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ZIRP stands for Zero Interest Rate Policy. BTW it's also the only sensible monetary policy in an economy that issues its own currency on a floating exchange ra
by dools 2y ago
ZIRP stands for Zero Interest Rate Policy.
BTW it's also the only sensible monetary policy in an economy that issues its own currency on a floating exchange rate. Paying interest on reserves or bonds is solely a policy choice and acts as a transfer payment (ie. welfare) for the rich.
- mitthrowaway2 2y agoThat's a very contentious position. I understand that it's a commonly held view among MMT proponents, with whom I mostly agree, but I don't think they have paid enough attention to the importance of interest rates in deflating debt-fueled asset bubbles.
- dools 2y agoI don't know if I can say that I speak for MMT proponents generally but in his lecture on stabilising an unstable economy[1] Wray puts forward a series of very simple regulatory changes that would avoid those types of problems. In other words, regulatory oversight is a better tool for managing those types of bubbles than monetary policy. Mosler also talks about interest rate policy in his debate with Murphy[2] and has a long career in finance in both a public and private capacity. I don't think you could say he hasn't paid enough attention to anything to do with interest rates! [1] Lectures 6 & 7 in this series https://www.youtube.com/watch?v=SFf95BVx9Qw&list=PLYvSXI9SKGf2lIno6TI0r_PbLX_cpAwuu&index=7&t=39s https://www.youtube.com/watch?v=SFf95BVx9Qw&list=PLYvSXI9SKG... [2] https://www.youtube.com/watch?v=cUTLCDBONok&t=5347s https://www.youtube.com/watch?v=cUTLCDBONok&t=5347s
- jgalt212 2y agoit's a nice theory, but there's no practice or experiments to back up the theory.
- dools 2y agoJapan had an asset bubble that monetarists blamed on their lack of action to tighten the money market by increasing interest rates. Their economy tanked and they switched to ZIRP in the late 90s and have been there more or less ever since, with no runaway inflation or asset bubbles. So at best you could say that the impact of monetary policy on inflation and GDP is indeterminate, however it is more likely than not going to be inflationary because increasing interest rates increases net financial assets in the private sector by increasing transfer payments to rich people.
- pessimizer 2y agoIf we don't, I don't understand how we convince them to keep giving us money when the US account is $20 trillion in the hole. US currency may not be real for the US government, but foreign currency is absolutely real. We can't print it. https://www.bea.gov/data/intl-trade-investment/international-investment-position https://www.bea.gov/data/intl-trade-investment/international... edit: and speaking of welfare for the rich, the $20T sucked out of the rest of the world into the US seems a lot like that.
- dools 2y agoWhen other countries export to the US, they send real goods and get USD denomiated reserves in accounts at the fed in return. They swap some of those USD denominated reserves for USD denominated bonds, because the US federal government has decided that they want to target specific interest rate and so they do so using domestic market operations. At no point is the US federal government taking on debt denominated in a currency it does not issue (at least not in any significant amounts).
- pessimizer 2y agoI don't remember saying that it did. Our need for foreign currency isn't going to disappear. The question was about whether we should pay interest on US bonds. The interest on government bonds is a reason for them to be held.