Question for the MT/MR advocates...what's your position on "tapering"?

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murphy_p_t
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Question for the MT/MR advocates...what's your position on "tapering"?

Post by murphy_p_t » Tue Sep 17, 2013 9:11 pm

Question for the MT/MR advocates...what's your position on "tapering"?

Is there any reason / theoretical need to do it?
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Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by moda0306 » Tue Sep 17, 2013 9:34 pm

Tapering indicates that the fed will raise rates quicker than it otherwise would have.

With unemployment high and us far from our productive potential and inflation very low, raising rates seems premature.

I'd like to see the fed actually raise its inflation target to 3%. Not talking about raising rates prematurely.

But I don't speak for all MR.
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Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by tennpaga » Tue Sep 17, 2013 11:31 pm

murphy_p_t wrote: Question for the MT/MR advocates...what's your position on "tapering"?

Is there any reason / theoretical need to do it?
My personal view:

Its observable effects are due mainly to the odd little two step that seems to exist between investor psychology and Fed communications.

I suppose that QE does lower long-term interest rates a bit.  To the extent that this increases borrowing, this is good for the economy in that it stimulates demand.  I think the effect is very minor, though, because I don;t think the banks are actually doing that much lending.

Is there a theoretical need to do it?  I don't think so.  Or, at least, there aren't any *real* reasons that I'm aware of.

The economy is still muddling along.  This would be the case with or without QE.
Last edited by tennpaga on Wed Sep 18, 2013 7:20 am, edited 1 time in total.
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Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by Kshartle » Wed Sep 18, 2013 6:59 am

moda0306 wrote: Tapering indicates that the fed will raise rates quicker than it otherwise would have.

With unemployment high and us far from our productive potential and inflation very low, raising rates seems premature.

I'd like to see the fed actually raise its inflation target to 3%. Not talking about raising rates prematurely.

But I don't speak for all MR.
How does QE help employment? How does inflation help employment?

If inflation does help the economy, why 3%? Why not 4%? Why not 50? Too much of a good thing?
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Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by murphy_p_t » Wed Sep 18, 2013 8:55 am

I note the irony that a thread specifically requesting the insight of the MT/MR folks gets very little feedback...but the ones which really have nothing to do w/ MT/MR are rapidly dominated in MT/MR chatter.
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Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by Kshartle » Wed Sep 18, 2013 9:03 am

murphy_p_t wrote: I note the irony that a thread specifically requesting the insight of the MT/MR folks gets very little feedback...but the ones which really have nothing to do w/ MT/MR are rapidly dominated in MT/MR chatter.
Perhaps a thread discussing the effects of QE/Tapering from a non-MR/MMT perspective would be interesting. Or maybe everyone is just exhausted.
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Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by Gumby » Wed Sep 18, 2013 9:15 am

murphy_p_t wrote: I note the irony that a thread specifically requesting the insight of the MT/MR folks gets very little feedback...but the ones which really have nothing to do w/ MT/MR are rapidly dominated in MT/MR chatter.
Not sure what you are looking from us. We don't view QE as having an enormous impact on the private sector. We didn't get any richer from it. If anything we have less interest income. It just swapped one financial asset for another and that brought down interest rates. Kind of a big yawn in my book.

The reason why we get animated in the other threads is because people, usually with political agendas, will attempt to paint QE as some kind of terrible policy that somehow makes people in the private sector too rich — but it does no such thing.
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Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by Kshartle » Wed Sep 18, 2013 9:18 am

Gumby wrote: The reason why we get animated in the other threads is because people, usually with political agendas, will attempt to paint QE as some kind of terrible policy that somehow makes people in the private sector too rich — but it does no such thing.
It redistributes purchasing power from producers to non-producers and distorts the economy in negative ways. I've given an example of this in the other thread that I think is very clear. Perhaps it's lacking.
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Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by MediumTex » Wed Sep 18, 2013 9:46 am

I wouldn't call someone who acknowledges the more or less accurate description of current monetary policy as an "MR/MT advocate."

That would be like saying that someone who gets a flu shot is a "flu advocate."

As far as the topic of tapering goes, I'm not really sure what the Fed means by that term.  I am anxious to see, though.
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Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by Gumby » Wed Sep 18, 2013 10:02 am

Kshartle wrote:It redistributes purchasing power from producers to non-producers and distorts the economy in negative ways. I've given an example of this in the other thread that I think is very clear. Perhaps it's lacking.
I think it is lacking, because I still don't understand how anyone has more purchasing power after a QE transaction. The Treasury Bond market is the world's most liquid market. Nobody has any trouble instantly converting their Treasury bonds into cash whenever they want to spend them. All we have to do is walk up to an ATM and hit TRANSFER TO CHECKING and people instantly have the ability to spend their savings that their bank had invested in Treasury Bonds.

Now, I'll tell you why QE does bid up asset prices in the FIRE sector... The reason why is because when a Primary Dealer loses its interest-bearing Treasury Bonds, it winds up with excess reserves. It is no richer, but now it is only getting interest from IOR and not from a 4% 30-year Treasury. So, the bank is up a creek because it has a huge pile of sh*tty reserves that can't be lent out in the overnight market for the FFR (since many banks already have excess reserves) and the Fed will only pay a measly IOR. So, the bank doesn't really enjoy all that excess cash. It's a drag on their balance sheet.

So, there is an opportunity cost to holding excess reserves. Bankers have a quota to generate a certain amount of income for the bank, so the bank will use these reserves to bid up FIRE sector asset prices (gold, stocks, etc) using their quants and High Speed Trading.

In effect, QE stimulates makes banks play "hot potato" with their excess reserves — and the negative real interest rate has a similar effect on you and me — but since the net purchasing power in the economy hasn't changed, the inflationary effect from QE is not very meaningful. In other words, there is no extra purchasing power backing up the "hot potato" effect that QE causes.

So, maybe that's what you are trying to say. And if so, I would agree. But, I don't see our net purchasing power is increasing from a QE transaction. And any inflated asset prices wouldn't be supported very well since the purchasing power is still no different in the private sector.
Last edited by Gumby on Wed Sep 18, 2013 10:18 am, edited 1 time in total.
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Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by tennpaga » Wed Sep 18, 2013 10:07 am

Gumby wrote:
Kshartle wrote:It redistributes purchasing power from producers to non-producers and distorts the economy in negative ways. I've given an example of this in the other thread that I think is very clear. Perhaps it's lacking.
I think it is lacking, because I still don't understand how anyone has more purchasing power after a QE transaction.

...

In effect, QE stimulates makes banks play "hot potato" with their excess reserves — and the low interest rate has a similar effect on you and me — but since the net purchasing power in the economy hasn't changed, the inflationary effect from QE is not very meaningful. In other words, there is no extra purchasing power backing up the "hot potato" effect that QE causes.
+10
Last edited by tennpaga on Wed Sep 18, 2013 10:11 am, edited 1 time in total.
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* Gresham's corollary: Avoid participating in systems where good behavior cannot win.

https://fs.blog/2009/12/mental-model-greshams-law/
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Re: Question for the MT/MR advocates...what's your position on "tapering"?

Post by Kshartle » Wed Sep 18, 2013 10:17 am

TennPaGa wrote:
Gumby wrote:
Kshartle wrote:It redistributes purchasing power from producers to non-producers and distorts the economy in negative ways. I've given an example of this in the other thread that I think is very clear. Perhaps it's lacking.
I think it is lacking, because I still don't understand how anyone has more purchasing power after a QE transaction.

...

In effect, QE stimulates makes banks play "hot potato" with their excess reserves — and the low interest rate has a similar effect on you and me — but since the net purchasing power in the economy hasn't changed, the inflationary effect from QE is not very meaningful. In other words, there is no extra purchasing power backing up the "hot potato" effect that QE causes.
+10
If I print a trillion dollars do I have more purchasing power?

No one has made the argument that there is more purchasing power in total. At least I haven't. Some have more and some have less.

If you can't see how me printing 1 trillion gives me more purchasing power than before..........

Where did that purchasing power come from? Is there more out there now? Or did it come from everyone else?

Can anyone answer those bolded questions?
Last edited by Kshartle on Wed Sep 18, 2013 10:30 am, edited 1 time in total.
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