Mario Seccareccia on Cochrane’s paper

Cochrane Monetary Policy with Interest on Reserves

Dear Warren,

Sorry not to respond more quickly; but I’ve been swamped with work!

However, I did a cursory reading of Cochrane’s paper which is extremely interesting. For a moment I thought that you must have been coaching him! What is amazing is that these people seem to be completely tribal and never look outside of their own clan or, if one were to be a bit more severe in one’s criticism, they are very much aware of what many of us say but they are just too afraid to cite us because that will then discredit them in the eyes of the mainstream. Hence, this is why he starts off with Friedman, Sargent & Wallace, et al. and seems to suggest that the monetary system has changed because of technological change leading to a diffusion of interest-paying electronic money and now interest on “base” money. All of this is nonsense because we could trace some of these same ideas literally to the nineteenth century within heterodox circles. Hence, to say that the gold standard was a fiscal policy commitment is hardly new and you could probably pull it out of someone as disparate as Karl Polanyi and, yet, it would seem that they are now rediscovering America!

But it is very interesting that he is saying many of the same things that we have been saying for quite some time. On the question of monetary policy, as you know, here we have been paying interest on “reserves” (or more correctly “settlement balances” in Canada, which is actually a more correct vocabulary than “reserves” … since the latter is perhaps suggestive of these “reserves” backing “inside” money, which is nonsense!) for over two decades, and this institutional change in the early 1990s was hardly because of technological change! It was to conduct more efficiently monetary policy when they realized that the control of monetary aggregates was completely futile. In much the same way, the whole issue of controlling the price level via fiscal policy is pure Abba Lerner!!

Hence, I’m really delighted to see that Cochrane is seeing the “light” and seems to understand reasonably well what he describes as the “political economy” concern of his findings. However, it is so depressing to see how “autistic” these people could be. There is not even one mention or reference to MMT or Chartalism, or Post Keynesianism, or anything of the sort! All these changes are merely a natural extension of Friedman 1969, which has been driven by changes in the monetary/technological landscape. That is just so phony and quite irritating to us who know better!

Thanks for the reference. I was unaware of the paper!

Best regards,

Mario

pending home sales y/y

From the NAR: Pending Home Sales Edge Up in April

The Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 0.4 percent to 97.8 in April from 97.4 in March, but is 9.2 percent below April 2013 when it was 107.7.

The PHSI in the Northeast increased 0.6 percent to 79.3 in April, but is 12.0 percent below a year ago. In the Midwest the index rose 5.0 percent to 99.2 in April, but is 6.9 percent below April 2013. Pending home sales in the South slipped 0.6 percent to an index of 111.9 in April, and are 6.4 percent below a year ago. The index in the West declined 2.9 percent in April to 88.4, and is 15.0 percent below April 2013.

Note: Contract signings usually lead sales by about 45 to 60 days, so this would usually be for closed sales in May and June.


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Consumer loans

Beware charts showing only the last bit of this chart that suggest consumer lending is accelerating.

I suggest you go back at least 5 years with any charts to put them in perspective, all of which looks to me like there is no ‘acceleration’, at least not yet. And corporate bond issuance and, recently, which may be contributing to some loan growth:

Consumer loans, all commercial banks:


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Commercial and Industrial loans, All commercial banks, % change from a year ago:


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Hamp increases

Got HAMP? Mortgage payments will increase

By Polyana da Costa

(Bankrate.com) — Monthly house payments will go up soon for homeowners who received government-sponsored loan modifications after the financial crisis.

The first wave of rate and payment increases will begin this year, affecting about 30,000 homeowners who modified their mortgages in 2009 through the Home Affordable Modification Program, or HAMP. Next year, more than 290,000 homeowners will see their rates reset. Eventually, the majority of homeowners who have received a HAMP refinance will pay more for their mortgages.

New home sales

Another uninspiring chart, as sales dipped with the cold weather and only partially recovered, down vs same month last year, and, at best, looking very flat as we enter the ‘prime selling season’

Not to mention inventories are up and the composition of sales was towards condos, last I read:

Highlights



April did provide a spring lift to the housing sector at least compared to March, evident in yesterday’s report on existing home sales and especially evident in today’s 6.4 percent jump in new home sales to a higher-than-expected 433,000 annual rate. Also positive is an upward net revision of 11,000 to the two prior months.

A dip in prices contributed to April’s sales strength with the median price down 2.1 percent to $275,800. Year-on-year, the median price is at minus 1.3 percent for only the second negative reading since July 2012. Prices are now in line with sales where the year-on-year rate is minus 4.2 percent.

But, unlike the existing home sales report that shows a sudden swelling in supply, supply on the new home side remains scarce and will remain a negative for sales. Supply was hardly changed on the month, at 192,000 units for sale, while supply at the current sales rate fell to 5.3 months from March’s 5.6 months.

The new home market got an April bounce but against a very weak March. In context, April’s 433,000 is the second weakest rate of the last seven months. Still, the gain is welcome and should give a slight boost to the housing outlook. The Dow is holding at opening highs following today’s report.

Just landed Portland and still somewhat out of close touch.

My concerns remain that the too small federal deficit is keeping a lid on aggregate demand as the demand leakages continue, and the automatic fiscal stabilizers keep tightening the noose even with modest levels of growth.

It’s also possible the monthly employment numbers have been supported by the 1.2 million who lost benefits at year end taking ‘menial’ jobs, which would ‘front load’ jobs to the first several months of 2014, followed by lower than otherwise increases subsequently.

Early car sales forecasts are coming in just over 16 million, so that chart would continue it’s flattish appearance as well.

I’m thinking June numbers will show whether this economy can keep it’s head up with credit expansion sufficient to replace the reduction in govt deficit spending, or head south.