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I don't see at all why nominal interest rates have to be superior to the interest that people get through other assets (including cash). The real problem is th

by sqrt17 11y ago

I don't see at all why nominal interest rates have to be superior to the interest that people get through other assets (including cash). The real problem is that the base of the reserve requirements are based on demand deposits, which means that customer-centric banks are subject to reserve requirements while investment banks and (e.g.) bitcoin-based deposits are not. Which makes sense to some extent, because customer-centric banks are expected to have some cash on hand, but not to the extent that they would be the (only) ones who suffer from lower nominal interest rates. Alternatives would be, e.g.: a value tax on all investments (don't see how that could be unpopular) devaluing the currency, by printing more money

fredkbloggs 11y ago
> devaluing the currency, by printing more money What does this actually mean? "Printing money" in modern central banking doesn't really exist; all "money" has to be created by someone borrowing it. Reducing lending rates and reserve requirements are intended to stimulate that. If they don't, central bankers resort to monetising government debt in order to increase the money supply; i.e., they rely on the government to borrow the money into existence (QE). If there is limited political will to increase the size of the public debt, that doesn't work either. Of course, increasing the size of the money supply isn't effective at all if the money created is low- or zero-velocity. The one thing no one has actually tried is breaking the link between debt and money, literally printing cash and dumping it out of helicopters (or perhaps more practically, simply adding a fixed amount to every deposit account) with no corresponding increase in debt. That would in fact be "printing money", but such an action does not appear to have been seriously contemplated by any central bank. It would probably be quite effective at increasing velocity, since it would put found money in the hands of large numbers of people who otherwise have no surplus. But we should also note that it is essentially the opposite of negative nominal interest rates (especially if paired with the abolition of cash), which take money out of circulation and add it to reserves. Given the large number of people with no surplus money today, every dollar taken from any of them reduces aggregate demand by one dollar, while adding that dollar to reserves contributes almost nothing to demand. It's pushing on a string, but this time with leverage! It's hard to believe that well-educated economists fall into these mental traps, but they do, all the time.

by sqrt17 11y ago

fredkbloggs 11y ago

> devaluing the currency, by printing more money What does this actually mean? "Printing money" in modern central banking doesn't really exist; all "money" has to be created by someone borrowing it. Reducing lending rates and reserve requirements are intended to stimulate that. If they don't, central bankers resort to monetising government debt in order to increase the money supply; i.e., they rely on the government to borrow the money into existence (QE). If there is limited political will to increase the size of the public debt, that doesn't work either. Of course, increasing the size of the money supply isn't effective at all if the money created is low- or zero-velocity. The one thing no one has actually tried is breaking the link between debt and money, literally printing cash and dumping it out of helicopters (or perhaps more practically, simply adding a fixed amount to every deposit account) with no corresponding increase in debt. That would in fact be "printing money", but such an action does not appear to have been seriously contemplated by any central bank. It would probably be quite effective at increasing velocity, since it would put found money in the hands of large numbers of people who otherwise have no surplus. But we should also note that it is essentially the opposite of negative nominal interest rates (especially if paired with the abolition of cash), which take money out of circulation and add it to reserves. Given the large number of people with no surplus money today, every dollar taken from any of them reduces aggregate demand by one dollar, while adding that dollar to reserves contributes almost nothing to demand. It's pushing on a string, but this time with leverage! It's hard to believe that well-educated economists fall into these mental traps, but they do, all the time.