Sunday, March 3, 2019

Brad sort of has the issue

Thus there are two not-wrong ways to deal with the zero lower bound problem:
  1. Keep your inflation target high enough that you do not hit the zero lower bound.
  1. If you do hit the zero lower bound, immediately do everything you can to push the inflation rate up until the zero nominal interest rate you have generates the neutral rate interest rate you need.
In central banker theory, when you hit lower bound government is already in default, it doesn't have the liquidity to meet its promises.  Brad's solution 1 means for Congress to keep a tighter hold on funds to conserve liquidity. Solution 2 means we should plan on defaulting for the past over-run, which is now not payable but due.

OK,  I agree. Two parts of my four part plan, default over 15 years, and let government agencies keep separate Fed accounts. That is likely enough for a more modern central banking regime over a 15 year period.

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