tag:blogger.com,1999:blog-2277215496195926573.post5381503481890302708..comments2024-01-01T07:41:51.347-08:00Comments on RALPHONOMICS: I back the MMT permanent zero interest rate policy.Ralph Musgravehttp://www.blogger.com/profile/09443857766263185665noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-2277215496195926573.post-71753086076548774682014-05-22T08:52:03.116-07:002014-05-22T08:52:03.116-07:00Strikes me those sort of capital flows are just as...Strikes me those sort of capital flows are just as much a problem for conventional policy: i.e. adjusting interest rates so as to adjust demand. E.g. if a country raises its base rate with a view to damping down lending and hence demand, foreign money then pours in so as to take advantage of the higher rates, thus partially nullifying the intended effect of those higher rates.Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-60279820516107166872014-05-22T08:25:44.580-07:002014-05-22T08:25:44.580-07:00Are you assuming all other major economies also ha...Are you assuming all other major economies also have zero inteerst rates?<br />Or are you assuming controls to prevent capital outflows? <br /><br />If domestic interest rates are lower than abroad, wouldn't there be a major effect on domestic investment form local and foreign sources? <br /><br />And what would the effects be on the exchange rate and thence on the domestic economy?.KongKinghttps://www.blogger.com/profile/10992633301481631373noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-63006852968577303542014-05-22T03:28:10.473-07:002014-05-22T03:28:10.473-07:00Thanks for the clarification, I think I agree, I n...Thanks for the clarification, I think I agree, I need to mull this over some more. My particular concern is private bank credit creation which seems to be able to change on a time scale more quickly than the usual government spending/taxing time table. Not only that with respect to lending on assets it can become self feeding leading to bubble ultimately requiring central banks to monetize so as to prevent massive deleveraging. Again I think your correct that interest rates are not the right tool, the problem is central banks seem to want to turn a blind eye to this problem and the election time table for governments means they often have a vested interest in promoting this type of unsustainable credit creation.POKhttps://www.blogger.com/profile/16111950298664203217noreply@blogger.comtag:blogger.com,1999:blog-2277215496195926573.post-64807622230489722512014-05-22T02:59:52.538-07:002014-05-22T02:59:52.538-07:00“P.O.K.” on Twitter responded to the above by sayi...“P.O.K.” on Twitter responded to the above by saying “…but isn't priv banks willingness to create money influenced by base rate and isn't there an interaction between horiz and vertical”.<br /><br />My answer is “yes and yes”. (By the way, veritcal money is central bank money and horizontal is commercia bank created money).<br /><br />However, the fact that commercial banks’ willingness to lend can be influenced by base rates does not prove that’s the best way of adjusting demand. In addition to the two studies I mentioned above which indicate that interest rate adjustments don’t have much effect, there are several further reasons for doubting the wisdom of interest rate adjustments. See:<br /><br />http://ralphanomics.blogspot.co.uk/2012/03/sixteen-reasons-why-mmt-is-right-on.html<br /><br />An alternative way of adjusting demand is simply to adjust the amount of money the government / central bank machine creates and net spends (“net spending” refers to spending net of tax: i.e. stimulus can be imparted either by increased govt spending or by tax cuts, depending on your political preferences).<br /><br />Certainly Positive Money and Prof. Richard Werner favour that way of adjusting demand, and far as I can see, most MMTers think likewise.<br /><br />Ralph Musgravehttps://www.blogger.com/profile/09443857766263185665noreply@blogger.com