Saturday, June 3, 2017

Our new central banker needs some educating

One of Trump’s potential Fed picks is a huge fan of negative interest rates

The zero interest bound is an encumbrance on monetary policy to be removed, much as the gold standard and the fixed foreign exchange rate encumbrances were removed, to free the price level from the destabilizing influence of a relative price over which monetary policy has little control—in this case, so movements in the intertemporal terms of trade can be reflected fully in interest rate policy to stabilize employment and inflation over the business cycle.
The zero bound is equivalent to currency insurance built into the system.   The constraint occurs because there is a fixed, constant wedge between the Feds rates paid out and rates paid in, an impossibility only  maintained  by unsustainable government implied bailouts.

What the monetary system needs to get negative rates is a maximum entropy  default machine for the senators. . Have Janet call me, I will negotiate my fee and fix the problem with my fabulous Redneck fair traded pits.

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