Comments on: Eurozone buying time

By: warren mosler

warren mosler — Wed, 10 Mar 2010 15:08:49 +0000

the ecb credits member bank accounts

the ecb debits its accounts payable to the european parliament, or whatever they call that account where they turn over profits every year to the ep. no problem with that account going negative. they can still turn over anything they want to.

By: JKH

JKH — Wed, 10 Mar 2010 11:55:59 +0000

Ramanan,

No wonder he knows how it works; he actually does a real job at the Fed – the system open market account. Interesting career path. He’ll put out some interesting papers down the road. Every economist should spend some time on a money desk, but virtually none do.

BTW, I disagree with virtually everything said above regarding the influence of the funds rate and reserve interest on other rates. But I’ll leave it at that for now. I’ve spent enough time arguing how banks work with delusional monetarists, and don’t want to extend that here among more informed company.

I would be interested however, if you or anybody have any thoughts on the accounting entries for the $ 1 trillion Euro drop, per:

http://moslereconomics.com/2010/03/09/eu-should-create-euro-area-monetary-fund/#comment-17161

By: Ramanan

Ramanan — Wed, 10 Mar 2010 07:08:34 +0000

and “Brian Sack Engineers Big Moves at Fed” http://online.wsj.com/article/SB125720947716624249.html

By: Ramanan

Ramanan — Wed, 10 Mar 2010 07:06:33 +0000

Who is Brian Sack ?

http://blogs.wsj.com/economics/2009/04/17/who-is-brian-sack/tab/article/

By: RSJ

RSJ — Wed, 10 Mar 2010 06:43:08 +0000

Isn’t Minneapolis the ground zero of RBC? Looking at the research papers coming out of the Minneapolis Fed compared to say the SF Fed, I always thought that they were more acutely cognitively captured by the freshwater schools.

By: RSJ

RSJ — Wed, 10 Mar 2010 06:35:27 +0000

No, it wouldn’t boost incomes in aggregate — that is a fallacy of composition.

Higher interest rates do not increase the incomes of asset holders — every interest payment is a benefit to the note holder but a cost to someone else that would want to sell the borrower a product, so the asset holders of those companies get fewer dividends, and the note holders get more. In a diversified portfolio it washes out.

In aggregate, it is the amount borrowed that determines the increase in financial assets — i.e. change in liabilities = change in assets — not the terms of repayment.

The latter enters into the picture only to the degree that it encourages or discourages more aggregate borrowing, and a spike in rates would decrease aggregate debt growth, and therefore decrease the growth of assets.

By: winterspeak

winterspeak — Wed, 10 Mar 2010 05:56:49 +0000

Yeah, but boy would it boost income to savers. I’m just curious to see if the fiscal effect is large enough to get AD back up. If have customers in the door, you aren’t as reliant on revolving CP.

By: RSJ

RSJ — Wed, 10 Mar 2010 02:23:44 +0000

There would be too much collateral damage from non-financial businesses that need to roll over CP

By: winterspeak

winterspeak — Wed, 10 Mar 2010 00:32:14 +0000

I’d love to see a 20% rate hike in this environment

By: Matt Franko

Matt Franko — Wed, 10 Mar 2010 00:11:21 +0000

Minneapolis may not be in any better shape: “It is reasonable to suppose that banks have been willing to hold such a large volume of assets at the Fed because short-term interest rates offered by the market have declined to essentially zero, while the Fed has been paying interest at an annualized rate of 25 basis points (0.25 percent) on balances held at the Fed….If banks draw down their excess reserves too quickly as they seek to use these funds for alternative purposes (such as making personal loans or business investments), the economy will be flooded with more liquidity than it may be able to handle…”

I just wish that they would at least also acknowledge that they are willing to continue with the Credit Easing as a legitimate alternative policy if deflation starts up again after they take their break at the end of this month. No one in the System seems to want to even mention this….Resp,