Comments on: Fed funds datapoint of the day http://blogs.reuters.com/felix-salmon/2009/05/27/fed-funds-datapoint-of-the-day/ A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: Ludwig Berstein http://blogs.reuters.com/felix-salmon/2009/05/27/fed-funds-datapoint-of-the-day/comment-page-1/#comment-2076 Wed, 27 May 2009 22:53:56 +0000 http://blogs.reuters.com/felix-salmon/2009/05/27/fed-funds-datapoint-of-the-day/#comment-2076 It will be an interesting summer, housing is showing signs of recovery, but labor is deep in the red. Bernanke should really just leave rates at zero and head to the beach.

– L. Berstein
ludwigreport.com

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By: Alexis Nicasio http://blogs.reuters.com/felix-salmon/2009/05/27/fed-funds-datapoint-of-the-day/comment-page-1/#comment-2061 Wed, 27 May 2009 20:29:54 +0000 http://blogs.reuters.com/felix-salmon/2009/05/27/fed-funds-datapoint-of-the-day/#comment-2061 “[H]as likely only partially offset the funds rate shortfall” makes it sound like the problem with quantitative easing is that there just hasn’t been enough of it.

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By: Don the libertarian Democrat http://blogs.reuters.com/felix-salmon/2009/05/27/fed-funds-datapoint-of-the-day/comment-page-1/#comment-2053 Wed, 27 May 2009 18:50:56 +0000 http://blogs.reuters.com/felix-salmon/2009/05/27/fed-funds-datapoint-of-the-day/#comment-2053 Let me recommend the following:

“It’s easy to envision such a system with regard to deposits at the Federal Reserve or transactions deposits at banks; for the most part, the technology to implement such a system is already in place. The main difficulty—both technological and political—lies in imposing such a tax on currency. In the 1930s, Yale economist Irving Fisher proposed such a system, in which currency had to be periodically “stamped,” for a fee, to retain its status as legal tender.[1] The stamp fee could be calibrated to generate any negative nominal interest rate the central bank desired.

While the technology available for implementing such a system is more sophisticated today than in Fisher’s time, enforcement still seems a mammoth problem. It would require physical modifications to currency and some means of tracking the length of time each piece spends in circulation.”

See the following:

Irving Fisher (1933), Stamp Scrip (New York: Adelphi). Fisher credits the stamp money idea to the German–Argentine economist and businessman Silvio Gesell.

Here’s what Buiter says:

“2) Tax currency and ‘stamp’ it to show it is ‘current on interest due’. This is Silvio Gesell’s proposal, supported by Irving Fisher and re-introduced into the policy debate by Marvin Goodfriend and by myself and Nikolaos Panigirtzoglou.[2] When the interest rate on currency is positive, the currency must be marked (by stamping or clipping coupons) to make sure the (anonymous) bearer does not present it repeatedly for the payment of interest. When the interest rate is negative, the (anonymous) bearer must (a) be induced to come forward to receive his negative interest (i.e. pay interest to the central bank) and (b) must be able to demonstrate that the negative interest has been received. To ensure (b), the currency must again be stamped or marked (electronically tagged). To get the bearer to come forward to pay the negative interest we can either rely on honesty and a sense of patriotic duty, or we can impose sanctions for non-compliance. I am afraid penalties for non-compliance (fines, a day in the stocks) would be required to make negative interest on currency work. This would require random checks etc. It would be administratively costly and unpleasantly intrusive. This may well endear the notion to our governments. ”

I like it. And from Brendan Brown on the economistsforum on FT:

“The relevant government would announce that existing banknotes were to be converted into new notes at a fixed date, say three years from now, at a discount (for example 100 old dollar banknotes would be converted into 90 new).

In the interim, 1:1 conversion of banknotes into deposits would be suspended. Instead, a crawling peg would be established. At the start, the exchange rate between deposits and banknotes would be virtually 1:1. At the end it would be 0.9 banknotes/deposit.

As the discount grew, retailers would quote different prices for cash or cheque/card settlement. And as to the note switch-over costs, the “experiment” of Europe’s economic and monetary union demonstrates the feasibility.

The looming conversion would provide an essential degree of freedom for monetary policy. In terms of our illustrative arithmetic, the risk-free interest rate could fall to a negative 3.33 per cent a year without triggering cash withdrawals from the banking system.

Is the exercise worth it?”

I say, emphatically, yes. Let’s give this idea a try.

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By: Fred Engels http://blogs.reuters.com/felix-salmon/2009/05/27/fed-funds-datapoint-of-the-day/comment-page-1/#comment-2045 Wed, 27 May 2009 16:49:50 +0000 http://blogs.reuters.com/felix-salmon/2009/05/27/fed-funds-datapoint-of-the-day/#comment-2045 If Simon Johnson ever needed any more proof of his idea of the “intellectual capture” of government and the FED by Wall Street , this is it.

Estimating a model on data from any period before 2007 is simply wrong. It is a sign of total intellectual bankruptcy that the FED can produce such and argument that blatantly ignores the fact that we are in a different world.

Even more sinister: This amazingly flawed analysis was first presented by Goldman Sachs ( surprisingly endorsed by Krugman on his blog ) and now presented by the FED.

Its “findings” can be used to justify anything Wall Street wants: QE, long periods of zero rates , anything that perpetuates the mis-allocation of capital that the original sin of the Greenspan Put institutionalised.

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