelling “stop,” is futile.

Leonard (or Hoenig) is right to recognize how precarious, and how dangerous, the current situation is. Leonard (or Hoenig) is right to call for some “long-term thinking,” too. Still, “The Lords of Easy Money” presents the complexity of the current system as if it were merely disguising some unshakable fundamentals; there’s a satisfying clarity to reading a book that puts the jumble of political and economic turmoil into such stark narrative terms, but there’s more to the story than that.


oltnews.com 22-1-2021 book -review – Easy Money Lords – Where the Fed Went Wrong – by Rana Foroohar

“It’s hard to spin the nuances of monetary policy into a personality-driven narrative. But Christopher Leonard managed to do just that with The lords of easy money. It follows Thomas Hoenig, the outspoken Kansas City banker who was, in 2010, the only dissenting vote on the Federal Open Market Committee to oppose the U.S. central bank’s quantitative easing program. . It turns the unassuming economist into the protagonist of a compelling tale of how the Federal Reserve has changed the entire nature of the American economy. …”…


bookmark reviews 1-2022 The Lords of Easy Money: How the Federal Reserve Broke the American Economy CHRISTOPHER LEONARD – WHAT THE REVIEWERS SAY


justmoney.org 2021 Independence from What? Stefan Eich

“The idea of central bank independence is today in crisis. The reason is not—as its own logic would have it—that prying politicians have managed to impose their wills after all. Instead, and more paradoxically, independent central banks have become victims of their own success. This moment of introspection is also an opportunity to reconceive the notion of independence by placing monetary policy on a more democratic footing while acknowledging the peculiar difficulties of governing contemporary money under global financial capitalism. Our goal, I want to suggest, should be to move beyond stale debates about the pros and cons of central bank independence as currently conceived in order to discuss more fundamental constitutional questions of how we can make central banks more democratic internally and at once more independent, by redefining independence as not against democracy but rather against the executive and financial markets. …”…



econlib.org   8/12/2021 Scott Sumner and Matt Yglesias  monetary policy  views align in quite a few areas. Yglesias on monetary policy  – Matt Yglesias has a new post that explains his views on monetary policy. Overall, Yglesias’s views are to the left of mine. For instance, he favors the aggressive use of fiscal policy, whereas I am skeptical. But on monetary policy our views align in quite a few areas.  By Scott Sumner


news.sky.com  2/12/2021  The world’s most powerful central banker gives the Bank of England cover to raise rates –  if the Bank of England was reluctant to be the first major economy to raise interest rates, Fed chair Jay Powell has handed UK policymakers an open goal.  by Ian King

…”… insistence on the spike in inflation being merely temporary has un-nerved investors on a regular basis this year. Tuesday evening, though, brought a sign that at least one key policymaker is beginning to look on inflation as more ingrained. Jay Powell, chairman of the Fed, told US Congress: “It’s probably a good time to retire that word.” … The world’s most important central banker insisted he still expected inflation to fall next year as supply and demand imbalances created by the pandemic and its aftermath continue to unwind. But he pointed out that higher energy costs, rising wages and increased rents could all keep inflation in early 2022 higher than might have been expected. He went on: “It now appears that factors pushing inflation upward will linger into next year.” His comments were accompanied by a signal the Fed may now start unwinding its asset purchases – Quantitative Easing in the jargon – more rapidly than previously indicated…”…


ft.com 27/11/2021  The poisoned chalice of the Fed chair job – Powell has to secure normalisation of monetary policy as inflation surges and stimulus packages increase demand  – by  John Plender

“Could this be the ultimate poisoned chalice in monetary history? Joe Biden’s decision this week to grant a second term to Jay Powell at the Federal Reserve looked judicious from the administration’s perspective but the challenges that the chair faces rate close to 10 on the Richter scale.  It is not simply that inflation is racing away, with consumer prices up 6.2 per cent in the year to October while personal consumption expenditures, the Fed’s preferred measure of inflation, have risen 4.1 per cent over the same period, the highest level in three decades. Powell has to secure the post-pandemic normalisation of monetary policy when President Joe Biden’s stimulus packages are driving demand at a frenetic rate relative to supply and the economy is plagued by bottlenecks.  Powell faces…”…   ft long read here

moentary fiscal Fed QE tapering Powell ft 11-2021

taxresearch  23/11/2021 The Bank of England will never unwind quantitative easing  by Richard Murphy



bbc.co.uk   9/11/2021  Bank of England takes next steps in digital money plan


theovershoot.co/  3/11/2021  Kornai, Keynes, the Coronavirus, and Kant – Some thoughts on the implications of “soft budget constraints”, featuring Eastern bloc economics, China’s development model, and Perpetual Peace  by Matthew C. Klein

…”It turns out that downturns are essentially optional, at least in the rich countries. Governments can prevent even the most severe disruptions to business activity from hitting household and corporate balance sheets simply by printing money. All we needed was a global pandemic to demonstrate the latent power of the modern state to eliminate the classical business cycle.  The big question is: will we use this new knowledge to prevent future downturns? Or will we return to the pre-pandemic world where widespread business failures, job losses, and foreclosures are regularly recurring phenomena, like El Niño?  It’s too early to tell where policymakers will land, but anyone thinking seriously about this question and the broader implications should consider the ideas of János Kornai, who died on October 18 at the age of 93. His thinking played a major role in China’s embrace of markets and competition in the 1980s—and also helps explain many of the limitations of China’s economic model since then.1 Kornai’s perspective is especially relevant for thinking through the potential risks and rewards of the policy mix that might be called “full Keynesianism”.

What follows is my attempt to explain Kornai’s ideas and how they could apply to these big questions …”…


reuters.com   25/10/2021 Investors ‘play chicken’ with Bank of Canada as inflation soars  By Fergal Smith

…”… “Worldwide, markets are playing chicken with central bankers, betting that policymakers will follow the Bank of England in capitulating to hotter-than-expected inflation rates,” said Karl Schamotta, chief market strategist at Cambridge Global Payment. …”…


theguardian.com    10/2021  Bitcoin could trigger financial meltdown, warns Bank of England deputy – Sir Jon Cunliffe likens danger to 2008 crash and calls for tough regulation of cryptocurrencies


voxeu.org/  10/2021  The current bail-in design does not resolve the too-big-to-fail problem
J. Doyne Farmer, Charles Goodhart, Alissa Kleinnijenhuis

Since the Great Financial Crisis, bail-in has been introduced as an approach to address too-big-to-fail and contagion risk problems. This column uses a multi-layered network model of the European financial system to study the implication of bail-in design on financial stability. It shows that early implementation of a bail-in and stronger bank recapitalisation lead to lower contagion losses. However, current bail-in design seems to be in the region of instability and the political economy of incentives makes reforms unlikely in the near future.


reuters.com  20/9/2021 Analysis: Why the Fed might welcome a bond market tantrum By Stefano Rebaudo

U.S. 10-year yields stuck at 1.3% despite growth rebound – Analysts say Fed might prefer a return to 1.6%-1.8% – Persistently low yields limit Fed’s policy arsenal

…”A bond market tantrum that drives up yields can be a fearsome prospect for central banks but the U.S. Federal Reserve might just welcome a sell-off that lifts Treasury yields towards levels that better reflect the robust state of the economy. “…


marketwatch.com/  15/9/2021   When the Fed finally steps back, can the U.S. stock and bond markets stand on their own legs? by Joy Wiltermuth  – “I think concerns around tapering are a little overplayed,” says U.S. Bank’s co-head of the credit fixed income

…”Financial markets have staged a dramatic turnaround in the roughly 18 months since global central banks sent in the cavalry, with U.S. stocks climbing to dizzying heights and corporations raking in record profit. The big question heading into this fall is whether markets can stand on their own legs once the Federal Reserve starts to pull back its pandemic firepower. For its part, the European Central Bank this week announced plans to recall some of its pandemic monetary support for financial markets, raising expectations for the Fed to soon follow in its footsteps. “…


nytimes.com 8-2021 Some Say Low Interest Rates Cause Inequality. What if It’s the Reverse? – With an increasing share of the world’s wealth in the hands of its top earners, a savings glut is pushing asset prices up and interest rates down – by Neil Irwin


https://www.economist.com/finance-and-economics/2021/07/24/lessons-from-britain-on-the-balance-between-monetary-and-fiscal-policy

thehill.com/   6/2020 Fiscal-monetary ‘stimulus’ is depressive   byRichard M. Salsman

… “Believers in “stimulus” also claim that government spending entails a magical “multiplier” effect on aggregate output, unlike most private sector spending. They tout a government’s greater “propensity to consume.” But consuming is the opposite of producing. Welfare states certainly consume and redistribute wealth. They divide it up. But math teaches that nothing – wealth included – can be multiplied by division. The so-called “multipliers” imagined by today’s economists are, in fact, divisors. Many studies have verified the principle. ….”…


thehill.com  6/2021 If our choice is fiscal vs. monetary stimulus, choose monetary BY Scott Sumner 

…”Many observers lump together fiscal and monetary policy when thinking about “stimulus,” but they are actually quite different. With fiscal stimulus, the federal government redirects existing money from one sector of the economy to another. Money already in circulation is acquired through taxes, or more likely borrowing, and then redirected to various beneficiaries. …If there were no alternative, then fiscal stimulus would certainly be worth the risk. But there is a much less costly alternative: Aggressive monetary stimulus. The Fed should follow Ben Bernanke’s advice and consider switching to a “level targeting” approach, which would speed economic recovery by promising to bring the economy back to the previous trend line for the price level (or nominal GDP) once the crisis is over. This should be combined with a “whatever it takes” approach to asset purchases — a willingness to buy as many assets as necessary to hit theFed’s inflation target.”…


voxeu.org/  12 July 2021 Monetary policy and the exchange rate under fiscal distress: Evidence from Brazil
Enrique Alberola, Carlos Cantú, Paolo Cavallino, Nikola Mirkov

Textbook models predict that a monetary policy tightening should lift the exchange rate. Yet the empirical evidence for emerging market economies fails to support this prediction. This column uses data from Brazil to show that the exchange rate’s response to monetary policy shocks changes with the fiscal regime. A contractionary monetary surprise leads to an appreciation in normal times. By contrast, a depreciation results when fiscal fundamentals are deteriorating and markets worry about debt sustainability.


aier.org   9/72021 The Monetary Genius of Arthur Laffer   by John Tamny

“In his classic 1992 book about the Ronald Reagan 1980s (and so much more), The Seven Fat Years, Robert Bartley described the great Arthur Laffer describing the universality of credit. It goes like this:

“Laffer would draw a tiny black box in the corner of a sheet of paper. ‘This is M-1,’ currency and checking deposits. A bigger box was M-2, including savings deposits. Still bigger ones included money-market funds, then various credit lines. Finally, the whole page was filled with a box called ‘unutilized trade credit’ – that is, whatever you can charge on the credit cards in your pocket. Do you really think, he asked, this little box controls all of the others? The money supply, he insisted, was ‘demand determined.’”

Bartley’s description of Laffer properly explaining money discredits just about all monetary beliefs in modern times.” …


bloomberg.com  6/2021  BOE Models Big Shift Toward Digital Currency Bank Reserves  By Lizzy Burden
U.K. central bank releases discussion paper on future of money – Governor Andrew Bailey says digital currency poses many issuesU.K. central bank releases discussion paper on future of money – Governor Andrew Bailey says digital currency poses many issues – A big portion of consumer deposits at retail banks could shift to digital currencies if governments start offering them, the Bank of England indicated in a discussion paper about the issue.



source: blogs.imf.org/ 3/2021

…” In sum, the evidence so far indicates negative interest rate policies have succeeded in easing financial conditions without raising significant financial stability concerns. Thus, central banks that adopted negative rates may be able to cut them further. And those non-adopting central banks should not rule out adding a similar policy to their toolkit—even if they may be unlikely to use it.

Ultimately, given the low level of the neutral real interest rate, many central banks may be forced to consider negative interest rate policies sooner or later.

IMF blog entry is based on work by Luis Brandao-Marques, Marco Casiraghi, Gaston Gelos, Gunes Kamber, and Roland Meeks.


BoE PDF   2020  It’s time to talk about money  Speech given by Jon Cunliffe


thetimes.co.uk.  30/3/2021  We’re being gaslit by our economic masters over the magic money tree   by Philip Aldrick

Charles Goodhart, a founding member of the Bank of England’s rate-setting monetary policy committee, is everything you would expect of an academic economist. Measured, restrained, contextualised. Which is why his comments to the House of Lords economic affairs committee this month were so alarming.

“We are in a very weird world where we are actually undertaking helicopter money; we are following exactly the precepts of modern monetary theory, otherwise known as the magic money tree; and at the same time . . . claiming that we are not doing it. We are doing what we claim we are not doing,” he said.



voxeu.org   19/3/2021   Technological progress reduces the effectiveness of monetary policy   by Robin Döttling, Lev Ratnovski

Technological progress increases the importance of corporate intangible assets such as research and development knowledge, organisational structure, and brand equity. Using US data covering 1990 to 2017, this column shows that the stock prices and investment of firms with more intangible assets respond less to monetary policy shocks. Similarly, intangible investment responds less to monetary policy compared to tangible investment. The key channel explaining these effects is a weaker credit channel of monetary policy, as firms with intangible assets use less debt.


inteconomics.org.   3/2021  It’s Worse than “Reverse” The Full Case Against Ultra Low and Negative Interest Rates    William White*

It is becoming increasingly accepted that lowering interest rates might at some point prove contractionary (the “reversal interest rate”) if lower lending margins cut the supply of bank loans. This paper argues that there are many other reasons to question reliance on monetary policy to provide economic stimulus, particularly over successive financial cycles. By encouraging the issue of debt, often for unproductive purposes, monetary stimulus becomes increasingly ineffective over time. Moreover, it threatens financial stability in a variety of ways, it leads to real resource misallocations that lower potential growth, and it finally produces a policy “debt trap” that cannot be escaped without significant economic costs. Debt-deflation and high inflation are both plausible outcomes.


economist.com    03/2021  Central Banking The perils of asking central banks to do too much

Dealing with inequality and climate change is best left to politiciansThe parliamentary act that chartered the Bank of England in 1694 begins by describing the motivation of its authors, “to promote the publick Good and Benefit of our People”. Ideas about how best the bank can serve the publick have changed a bit over the centuries, from managing the market for government debt, to maintaining the value of sterling against gold, to, in recent decades, keeping inflation in the region of 2%.


ineteconomics.org    2020   A Money View of Keynes, Keynesians, and Post-Keynesians   By Perry G. Mehrling

The central bank today is not just the government’s bank, but also a bankers’ bank, a truly hybrid institution

From time to time, someone asks me about the connection between the “money view”, which I profess in my online course “Economics of Money and Banking”, and so-called “Modern Money Theory,” which has been put forward as a heterodox post-Keynesian alternative to standard macroeconomic theory. More generally, one could ask about the connection between the money view and standard macroeconomic theory, or even the connection between the money view and Keynes himself. This paper addresses all three questions, in reverse order, by translating the classic 19th century analysis of “flux and reflux” into the money view language of balance sheet expansion and contraction, and then by reading Keynes (1937), Tobin (1963), and Wray (1998) successively through that common analytical lens.


americanaffairsjournal.org  11/2020  Savings Glut or Investment Dearth: Rethinking Monetary Policy  – Stephanie Kelton’s “The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy” reviewed by Andrew Smithers

In the past, as governments have “funded” deficits (rather than monetizing them), much of their debt took the form of long- and medium-dated bonds. Since the yield curve usually slopes upward, this was an expensive policy and one that must be seen as foolish if the funding brought no discernible benefit. Beginning with the introduction of “quantitative easing” in 2008, however, the United States has reversed direction by having the Federal Reserve buy long-dated government bonds. “To fund or not to fund” is thus an im­portant and immediately relevant question, one which economists not only have no agreed answer to but seem reluctant to even ask.

Unasked questions are unanswered ones, and a virtue of Stephanie Kelton’s The Deficit Myth is that it forces attention on why governments ever go to the expense of issuing bonds in the first place. Her critique of the weaknesses of conventional economic policy should receive—and to some degree already has received—wide acceptance. Things become more complicated, however, when Kelton begins to propound solutions to the various problems that her critique has revealed. Dramatic changes in economic management, such as those Kelton proposes, must be based on relative risks, and the known risks in our current system will likely (and correctly) remain preferable to unknown ones. The Deficit Myth nonetheless raises important points about why our conventional economic policy approaches need to be improved and how this might be done.


papers.ssrn.com  2016  Evolving Views on Monetary Policy in the Thought of Hayek, Friedman, and Buchanan   by Peter J. Boettke and Daniel J. Smith
Abstract ; Attempting to find the technically optimal monetary policy is futile if the Federal Reserve’s independence is undermined by political influences. F. A. Hayek, Milton Friedman, and James Buchanan each sought ways to improve the performance of the Federal Reserve. They each ended up rejecting the possibility that technical refinement or minor reforms might be sufficient. After properly accounting for the concerns of robust political economy, each concluded that a fundamental restructuring of our monetary system was necessary. Friedman turned to binding rules, Buchanan to constitutionalism, and Hayek to competing private currencies. We synthesize their contributions to make a case for applying the concepts of robust political economy to the Federal Reserve through the adoption of professional humility, creative thinking, and an emphasis on the politically possible, not the politically acceptable.

read or download article here


ideas.repec.org   2020    Covid-19:  Has the Time Come for Mainstream Macroeconomics to Rehabilitate Money Printing?  by Axelle Arquié, Jérôme Héricourt,  Fabien Tripier

Abstract : The scale of public expenditure to be incurred in the Covid-19 health crisis is raising heated debates about the appropriate funding. Long rejected by mainstream macroeconomics due to its possible inflationary consequences, monetization is currently undergoing a surprising rehabilitation. Defined as the financing of public expenditure by money issuance -without the government ever reimbursing the central bank, monetization appears as an attractive solution in a context where the burden of public debt could become particularly problematic due both to the persistent threat of secular stagnation and the massive Covid-19 shock. This policy brief offers some theoretical insights into this debate opposing monetization and issuance of additional public debt. We first clarify what is happening to current debt and how its sustainability can be assessed, before examining how current mainstream macroeconomics can be used to rehabilitate monetization of public spending. In conclusion, we draw attention to the particular democratic challenges implied by such a policy in the Euro area context, in terms of balance of powers between European institutions.


economist.com        4/2020      Why the BoEis directly financing the deficit – The Bank is doing what it hates, but what needs to be done

Monetary financing is a modern term for one of the oldest taboos for central banks: printing money to fund government spending. Monetary financing, with its echoes of Zimbabwe and Weimar Germany, raises fears that investors will lose confidence in a central bank seen to be under the thumb of a finance ministry—hence Mr Bailey’s earlier caution. But modest use of the Ways and Means facility is not likely to lead to inflation, let alone hyperinflation.


unherd.com  04 /2020   Who will pay for this Covid catastrophe?  Magic money trees do exist but their fruit is poisonous   BY PETER FRANKLIN

However, there is a way out: monetisation. This means that central banks, like the Bank of England, will be the biggest buyers of the extra debt. They will simply create new money (by electronic means rather than physically printing banknotes) and use it to buy government bonds. Given that a central bank is owned by the state, the state effectively borrows money from itself and owes it to itself. So no sovereign debt crisis.  …   If the limits on what a government can borrow are much looser than what we’ve been previously led to believe then the political implications are profound. This is how Thomas Fazi puts it in his recent article for UnHerd:   “All the pain, suffering and misery imposed on millions of people as a result of austerity was entirely a political choice. …


marcusnunes.substack.com/   Deep down, many economists are deadly afraid of the power of monetary policy   Marcus Nunes  5/2/2021  “This past weekend I reread Doug Irwin´s marvelous article on Cassel and the Great Depression. In many ways it´s like “back to the future”. Just call Keynes Krugman (PK) and Cassel Sumner.”   read here  …


https://www.econlib.org/   When is fiscal stimulus appropriate?  By Scott Sumner
Greg Mankiw recently presented a graph showing that the US is doing much more fiscal stimulus than other big economies during the Covid crisis, even as a share of GDP:


piie.com/blogs  18/2/2021  Olivier Blanchard    in defense of concerns over the $1.9 trillion relief plan    (PIIE)

Those economists (like myself) who agree with Treasury Secretary Janet Yellen about the need to “go big” on a protection and stimulus package, but who have misgivings about the size of the Biden administration’s $1.9 trillion coronavirus relief plan, are getting criticized as overly concerned about overheating and inflation. A healthy debate has erupted. This blog post addresses three main issues in that debate and explains why I am concerned: first, the size of the output gap—i.e., the gap between actual and potential output in the economy; second, the size of the multipliers—i.e., the likely effects from the stimulus; and third, how much inflation an overheating economy may generate.


fxstreet  19/2/2021  Eren Sengezer    BoE’s Gertjan Vlieghe : negative rates not counterproductive

“There has been no evidence that negative rates have been counterproductive to the aggregate aims of monetary policy,” Bank of England (BoE) policymaker  Vlieghe said on Friday

  • “Want to emphasise how far we still have to travel in this recovery.”
  • “We are experiencing something between a swoosh-shaped recovery and a W-shaped recovery.”
  • “We are clearly not experiencing a V-shaped recovery.”
  • “Economy appears to be able to operate at a higher level than in the first lockdown.”
  • “It is mostly households in the top 40% of the income distribution that have experienced marked increases in savings.”
  • “To what extent these savings will be spent once social restrictions and voluntary social distancing are eased is highly uncertain.”
  • “The detailed inflation picture that has emerged from the pandemic in recent months is difficult to interpret.”
  • “Should market functioning deteriorate again, of course, the MPC will not hesitate to accelerate the buying pace again.”
  • “But absent such deterioration and with long term interest rates already very low, we need to look for tools other than qe to deliver further stimulus if required.”
  • “I conclude from the large amount of evidence gathered from countries that already have negative rates, that negative rates are effective.”

elibrary.imf.org  2019 A Requiem for the Fiscal Theory of the Price Level   Roger E.A. Farmer, Pawel Zabczyk ,  Gaston Gelos

Abstract : The Fiscal Theory of the Price Level (FTPL) is the claim that, in a popular class of theoretical models, the price level is sometimes determined by fiscal policy rather than monetary policy. The models where this claim has been established assume that all decisions are made by an infinitely-lived representative agent. We present an alternative, arguably more realistic model, populated by sixty-two generations of people. We calibrate our model to an income profile from U.S. data and we show that the FTPL breaks down. In our model, the price level and the real interest rate are indeterminate, even when monetary and fiscal policy are both active. Our findings challenge established views about what constitutes a good combination of fiscal and monetary policies.

Could ‘Lombardy Bonds’ be the answer to the Eurozone debt puzzle?


ineteconomics.org    2019   Kalecki, Minsky, and “Old Keynesianism” Vs. “New Keynesianism” on the Effect of Monetary Policy    By Tracy Mott    Mott walks us through answers many careful readers of Kalecki, Keynes, Steindl, and Minsky knew all along.

In a post co-authored with Anna Stansbury, Larry Summers repudiates economic orthodoxy in regard to whether interest rate cuts suffice to restore full employment and looks at a more “original” Keynesianism to find adequate responses to secular stagnation. Tracy Mott walks us through answers many careful readers of Kalecki, Keynes, Steindl, and Minsky knew all along. …

Cycles in investment spending come from the interactions among investment, retained earnings, national output, capacity, and debt. Hence, the room for interest rates to affect business investment is very slight. Consumption is largely determined by the level of real wage income, which should rise and fall with investment. Changes in interest rates similarly affect housing and consumer durables spending. As long as that channel works well, monetary policy can influence the economy, stopping an upswing or turning a downswing around after a time.

As Minsky pointed out, over time household debt can pile up as raising rates to slow down an inflationary economy won’t likely restrict the growth of debt enough to offset its growth when rates are lowered to stimulate borrowing to spend on housing and consumer durables (Mott, 2002). Then we will reach a time like 2007, when lowering rates won’t be able to accomplish enough because of too much outstanding debt.”


CasP   2014   central banking and the governance of the price architecture      excerpt

The majority of pricing power, then, emanates from the private sphere: it is to be found in the boardrooms of powerful corporations and on the trading floors and computer systems of global financial markets. But state power also has an important role to play here.

This brings us back to questions of central banking and its importance. Central banks represent a key channel of state power within the price architecture, attempting to govern that architecture. To do this, they act through the conduit of financial markets, influencing a broad range of macroeconomic factors such as investment, consumption, savings, inflation, the exchange rate and the labour market.

The central weapon in the central bank’s arsenal is the interest rate. Through manipulating the interest rate the Bank of England attempts to influence the price of money within the economy by adjusting the cost to banks of borrowing reserves. Because the money supply is the vital fluid within the plumbing of the price architecture, controlling this input has a special systemic significance. Within contemporary central banking the primary objective is ‘price stability’. This means, in practice, not stability, but an accepted rate of steady and gradual price inflation that reflects stable economic growth.

How do these actions bear upon the broader price architecture of capitalism? Certainly, central banks do influence price movements and macroeconomic trends, although there is considerable debate over exactly how. Raise interest rates and the price of money increases; lower them and it decreases.

Yet it is important not to overstate the reach of the Bank’s policy decisions. Lending is still a discretional decision made by banks that depends on their willingness to lend and customers’ desire to borrow. In addition, the way in which interest rate shifts will be priced into the broader economy is obscure and almost impossible to identify. These considerations illuminate the impotence of central banks in shifting pricing patterns as a whole.

Public fixation on the Bank’s policy decisions ignores the extent to which private actors, wielding enormous power, shape the key dynamics of price movements. In a post-crisis era of unprecedented real wage decline and a cost of living crisis, surely it is time to reconsider more robust public interventions into the price architecture of our society than the fine-tuning of monetary policy offers.                                  more here


TheEconomist  2013  Monetary policy – An unfinished revolution – Central banks have come a long way, but not far enough – by Ryan Avent  –  read article here