tag:blogger.com,1999:blog-2546602206734889307.post6001581868218162459..comments2024-03-18T11:12:51.114+00:00Comments on mainly macro: Should fears of financial instability raise interest rates?Mainly Macrohttp://www.blogger.com/profile/09984575852247982901noreply@blogger.comBlogger18125tag:blogger.com,1999:blog-2546602206734889307.post-81295277846410178792014-11-24T11:48:04.302+00:002014-11-24T11:48:04.302+00:00I have gone through this site and it is really int...I have gone through this site and it is really interesting, for more details follow our site:-The <a href="http://www.rebatesfornewhomes.com/" rel="nofollow">new construction homes Valencia</a> at this time mainly federations the importance of preserving bed-sitters at that juncture it can variation your brand to have a creators <a href="http://www.rebatesfornewhomes.com/" rel="nofollow">California home builder discounts</a> disposition. 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Representatives from Finansinspektionen have also been active deniers of any Swedish housing bubble. The reasons for this are open to speculation...flutehttps://www.blogger.com/profile/13161312380873849956noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-68665041709268559342013-11-25T13:26:22.724+00:002013-11-25T13:26:22.724+00:00My take is that there is disagreement between the ...My take is that there is disagreement between the Riksbank and the ministry of finance about the pace of reform. 2014 is an election year. Anders Borg wants to put a brake to the house prices, not cause a collapse. For now the plan seems to be to increase the risk weights of mortgages stepwise up to 35%. Due to very low historical delinquency rates (in part due to the difficulty for distressed debtors to get relief, as mentioned by Arvid) these weights were very low. They are now raised to 15% but more is needed if it is to have any real effect on mortgage rates and prices.<br /><br />Of the options listed by Arvid I believe some kind of forced amortisation would be the most likely policy tool to be implemented. However, any implementation would need to be gradual, with the Riksbank matching step with reductions of the interest rate, in order to avoid big corrections in the housing market.<br /><br />Other policy options suggested by IMF is to reintroduce the property tax and to stream-line the planning laws to facilitate more residential construction. I do not think the present government will re-introduce the property tax (one of the signature policy changes of their first mandate), but easing some of the restraints on building might be a starter. It will however take long time until such changes trickle through into house prices.<br /><br />The property tax reform was revenue neutral and introduced a limit on the deductions for deferred profits and a kind of rent tax on the deferrals. I would say these changes are now starting to have an impact on the higher end of the market, as any sale will inevitably lead to profits bigger than the max deduction and a 22% tax payment. This part is missed by most foreign observers, including the IMF.<br /><br />The government is right now engaging in deficit spending to counterbalance the tight monetary policy. Perhaps ironically, the historical budget surpluses of the government has forced pension funds and other investors to switch to resold mortgage obligations, making an abundance of cheap money available to the housing market.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-28339777564130103532013-11-25T08:28:58.496+00:002013-11-25T08:28:58.496+00:00Very nice article. I do agree that the Riksbank is...Very nice article. I do agree that the Riksbank is endangering it's independence and overstepping it's mandate. Whether or not Sweden has a housing bubble or not is impossible to tell. There is an acute housing shortage in all towns with > 100 000 inhabitants, obviously this drives up prices. <br /><br />There is a turf war with the government recently handing bank regulation to Finansinspektionen. On can interpret the latest talk from Riksbank of "we will lower rates if you do this" as not accepting this.Grodaeuhttp://www.groda.eunoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-19143609141791289192013-11-24T17:23:09.131+00:002013-11-24T17:23:09.131+00:00Thank you for this. Your remarks on the lack of co...Thank you for this. Your remarks on the lack of cooperation from government is interesting. Does the same apply to macroprudential regulation? The speech I linked to talked about developing these tools, but I did not understand why the process was taking so long. Mainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-654802471483599402013-11-23T23:13:28.393+00:002013-11-23T23:13:28.393+00:00"Indeed, I think that it is partly because op..."Indeed, I think that it is partly because optimal monetary policy has distributional consequences that delegation is useful, otherwise partisan politicians start deviating from the optimum to please particular groups."<br /><br />Eh? As opposed to the delegates, whose "optimal monetary policy" you agree have "distributional results" which, by definition, "please particular groups"?reasoninrevoltnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-30045507180941460752013-11-23T18:06:24.542+00:002013-11-23T18:06:24.542+00:00I think it would have been pretty hard for the Rik...I think it would have been pretty hard for the Riksbank to have acted in any other way than it has actually done. <br /><br />Why is this?<br /><br />Sweden does actually have a real estate bubble of pretty epic proportions, and when Swedes end up "underwater" with their mortgages and are foreclosed upon, they can't hand the key back to the bank and get the rid of the loan. Instead, the loan stays with them until every single krona has been payed back, or the debtor dies, whichever happens first. <br /><br />According to a study by Finansinspektionen, a 30% fall in real estate prices would put 50% of all Swedish homeowners underwater. About 75% of all Swedish households are homeowners. The situation becomes even worse when you consider that most Swedes have variable rate mortgages. <br /><br />Furthermore, the government has flat-out refused to do anything about the problem. Eliminating rent-control is a third rail of Swedish politics. Eliminating the 30% tax deduction on on all mortgage interest expenses is an even higher voltage third rail. Introducing a regulation that forces debtors to amortize their mortgages over time is incredibly controversial. More than half of all Stockholm mortgage holders do no amortize their loans at all. Suddenly people would have to cut back consumption to pay down debt, rather than using their houses as ATM's to finance new Volvos and vacations to Thailand. <br /><br />Finally, the Riksbank has very explicitly announced that it would love to cut interest rates right away if the government would implement some of the reforms I mentionded above. The answer from the government has been a deafening silence.Arvidhttps://www.blogger.com/profile/09334548407396397401noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-21339698353099303042013-11-20T08:31:57.309+00:002013-11-20T08:31:57.309+00:00To give unelected institutions credibility they be...To give unelected institutions credibility they better be predictable.<br />Spreading functions and make the individual functions/mandates basically technical is an idea.<br /><br />Another point is that what most macro folks seem to miss, that wiping your backside with your mandate (as basically the ECB is doing) hardly will do your fuctioning in general much good longer term.<br />Make better laws and if they donot work change them, not use them as toilet paper like we see now too often. ECB has this way lost it credibility with large parts of society, not sustainable that way and making itself in advance the scapegoat if things end badly (big strategic gamble).<br /><br />You get a coordinationproblem very likely. <br />All should be focussed by not having unbalances develop. So the firebrigade should only have to fight one fire at the time.<br />I am doubtful (missing the RE bubble and now the Equity one hardly makes one optimistic it should work) if that can be achieved.<br />If so the worst that can happen is that a structural crisis is mistaken for a cyclical one (or the structural part underestimated). But that is not a huge problem as by far the most dips are cyclical (providing you donot push the repeat button as standard solution like now). Furthermore as we see now there has to be a political platform created for structural reforms and that takes time and very likley requires a crisis anyway. <br />Riknoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-89253378051950148442013-11-20T08:17:54.334+00:002013-11-20T08:17:54.334+00:00In a recession WITH NO OTHER UNBALANCES (serious o...In a recession WITH NO OTHER UNBALANCES (serious ones that is) you need to cut rates. If you have unbalances galore like now (allthough not completely similar in all countries) you still end up in a political game.<br />Which unbalance you attack first for instance.<br />Here (and in Germany at the moment) you have either a RRE bubble (and a pensiongap) or higher interest rates. Probably best if via legislation re collateral this was adressed but it wasnot, anyway hard in Germany to do as they already have one of the strictest rules in that respect.<br /><br />This priority setting is distributive as well.<br /><br />When you go away from a clear cut situation it simply always becomes political. <br /><br />Not unlogical that you would give the economy the highest priority but it simply becomes a much tougher sell.<br />On the other hand solving one bubble with the next one is a thing that has to stop. Monetary (and fiscal) policy should reduce the number of crisis and the magnitude thereof and not make them more frequent and larger. Riknoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-91712278152178628172013-11-19T20:17:38.850+00:002013-11-19T20:17:38.850+00:00You cannot do that for interest rates. In a recess...You cannot do that for interest rates. In a recession you need to cut rates, even though this will hurt savers and help borrowers. But because this has political consequences, politicians may not cut rates as required, and so damage the economy as a whole.Mainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-3499881911181279602013-11-19T20:08:52.023+00:002013-11-19T20:08:52.023+00:00Simon, I don’t get the argument that “because opti...Simon, I don’t get the argument that “because optimal monetary policy has distributional consequences that delegation is useful..”. You seem to suggest that distributional consequences are desirable. Surely distributional consequences are by definition POLITICAL in nature. A classic example is the tendency of QE to benefit the asset rich.<br /><br />That problem is solved by Richard Werner, Positive Money & Co by having the BoE MPC or some similar committee of economists decide the SIZE OF any stimulus package, while the actual types of spending (and/ or tax cuts) to which that stimulus is directed is left entirely to politicians.<br /><br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-73043324318345625672013-11-19T01:50:19.805+00:002013-11-19T01:50:19.805+00:001. Watch how the present thing plays out. If we ge...1. Watch how the present thing plays out. If we get a follow up crisis CBs and banks will very likely get the blame (and traditional politics will get a next hit), simply game over no more independent agencies stuff.<br /><br />2. RE is probably more important than the average size stimulus. As I see it likely the main reason why Holland got a hit and the main reason why Belgium/France are still going to get one. You have to keep prices somewhere in line otherwise you are either in no consumption lad on one side and bubblebursting in time on the other.<br />Simply have to avoid bubbles there. And Skandinavia has low interest because of the worldwide mess and its economies didnot take a big hit. So a bubble developping is very likely otherwise.<br />Personally I do not see much merit in solving (better trying to) the last crisis (exploding RE bubble in the US), with creating a new one. And in that process f up the sov debt levels and CBs BS with no realistic easy way out. <br /><br />3. Montesquieu revisited. CB/money stuff is one of the main functions of government. It is not included in the trias thing (probably as it wasnot relevant in the 17-18th century. Judiciary can be kept out as it is basically a technical thing (largely not making political choices). When that gets more political like in the US problems arise as well btw.<br />CBing has to be put in that scheme . One way or another. The combination political choices and not being elected in that respect is not a logical one. 2 Braincells voting isnot either. Have to find some equilibrium there. Spreading functions. Which opens however coordination issues.<br />Anyway these checks and balances stuff also doesnot work well with traditional government (basically too much power has moved to the executive). Looks in for a resettle imho (but will likely take years probably decades). Hard to see CBing etc will be properly arranged other than ad hoc (as now the socalled banking (non-) union in the EZ). And with no 'structure' in the set up (so likley a recipe for future disaster). <br /> Riknoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-1672909390056324552013-11-18T19:39:19.338+00:002013-11-18T19:39:19.338+00:00I think Leijonhufvud is wrong. Indeed, I think tha...I think Leijonhufvud is wrong. Indeed, I think that it is partly because optimal monetary policy has distributional consequences that delegation is useful, otherwise partisan politicians start deviating from the optimum to please particular groups. Mainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-9432702456574010572013-11-18T19:35:23.692+00:002013-11-18T19:35:23.692+00:00I think your logic is correct. Just as countercycl...I think your logic is correct. Just as countercyclical policy should be used when interest rates hit the conventional lower bound, it should also be used when monetary policy is constrained in some other way. I would be interested to know if anyone has been making this argument in Sweden.Mainly Macrohttps://www.blogger.com/profile/09984575852247982901noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-57671291637143089202013-11-18T19:07:56.898+00:002013-11-18T19:07:56.898+00:00You seem to be strongly in favour of central bank ...You seem to be strongly in favour of central bank independence, although you say "On the other hand, delegation potentially undermines the democratic process." <br /><br /> Axel Leijonhufvud argues "The independence doctrine, however, is predicated on the distributional neutrality of central bank policies. Once it is realized that monetary policy can have all sorts of distributional effects, the independence doctrine becomes impossible to defend in a democratic society. " <br /><br /> Can or should Central Bank independence be maintained at a time when consensus on monetary policy is far less strong than a few years ago, and when unorthodox policies like QE with significant distributional effects are being implemented or considered?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-91114294520866462822013-11-17T15:37:53.451+00:002013-11-17T15:37:53.451+00:00When Atlee nationalised the BoE, I believe the Lab...When Atlee nationalised the BoE, I believe the Labour government then did nothing else with it. But when the Thatcher Cabinet did their monetarism 1980-3, the nationalised BoE gave them full support.<br /><br />Is it too odd to think that independence of central banks really does make that much difference, and the are wider problems at play? Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-331116816898798432013-11-17T14:42:11.923+00:002013-11-17T14:42:11.923+00:00So the Riksbank allows excess unemployment so as t...So the Riksbank allows excess unemployment so as to control a potential housing bubble: just brilliant. Unemployed Swedes will be deeply grateful to the governor of the Riksbank.<br /><br />This whole problem stems from using interest rates to regulate demand: you daren’t cut rates in case mortgagers get over extended, and then get into trouble when interest rates rise.<br /><br />The solution is to use fiscal measures to regulate demand, and as to the problem that fiscal stimulus, i.e. “borrow and spend” might raise interest rates, that can be dealt with by having the central bank stop any such rate rises. Hey presto: demand is controlled, while interest rates are more stable. <br /><br />That’s the solution advocated by Positive Money. See:<br /><br />https://www.positivemoney.org/wp-content/uploads/2013/11/Sovereign-Money-Final-Web.pdf<br /><br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.com