Solid Paper on the new age Monetary System and the Fed's role - AKP-onomics

[akphidelt]

Alright, first off... you conservatives can close this now. This doesn't come from a blogger, and uses big words and math. No pictures with random quotes on them, lol.

Anyways, this kind of touches on everything I've talked about with the Fed and the banking system since the Great Recession ended. To summarize these points, for many people that are still sold on the high school text book banking system, you will not believe this but eventually people will get smarter.

#1) The monetary base is essentially useless to the creation of money. As in there is no money multiplier effect in our system. As in the Federal Reserve does not increases reserves in order to increase the amounts can lend. The Fed simply targets interest rates.

#2) Interest on reserves is the new trigger the Fed's have in targeting their interest rates and it's not going away. Which means, they will likely leave the trillions of reserves that were created in the banking system for the foreseeable future.

#3) The Fed does not control cash levels. If banks need cash they are freely exchanged for reserves. Nothing but an asset swap and means pretty much nothing to the economy.

#4) The Fed does not control the broad money supply. That is controlled by banks lending standards and demand for loans. Which is one reason I've said for years that we are in no danger of serious inflation despite the trillions of dollars in new reserves. But many (on the right of course) still think hyperinflation is right around the corner, lol.

#5) Currency is pretty much useless in any new description of how the monetary system works.

Here's a nice little quote from the article...

“Cash still exists in rather surprising quantity – about a trillion dollars, or more than $3,000 per capita, 77% of it in hundred-dollar bills. But you and I, corporate businesses, and financial markets use trivial amounts of cash. The legal, and especially corporate and financial economies, have moved to electronic, interest-bearing money. Almost all of us pay by credit cards or debit cards, linked to accounts that will, when interest rates rise, pay interest, and are mostly settled by netting between our banks –an essentially electronic accounting system. Cash really is only used in any substantial quantity for illegal transactions, undocumented people, and store of value in foreign mattresses.


For this reason, as a modeling approximation, it seems wiser to think of cash holdings as disconnected from nominal (legal) GDP, than to found control of nominal GDP on control of cash balances not used for most of GDP. Empirically, cash holdings just trundle with little apparent connection to the economy and, especially, the financial system. Unredeemed coupons, unused subway cards, sock-drawer change, that stack of receipts you’ve been putting off submitting for reimbursement, and, more seriously, invoices and some trade credit are also non-interest paying claims. But they’re not tightly connected to output or price level determination. Controlling the inventory of unredeemed coupons would not control the price level.


Furthermore, the Fed does not control the quantity of cash, as Fama prescribes. For MV = PY to control PY, the Fed must control the M, as well as V being determined and stable. The Fed allows banks freely to exchange cash for reserves.


For these reasons, it makes more sense, I think, to abstract from cash –along with unredeemed coupons and the rest of my humorous list of non-interest-bearing claims – and think of a monetary system based entirely on interest-paying reserves, and consisting entirely of interest-paying electronic money. Reserves, not cash, are really our fundamental numeraire and means of final payment. We certainly don’t want to embark on the alternative abstraction –that the functioning of monetary policy and the control of inflation centrally revolves around the demand for cash, almost all of which is held for illegal purposes.


More generally, some monetary frictions do remain. There are tiny spreads between treasuries and reserves. There are on-the-run and other small liquidity spreads in treasuries. But I think it would be a mistake to base our basic analysis of big questions of monetary policy – can monetary policy affect GDP and the price level, and if so how – on these ephemeral frictions, using models that, if those frictions were to disappear, would not be able to describe monetary policy and price level determination at all. Instead, it seems more sensible to base our analysis on a theory that is valid in a world with no monetary frictions at all, and then add frictions as necessary to understand second-order effects.


This discussion about money may seem quaint, because our Federal Reserve explicitly targets interest rates rather than monetary aggregates, and obviously will continue to do so. So, the central class of theory needed is a theory that describes how Fed manipulation of interest rate targets, not M, controls the price level.”

​

http://faculty.chicagobooth.edu/john.cochrane/research/papers/cochrane_policy.pdf

 

[brucefan]

Alright, first off... you conservatives can close this now. This doesn't come from a blogger, and uses big words and math. No pictures with random quotes on them, lol.

Anyways, this kind of touches on everything I've talked about with the Fed and the banking system since the Great Recession ended. To summarize these points, for many people that are still sold on the high school text book banking system, you will not believe this but eventually people will get smarter.

#1) The monetary base is essentially useless to the creation of money. As in there is no money multiplier effect in our system. As in the Federal Reserve does not increases reserves in order to increase the amounts can lend. The Fed simply targets interest rates.

#2) Interest on reserves is the new trigger the Fed's have in targeting their interest rates and it's not going away. Which means, they will likely leave the trillions of reserves that were created in the banking system for the foreseeable future.

#3) The Fed does not control cash levels. If banks need cash they are freely exchanged for reserves. Nothing but an asset swap and means pretty much nothing to the economy.


Why would they need cash? If they exchange it for reserves, they are exchanging it for counterfeit money no?




]#4) The Fed does not control the broad money supply. That is controlled by banks lending standards and demand for loans. Which is one reason I've said for years that we are in no danger of serious inflation despite the trillions of dollars in new reserves. But many (on the right of course) still think hyperinflation is right around the corner, lol.





#5) Currency is pretty much useless in any new description of how the monetary system works.

Here's a nice little quote from the article...



http://faculty.chicagobooth.edu/john.cochrane/research/papers/cochrane_policy.pdf

The Fed does not control cash levels. If banks need cash they are freely exchanged for reserves. Nothing but an asset swap and means pretty much nothing to the economy.


Why would they need cash? If they exchange it for reserves, they are exchanging it for counterfeit money no?

The inflation already been created. Its already serious . Where the money goes is unknown. The wrong market signals are being sent creating all sorts of malinvestment . Bubbles are being created all over the place . The inflation is showing up in the stock market, the bond market, and housing. Prices should be falling . There is no loan demand because the government is taking all the credit out of the system ,though their borrowing as banks get a risk free loan to buy treasuries This whole piece is nonsense

 

[akphidelt]

The Fed does not control cash levels. If banks need cash they are freely exchanged for reserves. Nothing but an asset swap and means pretty much nothing to the economy.


Why would they need cash? If they exchange it for reserves, they are exchanging it for counterfeit money no?

The inflation already been created. Its already serious . Where the money goes is unknown. The wrong market signals are being sent creating all sorts of malinvestment . Bubbles are being created all over the place . The inflation is showing up in the stock market, the bond market, and housing. Prices should be falling . There is no loan demand because the government is taking all the credit out of the system ,though their borrowing as banks get a risk free loan to buy treasuries This whole piece is nonsense

If you are going to respond at least read the paper and make some kind of coherent argument.

 

[Dave007inVegas]

The Fed does not control cash levels. If banks need cash they are freely exchanged for reserves. Nothing but an asset swap and means pretty much nothing to the economy.


Why would they need cash? If they exchange it for reserves, they are exchanging it for counterfeit money no?

The inflation already been created. Its already serious . Where the money goes is unknown. The wrong market signals are being sent creating all sorts of malinvestment . Bubbles are being created all over the place . The inflation is showing up in the stock market, the bond market, and housing. Prices should be falling . There is no loan demand because the government is taking all the credit out of the system ,though their borrowing as banks get a risk free loan to buy treasuries This whole piece is nonsense

 

[brucefan]

I read it but got stuck , can you explain Qt


Bt




Taking unexpected values, we .nd at t = 2 that .scal policy fully determines the unexpected
time 2 price level.
B(2)
1 (E2 �� E1)

1
P2

= (E2 �� E1) s2:
But at time 1, we .nd
B(1)
0 (E1 �� E0)

1
P1

= (E1 �� E0) s1 + (E1 �� E0)
(
B(2)
1 �� B(2)
B(2)
1
s2
)
: (9

 

[Dave007inVegas]

I read it but got stuck , can you explain Qt


Bt




Taking unexpected values, we .nd at t = 2 that .scal policy fully determines the unexpected
time 2 price level.
B(2)
1 (E2 �� E1)

1
P2

= (E2 �� E1) s2:
But at time 1, we .nd
B(1)
0 (E1 �� E0)

1
P1

= (E1 �� E0) s1 + (E1 �� E0)
(
B(2)
1 �� B(2)
B(2)
1
s2
)
: (9

 

[akphidelt]

If you read it, you would know, his view on cash is that it is meaningless when trying to explain our monetary system. It's pretty much used by foreign countries to store and criminals. So the Fed does not control or care about cash/currency. It's driven by demand. So there has to be other mechanisms driving our system.

 

[Dave007inVegas]

If you read it, you would know, his view on cash is that it is meaningless when trying to explain our monetary system. It's pretty much used by foreign countries to store and criminals. So the Fed does not control or care about cash/currency. It's driven by demand. So there has to be other mechanisms driving our system.

Thanks for clearing that up.

 

[SheriffJoe]

I read it but got stuck , can you explain Qt

Bt

Taking unexpected values, we .nd at t = 2 that .scal policy fully determines the unexpected
time 2 price level.
B(2)
1 (E2 E1)

1
P2

= (E2 E1) s2:
But at time 1, we .nd
B(1)
0 (E1 E0)

1
P1

= (E1 E0) s1 + (E1 E0)
(
B(2)
1 B(2)
B(2)
1
s2
)
: (9

Absolutely priceless.

'Academia' ("those who cannot do, teach") still don't understand the basic law of supply and demand. face)(*^%

If you want to know what "AKP-onomics" looks like, look no further than the failed 'stimulus' and this:

Abenomics (aka akphidelt-onomics) close to perfect in Japan! What a shocker.

http://www.therxforum.com/showthread.php?t=977921

 

[akphidelt]

Absolutely priceless.

'Academia' ("those who cannot do, teach") still don't understand the basic law of supply and demand. face)(*^%

If you want to know what "AKP-onomics" looks like, look no further than the failed 'stimulus' and this:

Abenomics (aka akphidelt-onomics) close to perfect in Japan! What a shocker.

http://www.therxforum.com/showthread.php?t=977921

Lol, birther loon Joe still thinks he understands economics because he knows the "basic law of supply and demand", whatever that is. I guess when you are a loon conservative you can just make up whatever shit you want. Screw math, logic, education, etc.

 

[SheriffJoe]

Lol, birther loon Joe still thinks he understands economics because he knows the "basic law of supply and demand", whatever that is. I guess when you are a loon conservative you can just make up whatever shit you want. Screw math, logic, education, etc.

Yes, screw you and your failed Keynesian demand-centric ideology.

 

[SheriffJoe]

"math, logic, education" ointer:

 

[SheriffJoe]

Lol, birther loon Joe still thinks he understands economics because he knows the "basic law of supply and demand", whatever that is. I guess when you are a loon conservative you can just make up whatever shit you want. Screw math, logic, education, etc.

face)(*^%

You need to start from the beginning, the very beginning.

The law of supply and demand is the common sense principle explained in every econ textbook that defines the generally observed relationship between demand, supply and prices: as demand increases the price must go up, which attracts new suppliers who increase the supply bringing the price back down to normal.

babble, babble, babble....basic math, education, logic...babble, babble, babble...basic math, education, logic...babble, babble, babble (ad infinitum)...

You're too smitten with Chris Matthews-like 'tingles ("the epitome of perfection") too ignorant to realize you have no fucking idea what you're talking about, hence your predictable response to brucefan:

"If you are going to respond at least read the paper and make some kind of coherent argument." :Carcajada:

Same ol, same ol' aaaktard.

Only this time you forgot your trademark, "you sound very educated, lol" and "you're very dumb, lol"...so you're slipping.

Clueless poseur.

Loser!@#0

 

[akphidelt]

Sheriff Joe posting the same shit as always. The loon will never learn, lol. Poor fella.