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"The reason why I write so frequently about monetary policy is because it is so important." It isn't important. It's been made important by financiers. What t
by neilwilson 4y ago
"The reason why I write so frequently about monetary policy is because it is so important."
It isn't important. It's been made important by financiers.
What the last 50 years have shown is that trying to manage an economy by trying to influence the amount of credit is a fool's errand.
Instead we should set that ship free - and leave it up to the private sector to determine interest rates amongst themselves. That means anchoring monetary policy at zero base rates.
Instead we should be rationing firms access to labour by pushing for higher wages with a much higher minimum wage and preferably a guaranteed job for all at the higher minimum wage.
What we need to make firms efficient is reassuringly expensive labour. That way they will use the cheap access to capital to borrow, invest in technology and drive forward productivity - solely so they can use less of the expensive labour.
It's time to get banks, lending, and finance out of the prime path. As the Chinese have.
- zozbot234 4y agoIt's simply not possible to anchor policy rates to any value. Rates behave according to an unstable equilibrium; when they're too low (i.e. deflation) they tend to go lower; when too high (hyperinflation) they run even higher. It's possible to peg an exchange rate, or the value of a commodity (such as gold) or a basket of goods (such as those used for the CPI), etc. (Currently, policy approximates a crawling peg on the PCE consumption basket, but this is only an approximation.)
- landemva 4y ago>>> zero base rates When I take the risk to loan out money, I want more return than zero. Why would anyone bother at zero? Maybe reading the enabling legislation would be useful. https://www.law.cornell.edu/uscode/text/12/225a https://www.law.cornell.edu/uscode/text/12/225a ' maximum employment, stable prices, and moderate long-term interest rates. ' I'm interested in the forgotten 'stable prices' part.
- chillacy 4y agoLenders add to the base rate so the return is nonzero afaik.
- gizmo686 4y agoManaging the economy through wages is politically impossible. To be effective, you need to be able to both raise and lower wages as conditions demand. If the Fed has such a lever and decides to lower wages, it will not survive the political bloodbath that follows.