tag:blogger.com,1999:blog-2546602206734889307.post7941084028893689054..comments2024-03-28T04:29:22.717+00:00Comments on mainly macro: Why not finance fiscal stimulus by printing money?Mainly Macrohttp://www.blogger.com/profile/09984575852247982901noreply@blogger.comBlogger9125tag:blogger.com,1999:blog-2546602206734889307.post-67018356337491976502016-02-13T12:55:53.562+00:002016-02-13T12:55:53.562+00:00aaAnna Schaferhttps://www.blogger.com/profile/09633259957714692411noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-26584216899051628862012-09-19T07:01:36.436+00:002012-09-19T07:01:36.436+00:00“Well now there would be too much money chasing to...“Well now there would be too much money chasing too few goods, so the central bank would have to put QE into reverse.” That might be the case, but I don’t see any good reason to assume it. If the increased stock of money is needed to get back to full employment, that will presumably be because of the private sector’s desire for an increased stock of cash (e.g. because of the borrowing binge in recent years, burned fingers, etc), and the effect of the latter salutary lesson won’t suddenly disappear just because we have full employment. Thus I’d guess that desire for an increased stock of cash will stay for a year or two yet.<br /><br />“So if using money to finance extra government spending just involves a temporary increase in money, and no permanent reduction in debt, what is the point?” As implied above, the point is to meet the private sector’s desire for a larger stock of very liquid assets. And it’s impossible to say how long that desire will last.<br /><br />But given that monetary base and government debt are very similar in nature, I regard QE as much like the Bank of England offering everyone two £10 notes for £20 notes. <br /><br />And if I’m wrong, I’ll go and eat some Hemlock.<br /><br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-45544596499712912852012-09-13T11:48:31.127+00:002012-09-13T11:48:31.127+00:00Spain can't print euros? Maybe it could, by us...Spain can't print euros? Maybe it could, by using TARGET2.<br />Let's say a Spanish government bond held by Deutsche bank is maturing today.<br />Step 1 - the Spanish government sells a new bond to a government-owned bank (it instructs its bank to open a new deposit).<br />Step 2 - it tranfers the new deposit to pay off Deutsche Bank<br />Step 3 - at the end of the day the Bundesbank will have a corresponding credit position versus the ESCB while the Spanish Central Bank will have a negative postion towards the ESCB. In TARGET2 there are no limits to such balances.<br />Step 4 - repeat the process tomorrow, after tomorrow, on and on.<br />In practice, Spain has started printing euros.Jose Guilhermehttps://www.blogger.com/profile/00313496015841693181noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-66421753531008492222012-09-12T23:29:16.059+00:002012-09-12T23:29:16.059+00:00"A: I agree. But suppose money financed fisc..."A: I agree. But suppose money financed fiscal expansion, or bond financed expansion plus QE, works, and we get back to what you call full employment. What happens to all that money the central bank has created?<br /><br />Q: Well now there would be too much money chasing too few goods, so the central bank would have to put QE into reverse. Otherwise we would get inflation."<br /><br />If the fiscal expansion 'works', it produces enough goods so that there won't be too much money chasing too few goods. If there is too much money chasing too few goods, it means the the fiscal expansion was too expansionary. In which case the inflation would result even if it was not money-financed. <br /><br />The reverse QE needed to mop up any excess liquidity will not be any different from the OMOs that central banks do day in and day out. It won't involve a full scale back, so you can't write it off by saying that if *any* reverse QE is needed, no initial QE is required. Socrates wouldn't approve of such binary worlds. Nor would Keynes or Marshall.<br /><br />Your model is precisely the kind of Old Keynesian comparative statics that was punched all around by people on the left and the right. You think money goes into prices, but government spending goes right into the real economy. How the two immaculately manage to separate out so well in a world where everyone spends nominally -you don't tell us. Your model has no nominal anchor. It is Solow-Samuelson at peak ad-hockery.<br /><br />It is possible, of course, to turn this around and say that my argument implies that the helicopter drop's success and failure are independent of how it is financed. So a drop of bonds is as likely to succeed or fail as a drop of money. Government is not Modigliani Miller constrained in creating net private wealth through helicopter drops, but the mode of financing is subject to MM type neutrality.<br /><br />Buiter and Bernanke think they have the answer of why money may be special (perpetual liability). You can agree or disagree. I am agnostic. But the assumption of your model that fiscal transfers can work on the real economy without a nominal anchor is a discredited one. Ritwikhttps://www.blogger.com/profile/00616694597577112758noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-25107264538414389932012-09-12T22:46:09.406+00:002012-09-12T22:46:09.406+00:00"A: I agree. But suppose money financed fisc..."A: I agree. But suppose money financed fiscal expansion, or bond financed expansion plus QE, works, and we get back to what you call full employment. What happens to all that money the central bank has created?"<br /><br />Q: How is that different from the times of metal backed currency, when there was a buffer of money that did not depend upon loans?<br /><br />Q2: Would a buffer of non-loan money act as a stabilizer?Minnoreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-30000416392841807802012-09-12T22:19:45.898+00:002012-09-12T22:19:45.898+00:00A. ... But suppose money financed fiscal expansion...A. ... But suppose money financed fiscal expansion, or bond financed expansion plus QE, works, and we get back to what you call full employment. What happens to all that money the central bank has created?<br /><br />Q: Well now there would be too much money chasing too few goods, so the central bank would have to put QE into reverse. Otherwise we would get inflation.<br /><br />How do we know there would be too much money? Perhaps there would be just the right amount. After all, the new money is just replacing bubble money for the most part. Russ Abbotthttps://www.blogger.com/profile/15431389045571531450noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-48914747603493977022012-09-12T21:57:32.321+00:002012-09-12T21:57:32.321+00:00Note that in the case of Spain, for example, the g...Note that in the case of Spain, for example, the government cannot count on its central bank to do some much needed QE. It can only beg the ECB to do so. It can't print euros either. But it can print IOUs...<br />IOUs are usually weak, because the institutions that emit them are extremely weak. That's not exactly the case of Spain. It might pledge to withdraw the IOUs once the Spanish economy returns to full employment (well, a drop from 25% to 12% would already do), and retain its credibility in doing so.<br />This proposition is a bit more developed here http://www.98economics.com/2012/05/old-fashioned-remedy-for-euro-disease.html). Jonathan Portes half-seriously developed a similar argument (http://notthetreasuryview.blogspot.ch/2012/07/easymoney-could-save-eurozone.html), but I agree it sounds weird, and there's definitely no maths backing the argument.Zorbloghttps://www.blogger.com/profile/03175779746756984479noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-57045904823502901142012-09-12T21:31:10.736+00:002012-09-12T21:31:10.736+00:00I have two questions: if we're in a depressed ...I have two questions: if we're in a depressed economy at the zero-bound, and the fiscal authority is undertaking bond-financed deficit spending while the central bank is undertaking quantitive easing, then the nominal value of increased gov't spending will be reflected in an increase in excess reserves. But if this policy is effective in getting the economy back to full employment, why would be assume that the level of excess reserves would be unchanged (and hence that QE would need to be "reversed")? And second, even if the level of reserves is unchanged, what is the basis for believing that the level of reserves, rather than their rate of change, affects aggregate spending and inflation? Rich Chttps://www.blogger.com/profile/11768615623375545324noreply@blogger.comtag:blogger.com,1999:blog-2546602206734889307.post-36623818331989121902012-09-12T21:30:56.369+00:002012-09-12T21:30:56.369+00:00If I read you correctly, you say that QE can be re...If I read you correctly, you say that QE can be reversed in order to avoid inflation, but helicopter money can't.<br />Am I wrong to believe that it is not entirely true? Inflation can be avoided if the government conducts some reverse fiscal policy once full employment is reached, by raising taxes and withdrawing the extra money.<br />Of course, we know that even a German government would not do that.<br />So, the real difference between QE and helicopter money is that QE keeps the policy in the hands of the central bank, and this is why central agree to QE, but won't even consider helicopter money.Zorbloghttps://www.blogger.com/profile/03175779746756984479noreply@blogger.com