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Olivier Blanchard: Monetary Policy Will Never Be the Same

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Yves here. Even when Blanchard takes pains to characterize his remarks as personal, they can at least be assumed to have a solid following at the IMF. His effort to summarize findings from a recent IMF conference, the one that garnered a great deal of attention due to Larry Summer’s remarks on secular stagnation, can also be seen as a statement of what I call leading edge conventional wisdom among mainstream economists. What caught my eye was his defense of budgetary orthodoxy, in his “fiscal house in order” aside at the top, and his more encouraging defense of higher levels of inflation, which would be consistent with a stronger pro-employment monetary stance.

By Olivier Blanchard, Chief Economist, IMF. Originally posted at href=”http://www.voxeu.org/article/monetary-policy-will-never-be-same”>VoxEU

Two weeks ago, the IMF organized a major research conference, in honour of Stanley Fischer, on lessons from the crisis. Here is my take. I shall focus on what I see as the lessons for monetary policy, but before I do this, let me mention two other important conclusions.

One, having your macro house in order pays off when there is an (external) crisis. In contrast to previous episodes, wise fiscal policy before this crisis gave emerging market countries the room to pursue countercyclical fiscal policies during the crisis, and this made a substantial difference.
Second, after a financial crisis, it is essential to rapidly clean up and recapitalize the banks. This did not happen in Japan in the 1990s, and was costly. But it did happen in the US in this crisis, and it helped the recovery.

Now let me now turn to monetary policy, and touch on three issues: the implications of the liquidity trap, the provision of liquidity, and the management of capital flows.

On the liquidity trap: we have discovered, unfortunately at great cost, that the zero lower bound can indeed be binding, and be binding for a long time—five years at this point. We have also discovered that, even then, there is still some room for monetary policy. The bulk of the evidence is that unconventional policy can systematically affect the term premia, and thus bend the yield curve through portfolio effects. But it remains a fact that compared to conventional policy, the effects of unconventional monetary policy are very limited and uncertain.

There is therefore much to be said for avoiding the trap in the first place in the future, and this raises again the question of the inflation rate. There is wide agreement that in most advanced countries, it would be good if inflation was higher today. Presumably, if it had been higher pre-crisis, it would be higher today. To be more concrete, if inflation had been 2 percentage points higher before the crisis, the best guess is that it would be 2 percentage points higher today, the real rate would be 2 percentage points lower, and we would probably be close in the US to an exit from zero nominal rates today.

We should not dismiss the possibility, raised by Larry Summers that we may need negative real rates for a long time. Countries could in principle achieve negative real rates through low nominal rates and moderate inflation. Instead, we are still facing today the danger of an adverse feedback loop, in which depressed demand leads to lower inflation, lower inflation leads to higher real rates, and higher real rates lead in turn to even more depressed demand.

Turning to liquidity provision: in advanced countries (but, again, the lesson is more general), we have learned that runs are relevant not only for banks, but also for other financial institutions, and for governments. In an environment of high public debt, rollover risks cannot be excluded. An implication, and one of the themes emphasized by Paul Krugman, is that it is essential to have a lender of last resort, ready to lend not only to financial institutions but also to governments. The evidence on periphery sovereign bonds in the euro area, pre and post the European Central Bank’s announcement of outright monetary transactions, is quite convincing on this point.

Finally, turning to capital flows. In emerging markets (and, more generally, in small advanced economies, although these were not explicitly covered at the conference), the evidence suggests the best way to deal with volatile capital flows is by letting the exchange rate absorb most—but not necessarily all—of the adjustment.

The standard argument in favour of letting the exchange rate adjust was stated by Paul Krugman at the conference. If investors want to take their funds out, let them: the exchange rate will depreciate, and this will lead, if anything, to an increase in exports and an increase in output.

Three arguments have traditionally been given, however, against relying on exchange rate adjustment. The first is that, to the extent that domestic borrowers have borrowed in foreign currency, the depreciation has adverse effects on balance sheets, and leads to a decrease in domestic demand that may more than offset the increase in exports. The second is that much of the nominal depreciation may simply translate into higher inflation. The third is that large movements in the exchange rate may lead to disruptions, both in the real economy and in financial markets.

The evidence, however, is that the first two are much less relevant than they were in previous crises. Thanks to macroprudential measures, to the development of local currency bond markets, and to exchange rate flexibility and thus a better perception by borrowers of exchange rate risk, foreign exchange exposure in emerging market countries is much more limited than it was in previous crises. And thanks to increased credibility of monetary policy and inflation targets, inflation expectations appear much better anchored, leading to limited effects of exchange rate movements on inflation.

However the third argument remains relevant. And this is why central banks in emerging market countries have not moved to full float, but to “managed float,” that is the joint use of the policy rate, foreign exchange intervention, macroprudential measures, and capital controls. This has allowed them to reduce the old dilemma that arises when the only instrument used is the policy rate: an increase in the policy rate may avoid the overheating associated with capital inflows, but at the same time, it may make it even more attractive for foreign investors to come in. Foreign exchange intervention, capital controls, and macro prudential tools can, at least in principle, limit movements in exchange rates, and disruptions in the financial system without recourse to the policy rate. Countries have used all of these tools in this crisis. Some have relied more on capital controls, some more on foreign exchange intervention. And the evidence, both from the conference, but also from work at the IMF, suggests that these tools have worked, if not perfectly. Looking forward, the clear (and quite formidable) challenge is to understand how best to combine them.

In short, monetary policy will never be the same after the crisis. The conference helped us understand how it had moved, and where we have to focus our research and policy efforts in the future.

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73 comments

  1. J Doe

    Enough is Enough.
    I am a pensioner with a heathly bank account in Europe. I have no recourse to social funding of any sort or type at all during my retirement.
    Are you Yves advocating that I must spend my money to kick start the economy, becaue if I don’t spend my money on shit at the Malls it’s my fault that there’s a recession ?.
    If I do spend mt reserves is the government going to pat me on the back and say, “well done John, thanks for helping us out, here’s a bonus for your assistance”.

    I’m so sick and tired of hearing that savers have to spend, why ?, what if those savers are retirees with no government safety net…

    Why don’t you ask the multi billionares to part with some of their savings ?, why don’t you tax banksters on their ill gained loot, etc…

  2. José

    He does not mention a couple of facts that deny his assertion that it’s important to have one’s fiscal house in order – so that a country will have leeway for counter cyclical fiscal policies once a crisis comes.

    There are the cases of Ireland and Spain, both fiscally ultra correct before 2008 and yet unable to pursue counter cyclical policies after the crisis due to Eurozone-mandated austerity.

    And there is the case of Japan, already burdened with a massive stock of public debt by 2008 and yet much more able to engage in deficit spending than those two eurozone countries.

    It’s true that Blanchard qualifies his statement by limiting its scope to “emerging markets”. However, this may still leave the reader under the impression that having one’s fiscal house in order is a necessary and sufficient condition to have room for maneuver in a crisis – when in fact it is neither.

  3. craazyman

    Rapidly clean up and recapitalize the banks?

    Oh man, is that what they call “buying-off the govermint, suspending market to market asset valuation, refusing to prosecute crime, and handing them as much money as it takes to keep them in business while funding their multi-billiion dollar bonus pools no matter how much red running ink would drip from an honest bookkeeper’s pen (or computer screen).”

    Oy Vey we need a shot of sambuca to calm our nerves after reading something like this.

    These so-called “economists”, they create their own reality in their minds and then they live their with each other — and as long as the money flows their way they don’t care. If the money stopped flowing their way, they would be at a loss for words, since they’d be panic-stricken in the throes of an existential crisis. Money is the thing that flows their way, like the sky is the thing that rains. You can build all sorts of theories if you start from there and then you can get paid to talk about them. Some people would call that a ‘transfer payment’. hahahahahah, yes I remembered one thing from my economics classes. but not much more.

    1. Skeptic

      Crime, crime and more accelerating Crime is the Elephant in the Economic Room. The massive Financial Crime Wave is mestasizing and expanding to other areas of the economy. As these criminals get more and more money they have to find more places to invest it and start up another crime cycle.

      Economists, like the other corrupted professions, have disgraced themselves.

      1. from Mexico

        My question has always been who is the biggest criminal? Is it the actual lords of capital? Or is it their paid professional liars like Blanchard?

        1. NotTimothyGeithner

          The Lords of Capital may not be as dishonest, but without them, their cretin underlings tend to disperse or actually have to produce instead of having a think tank to protect them from the real world.

    2. craazyboy

      I think the entire article should be printed out, framed with the title “Why Macro-Economic Thought Has No Value Whatsoever”, and hung on the wall.

      Right out of the neo-lib playbook. More funny concepts than I can count. We all win the currency race to the bottom. Inflation = good, no mention of where developed country wages are headed. Import tariffs not mentioned – they bad, weaken currency=good. Right down to “Central Bank Credibility”.

      Like maybe how the Federal Reserve bought all the 30 year US Treasuries, then looks at long term interest rates and declares “Inflation Expectations are well contained”.

      Shit. All the smart money is moving to Mars by then.

  4. Moneta

    Most countries need inflation but their governments can’t start generating too much of it until they have full control over their own costs. They can control the yields on their own treasuries with QE but entitlements, quite significant and usually based on COLA are the next target.

    Monetary policy of the last few years was used to stabilize the markets. Over the next few years, COLA will come under attack and privatization of debt-based services will probably get done to get the liabilities off the governments’ balance sheets. That’s when inflation will rip through the economy.

    1. from Mexico

      I read and re-read that comment about four times, and I still don’t have the foggiest notion what it is you’re trying to say.

      1. Moneta

        Debt-to-GDP = 80-120%?
        Debt+entitlements/GDP=300-400% in US and 700% in UK?

        Most entitlements are COLA adjusted so if you print and deficit spend to increase GDP, you are also increasing the numerator. That does not make sense for governments.

        Monetary policy over the next few years will be structured to control the numerator and increase the denominator. This means maintaining asset prices and shrinking the purchasing power of money.

        Right now they are working on the numerator. QE can manage the cost of the treasury debt but they still need to work on the cost of other liabilities. Their first mission will be to cut COLA and restructure pensions. Here in Canada, they have been taking away COLA and sick days and talking about coming changes in pensions. OAS has been pushed off to 67 for those younger than 55. As long as these have not been dealt with, governments are not going to generate inflationary deficits.

        They will only deficit spend to generate inflation after they have dealt with the numerator.

        1. Moneta

          I noticed that an increasing amount of blurbs have been mentioning means testing for allocating benefits.

          1. Moneta

            IMO, if people are looking for fairness, they should push for policies that go in the direction the government is going.

            For example, means testing can be good. It takes away from the rich and gives to the poor… however, we have to make sure that government does not take from the top 30% and give to the .1%

          1. Moneta

            You can add up the present value of all promises. It’s not because it’s a flow that it is not a debt.

            For an accountant, future promised outflows are easily calculable. Future revenues are not.

            1. Chauncey Gardiner

              Thank you for outlining a conceptual framework in which to consider the manufactured and cleverly labeled “Entitlements Problem”, Moneta, However, I disagree with you that future inflows and outflows from your numerator, and thus the numerator itself, are easily quantifiable with any meaningful degree of precision.

              With respect to the numerator, elements of the computation would likely include trust fund balances, actuarial assumptions, price/cost assumptions, estimated future tax receipts, estimated discount rates to derive a net present value, associated probabilities, etc.

              With respect to the denominator, what I consistently see and hear is the use of the current single year’s GDP. I cannot imagine a more analytically flawed piece of propaganda and persuasion. Both the numerator and denominator need to be questioned by sharp minds like yours.

              I share your concerns expressed below relating to their further privatization and impairment of public assets through extraction and environmental contamination. The entire “Public-Private Partnership” meme is merely a cloak for private theft of publicly-owned assets.

              1. Moneta

                I am not saying that the numerator is easily quantifiable with precision. I am saying that the numerator is easier to target because that’s where the costs go.

                On the private side, when a company is going though a tough time, do accountants typically look for new business that will generate revenue sometime in the future or look for quick cost cuts that often impede future sales?

        2. from Mexico

          If we express the public debt to GDP ratio in numerical format what we have is this:

          debt/GDP

          public debt = numerator
          GDP = denominator

          You claim that “if you print and deficit spend to increase GDP, you are also increasing the numerator. That does not make sense for governments.”

          To which I say “bullsh*t.”

          Your assertion flies in the face of the great austerity experiments in Europe. As austerity has been imposed (deficts cut) the denominator (GDP) has contracted much faster than the numerator (public debt). The public debt to GDP ratio has increased, despite cuts in public spending (the numerator).

          Then you assert that “Monetary policy over the next few years will be structured to control the numerator and increase the denominator.” But what in the Sam Hill does monetary policy have to do with the numerator? The numerator is a function of fiscal policy, not monetary policy.

          Then you assert that “Right now they are working on the numerator. QE can manage the cost of the treasury debt…” But QE is monetary policy. It has nothing to do with treasury debt, which again is a function of fiscal policy.

          Then you conclude that “They will only deficit spend to generate inflation after they have dealt with the numerator.” But the numerator (public debt) is solely a function of fiscal surpluses or deficits, and nothing more. So what you’re saying? That they will go on a big austerity binge, so that later they can go on a big spending spree? It makes no sense.

          1. Moneta

            The economy has feedback loops. You an I know that but the reality is that our economic models can not measure these. Go work for a bank and look at their risk models and you will realize how they are flying by the seat of their pants. The worst part is that many of these bankers are using complex math without understanding it and are true believers!

            Each economic theory is based on the problems encountered in the past. Usually focusing on 1 or 2 variables and stretching these to the limit until it is time to switch to another variable and stretching that new one to its limit for another few decades.

            Government has a pretty clear image of what costs are going to be but a very murky image of future revenues. So it’s no surprise that they are looking at controlling costs and praying that the private side will pick up the slack.

            Add to this the fact that measuring opportunity costs is not man’s forte… take inventory of all those at the top making decisions… are they closer to bean counters or visionaries?

            There is a difference between what makes sense and what will happen.

            1. F. Beard

              It’s not the debt that’s a danger but the INTEREST!

              Suppose a rentier class absorbs 50% of Federal Spending via interest payments? Would that be good for the rest of us outside luxury providers for the rich?

              Sovereign debt, as Bill Mitchell points out, is “corporate welfare” or as I say, welfare for the rich.

              1. skippy

                ebitda \ IP – is subject to some qualifiers which are going to change soon via IMF – BIS. So until those get nailed down, its a bit like SS, a political – ideological choice based on the prevailing social theory[s, which BTW is funded by the wealtheist market participants – see Charles Hugh Smith – http://www.oftwominds.com/Survival/Overreach-InequalitySP.pdf

                Skippy… “Economies obviously need banking services,
                insurance services, and real estate development and so, of
                course, not all of finance is “without working, risking, or economizing” . The problem today remains what it was in the 13th century: how to isolate what is socially necessary for‘
                retail’ banking–processing payments by checks and credit cards, deciding how to re-lend savings and new credit under normal (non-speculative) conditions.” – Michael Hudson – World Economic Review Vol 1:1-12, 2012 1 Incorporating the Rentier Sectors into a Financial Model

                In python we trust – http://www.youtube.com/watch?v=D8WmvMCTW_g

            2. mansoor h. khan

              At a high level an economy is not bankrupt when the accounting ledgers say debts cannot be paid or even when there is no sufficient currency to circulate and liquidate the available productive capacity.

              An economy is bankrupt when production of goods and services ceases.

              Also, it is impossible for humanity to live beyond its means! Everything consumed has be produced and has to first exist.

              No matter what the national debt is or private debt is or unfunded liabilities are (however one calculates them) it does not impact production capacity of the economy. Debt is Accounting between individuals and institutions.

              For example, if a shoe factory produces a million shoes a year any debts (national or private, funded or not) does not change the factory capacity. What matters is raw materials availability, labor availability and peach, security and rule of law (which are necessary to conduct business).

              Also, the factory capacity is only usable (liquidatble) if the public (somehow) gets enough money in its hands (via wages, public assistance, begging or social credit/guaranteed income) to buy the output of the factory.

              Debts are accounting and insolvency is accounting. Think about the great depression. At that time there was no issue with availability of raw materials or labor shortage or even peace to conduct business and produce goods and services.

              During GD deflation caused currency shortage and reduced demand. The real problem during GD was debt-based money.

              The real problem now is debt-based money AND fossil fuel depletion.

              A 100% reserve digital currency would allow the money-stock in circulation to be matched to the economy’s capacity much easier. Yes banks would lose their money creation privilege but at least we will avert a mad max scenario which a deflationary spiral will certainly lead to.

              Even with a 100% reserve digital currency most of current debts will not be repayable. This means that economic relationships in our civilization will have to be re-structured.

              My main point is this ==>

              Insolvency on a national balance sheet does not equal a bankrupt national economy (usually). All it means is that economic relationships in our civilization will have to be re-structured to match the productive capacity of the economy (that is debts needs to be discharged, forgiven, re-negotiated, assets liquidated and divided up, etc).

              We always have had a distribution problem when the rate of production of goods and services skyrocketed due to the use of fossil fuels. Specially since the start of the industrial revolution.

              This distribution problem was masked by growth. Growth did provide opportunities for most in society to get enough money to not revolt and get too upset (at least in the industrialized countries).

              We now must solve this distribution problem and we must keep in mind the dwindling fossil fuel supplies which has powered our material production/modernity so far.

              I suggest the following:

              A) we should start a social credit/Social dividend/guaranteed income program and give every U.S. citizen $500 per month regardless of income or regardless of any public assistance they currently receive.

              B) Increase taxation to keep inflation in check. Increased taxation should include stiff consumption tax to discourage too much consumption by the rich and upper middle classes.

              D) Start stringent energy conservation and run a low-grade industrial civilization with less yearly fossil fuel consumption.

              C) This will buy us time to develop another cheap energy source and possibly resume growth or if we don’t find another another cheap energy source we will have time to learn how to live without machines, fertilizers and pesticides.

      2. Moneta

        That’s also why they will privatize and go PPP… to shrink the numerator and generate inflation without the debt appearing on the governments’ balance sheets.

        For example, here in Canada, the economy is wobbly, deficits are still significant yet the government keeps on announcing 0 deficit by the next election so they can promise huge tax cuts to households… my question is what state asset are they willing to sell off if the deficit is still high?

        Follow that numerator…

  5. Dan Kervick

    What all members of the top echelon economics mainstream have in common, whether on the center right or center left, is a commitment to the idea that (i) macroeconomic policy should be set by central banks, and (ii) central banks should be “independent” – that is, well-insulated from democratic political processes.

    In other words, the economics profession is dominated by people who are enemies of democracy, and are hostile to the economic self-determination of the people.

    1. from Mexico

      I think that’s right.

      Plato’s philosopher kings have morphed into our scientist kings.

      The religion of scientific management

      assumes that those who act for the public have superior knowledge but that they share the public’s goals and values. But on many issues this assumption is invalid. Leaders and experts seek to advance their own values and interests. This is why so much emphasis is put on public relations. Correcting the public’s understanding is rarely the goal of public relations. The usual goal is to make it possible for special interests to achieve objectives and advance values the public does not fully share.

      –DANIEL YANKELOVICH, Coming to Public Judgment: Making Democracy Work in a Complex World

      Yankelovich coined the phrase “the culture of technical control” to describe the technocrats dictatorship of “virtue.”

    2. Carla

      “In other words, the economics profession is dominated by people who are enemies of democracy, and are hostile to the economic self-determination of the people.”

      Thank you for making this point with such clarity.

  6. F. Beard

    Ha, ha! Monetary policy will ALWAYS be changing because central banking is UNSTABLE because it is UNJUST.

    Central bankers are trying to make usury, theft, and oppression of the poor work properly as if they ever could!

    But they’ve only been trying for three centuries. Who knows, maybe in another three centuries, assuming we can survive them, central bankers will have learned to successfully mock God.

    But I’m pretty sure that they will only mock themselves as they have done many times before. Al Greenspan anyone?

    1. plantman

      Yves,

      Don’t you think it is a little coincidental that Larry Summers, Krugman and Blanchard are all pushing the secular stagnation meme at the same time?

      Could their real objective be to promote the status quo, that is, they are trying to convince the public that we need zero rates and QE forever….which is basically the position of the banks.

      1. James Levy

        Pushing this line covers their asses for fostering policies that have not worked–it’s all “secular stagnation”‘s fault. It also gives them a new out; nothing can be done because we are in the grip of “secular stagnation.”

        The entire global elite seems to have decided that the only answer to the terrible problems of financialization and climate change are to tighten the belts of those outside the elite circle (my guess is roughly the lower 93% of the population here in America), put their heads down, and plow forward hoping the god of the market or some technological breakthrough will save the system. They no longer have the will or the foresight to save the system themselves. We have pygmies for “leaders” (with the possible exception of the Pope) and a wealthy elite too greedy and insulated to lift a finger to save themselves and the system that made them.

        1. from Mexico

          James Levy said:

          …too greedy and insulated to lift a finger to save themselves…

          That sounds like the definition of mental illness to me.

      2. Lambert Strether

        Dunno about Yves, but yeah, that talking point started showing up everywhere just a bit too simultaneously to be spontaneous or organic. It’s like Larry gave threw a switch, or gave everybody permission. Maybe he’s trying to run the Fed from Avignon, as it were.

        1. bob goodwin

          Maybe it is the realization that asset bubbles are becoming the prime risk so QE needs to slow. Coordinated talking points are needed, because tightening without inflation will have bad outcomes for citizens, and will undermine the neo-liberal story line.

      3. Dan Kervick

        I think it probably has something to do with the Fed handoff from Bernanke to Yellen. Feels like a lobbying effort.

  7. F. Beard

    it is essential to rapidly clean up and recapitalize the banks. some central banker

    1) The “cleanup” could be handled with a temporary ban on new credit creation and a metered, equal and universal bailout of the population with new fiat. This would fix everyone from the bottom up, including the banks.

    2) Without government privileges, the banks would AUTOMATICALLY have to be heavily capitalized or else face ruinous bank runs.

    3) If the banks ONLY issued their common stock as private money and not so-called credit and had no other liabilities then they would always be 100% capitalized since common stock is normally not redeemable in the assets of a company. But why share when one can legally steal?

  8. Bam_Man

    These monetary quacks have gone so far down the rabbit hole that they have no idea how ridiculous and out-of-touch with reality they sound.

    Inflation is now seen as the panacea. As if living standards for the 95% have not fallen far enough already.

    And once inflation expectations become “un-anchored”, just how would they propose reigning them in? By selling worthless, toxic assets that their balance sheet is stuffed with? Don’t make me laugh. Raising interest rates? Sure, and instantly bankrupt government at every level and watch every carry-trade unwind across the globe in 10 minutes time. Should be quite a spectacle.

    This is the end of the road for what has passes for monetary policy these last 6 years.

    1. F. Beard

      Credit rationing (by amount, not price) should work to control price inflation but is that even thinkable for a central banker? And who gets the credit and who doesn’t?

      1. skippy

        Have you read 5000 years of debt yet or the anthro backing it up, credit proceeds all other forms of money.

        1. F. Beard

          Fiat is a form of credit; it’s credit against one’s tax liabilities BUT that does not mean we need a government-backed credit cartel layered on top of it! OTOH, there’s nothing wrong with purely private credit creation.

          I’m on page 49 of Graber’s book but just what do you expect it to teach me that I don’t already know except for historical details?

          Starting from zero, in a society composed roughly of equals, common stock would be an ideal private money solution just as inexpensive fiat is an ideal government money solution. But our society has a great deal of unjust wealth disparity so releveling is needed too.

          And speaking of credit, common stock is not credit; it’s a share in a common enterprise and though it could easily be used for the goods and services provided by that enterprise it is not strictly speaking a liability of the issuing company unless it is liquidated.

          1. F. Beard

            OTOH, there’s nothing wrong with purely private credit creation. FB (me)

            But that depends on one’s definition of foreigner unless the loans are interest-free to not violate Deuteronomy 23:19-20. Usury revolts me and always has since elementary school; I can’t say why; I have NEVER charged anyone interest.

          2. skippy

            A. Every form of money is subject to the “human tool problem” ie. its not the tool that matters – but – the humans using it. Hence any tool can be abused ergo. all the time and energy wasted devising a tool that humans can’t abuse is futile. 40ish years of neoliberal morals and ethics as a generational cognitive bias multiplier preclude any such even happening, it will take decades to see any swing in that pendulum.

            B. There is nothing inherently wrong with Credit, Interest, Banks, Government, it is, to what purpose they serve, who it serves. At the moment it serves only a few as a means to create the – reality they wish to impose – on this orb. So whilst you may fiddle with tools the elite will still remain completely in the drivers seat and have zero effect on the present designation we are headed too.

            C. The incessant need to buttress your assertions with regional opinions from antiquity is a poor form of subjectivity. Those opinions have changed over and over again through out history as evidenced by promulgated unchanging rules of discipline Rule #17 – prohibition of usury among the clergy.

            Maybe your time would be better spent on Capital Hill, correcting the political operatives of your stripe on their incorrect reading of – your – political text.

            skippy… Separation of Church and State thank you.

            1. F. Beard

              You’re boring me now. You’ve got nothing and you’re not willing to learn.

              But if this is all about good people and bad people then you lose anyway as far as I can tell because the Lord has a purge of His own in store:

              “For behold, the day is coming, burning like a furnace; and all the arrogant and every evildoer will be chaff; and the day that is coming will set them ablaze,” says the Lord of hosts, “so that it will leave them neither root nor branch.” “But for you who fear My name, the sun of righteousness will rise with healing in its wings; and you will go forth and skip about like calves from the stall. You will tread down the wicked, for they will be ashes under the soles of your feet on the day which I am preparing,” says the Lord of hosts. Malachi 4:1-3 New American Standard Bible (NASB)

              1. skippy

                “You’re boring me now. You’ve got nothing and you’re not willing to learn. – Beardo

                Skip here…

                1. :Boring me” – completely dismissive with out any quantification ergo can’t or won’t engage so resort to back handed dismissive, a priestly act IMO.

                2. “You’ve got nothing” – unsubstantiated opinion in full contrast to the factual statements, provided in my comment.

                3. “you’re not willing to learn.” – again personal opinion dressed up as authority. This coming from a guy that “viewed a video” of a chariot on the red sea floor, by a well known scam artist and proffers it as factual evidence. Believes his sects opinion (NASB) completely overrides the well defined Linguistics and historical Etymology dealing with the spreading sky myth, because it fits their ex nihilo derived bias. Thinks Co2 is good for plants so why the rub with AGW.

                How many revisions has there been, since the First Council of Nicea, yet still have the immortal issue of Filioque… eh.

                skippy… please spare me your copy and paste homily’s about the nature of Humanity or the Universe. Especially when your mob can’t make up its mind – about anything – in the last 10,000 years.

                PS. Mr Moonsur Khan has shown that he can still have his belief and yet advance coherent scientific observation and theory.

                1. F. Beard

                  Especially when your mob can’t make up its mind – about anything – in the last 10,000 years skippy

                  It’s closer to 4,000 years, actually.

                  But I won’t spare you this:

                  If anyone supposes that he knows anything, he has not yet known as he ought to know; but if anyone loves God, he is known by Him. 1 Corinthians 8:2-10

                  Let no man deceive himself. If any man among you thinks that he is wise in this age, he must become foolish, so that he may become wise. 1 Corinthians 3:18

                  The Bible teaches humility. Even God does not claim to know everything. Even God is humble which is quite possibly why He IS God! And why He is reluctant to judge anyone.

                  And yes, by all means dredge up my previous false certainties so people can marvel at what just a little, almost daily Bible reading can do for a sinner in just a few years.

                  But this isn’t about me. I’m not running for political office or seek to be the next Joe Stalin. Nor ever will, so help me God.

                  1. skippy

                    Sorry beardo but 4,000 years is incorrect, the foundation for your 4,000 years was laid long before it.

                    Ancient Semitic religion encompasses the polytheistic religions of the Semitic speaking peoples of the ancient Near East and Northeast Africa. Its origins are intertwined with Mesopotamian mythology. As Semitic itself is a rough, categorical term (when referring to cultures, not languages), the definitive bounds of the term “ancient Semitic religion” are only approximate.

                    These traditions, and their pantheons, fall into regional categories: Canaanite religions of the Levant, Assyro-Babylonian religion influenced by Sumerian tradition, and Pre-Islamic Arabian polytheism. There is also a possible transition of Semitic polytheism into Abrahamic monotheism, by way of the god El, a word for “god” in Hebrew and cognate to Islam’s Allah.

                    http://en.wikipedia.org/wiki/Ancient_Semitic_religion

                    1. F. Beard

                      We’ve all descended from Noah (and Eve) so, of course, we all have, with varying degrees of accuracy*, a common cultural heritage.

                      *The Babylonian Ark is a cube and not sea-worthy at all while Noah’s has the approximate dimensions of a modern ocean liner.

                2. F. Beard

                  Believes his sects opinion (NASB) completely overrides the well defined Linguistics and historical Etymology dealing with the spreading sky myth, because it fits their ex nihilo derived bias. skippy

                  Yawn… We’ve been over this. Here’s some KJV, written LONG before Hubble discovered the Universe is expanding:

                  Psalm 104:2
                  Who coverest thyself with light as with a garment: who stretchest out the heavens like a curtain:

                  Isaiah 40:22
                  It is he that sitteth upon the circle of the earth, and the inhabitants thereof are as grasshoppers; that stretcheth out the heavens as a curtain, and spreadeth them out as a tent to dwell in:

                  etc.

                  Don’t forget skippy, this life is a test. If the existence of God was established to the point that even Adolf Hitler, Joe Stalin and Mao were COMPELLED by overwhelming evidence to believe then who wouldn’t behave properly out of FEAR alone? But then, how could God ever know who He could safely turn His back on?

                    1. F. Beard

                      Don’t you get it? People who need to be COMPELLED can’t be trusted!

                      As for your other comment, I (along with quite a few others) advocate a Postal Savings Service for the risk-free storage of and transactions with fiat. Then* we cancel government deposit insurance and abolish the Fed and let borrowing and lending of fiat be a purely private matter, as it should be.

                      *After universal restitution with new fiat else the banks won’t have the needed reserves for the transfer to the PSS.

                    2. skippy

                      Are you insinuating that someone that requires facts, can’t be trusted.

                      Also you have used Michael Hudson in arguments before but, now disagree on his position wrt banks, credit, et al.

                      Skippy… sorry private market sort, but, you just seem to crate a Golem out of authority figures to justify returning to some biblical utopia. Free market libertarians will never be satisfied until this world is a smoking hole in the Universe.

                      PS. Noah is a fictional caricature in mythology although Adam and Eve had a hell of a long distance love affair methinks…

                      338 ka Y-chromosomal Adam lived in Africa approximately 338,000 years ago, according to a recent study.[29] He is the most recent common ancestor from whom all male human Y chromosomes are descended.

                      200 ka
                      Homo sapiens sapiens (Pioneer plaque) Omo1, Omo2 (Ethiopia, Omo river) are the earliest fossil evidence for anatomically modern Homo sapiens.[30]

                      160 ka Homo sapiens (Homo sapiens idaltu) in Ethiopia, Awash River, Herto village, practice mortuary rituals and butcher hippos. Potential earliest evidence of anatomical and behavioral modernity consistent with the continuity hypothesis including use of red ochre and fishing.[31]

                      150 ka Mitochondrial Eve is a woman who lived in East Africa. She is the most recent female ancestor common to all mitochondrial lineages in humans alive today. Note that there is no evidence of any characteristic or genetic drift that significantly differentiated her from the contemporary social group she lived with at the time. Her ancestors were homo sapiens as were her contemporaries.

                      90 ka Appearance of mitochondrial haplogroup L2.

                      70 ka Behavioral modernity according to the “great leap forward” theory.[32]

                      60 ka Appearance of mitochondrial haplogroups M and N, which participate in the migration out of Africa. Homo sapiens that leave Africa in this wave start interbreeding with the Neanderthals they encounter.[33][34]

                      50 ka Migration to South Asia. M168 mutation (carried by all non-African males). Beginning of the Upper Paleolithic. mt-haplogroups U, K.

                      40 ka Migration to Australia[35] and Europe (Cro-Magnon).

                      25 ka The independent Neanderthal lineage dies out. Y-Haplogroup R2; mt-haplogroups J, X.

                      12 ka Beginning of the Mesolithic / Holocene. Y-Haplogroup R1a; mt-haplogroups V, T. Evolution of light skin in Europeans (SLC24A5).[citation needed] Homo floresiensis dies out, leaving Homo sapiens as the only living species of the genus Homo.

                    3. F. Beard

                      Are you insinuating that someone that requires facts, can’t be trusted. skippy

                      The evidence for God’s existence is SUFFICIENT though not absolutely compelling. Remember, it’s the sinful human race that is being tested/sorted not God.

                      As for proven facts, God will fault no one for believing them nor credit any one for NOT believing them. But what facts? Some people think the facts on balance indicate that life is pointless and live accordingly. Others may use the same facts and come to the opposite conclusion. And what subset of facts are you dealing with? Is it sufficiently representative?

                      Also you have used Michael Hudson in arguments before but, now disagree on his position wrt banks, credit, et al. skippy

                      Government-backed credit creation is INHERENTLY discriminatory. It’s fascism though I won’t call the good Professor a fascist, not intentionally, since he would use a land tax to counteract some of the evil.

                      And credit creation, except for fiat (tax credits), is not strictly needed since common stock is a perfectly ethical form of endogenous private money.

                    4. Mansoor H. Khan

                      Skippy said:

                      “Sorry beardo but 4,000 years is incorrect, the foundation for your 4,000 years was laid long before it.”

                      Islam agrees with you. Foundation was laid by Allah as he instructed Adam and Eve (the first man and woman) on the right way to think about existence and commandment to live by the divine law (like the prohibition on usury, which probably came about at Moses’ time).

                      Only details were added as time passed. Islam says that hundreds of thousands for prophets were sent to mankind throughout the ages with same general message.

                      The message (details) were completed and clarified and corruption removed by the last and final prophet to all of humanity, Prophet Mohummand (Peace be upon him).

                      More at:

                      http://mansoorkhan114.blogspot.com/2013/03/why-islam-last-update-31-2013-this.html

                      Mansoor H. Khan

                    5. F. Beard

                      Jealousy of the Jews seems to be a test of sorts but I don’t see why. They aren’t all that handsome as a race (But my true love is 1/4 Jewish, 1/4 Native American, 1/2 German has brown hair, brown eyes and slightly olive skin and I would not trade her for anyone else whatever she looked like! (Please don’t test me on that yet, Lord!)), not very athletic though they are great in music and science.

                      Actually, I do know why. It angers us that God would choose ANY of us without choosing All of us. But it’s one thing to resent not being chosen but another to insist that your group was chosen INSTEAD!

                    6. skippy

                      @Above.

                      338 ka Y-chromosomal Adam lived in Africa approximately 338,000 years ago, according to a recent study.[29] He is the most recent common ancestor from whom all male human Y chromosomes are descended.

                      150 ka Mitochondrial Eve is a woman who lived in East Africa. She is the most recent female ancestor common to all mitochondrial lineages in humans alive today. Note that there is no evidence of any characteristic or genetic drift that significantly differentiated her from the contemporary social group she lived with at the time. Her ancestors were homo sapiens as were her contemporaries.

                      Am I to understand that the time disparity between those two individuals (A&E), as witnessed by genetics, can in anyway be contorted to support popular mythology, seriously.

                      Anywho… Beardo you can’t just pick and choose stuff on the basis of your personal bias and trot it out as divinity’s truth, blankinsfiend thinks exactly the same way imo. Its all a horrible case of ex nihilo self aka neo-liberalism. Massive barf~

                      @Khan… I don’t know why one branch of Abrahamism has such an ego problem, oh yeah, regional politics 1000s of years back. Some just don’t know how to let go, something pathological about that methinks. BTW have been suggesting your site to others that have a regional predisposition (wide cross section of economic schools), feed back so far is positive. Spiritual yet rational in the face of physical evidence, unlike others. Good on you.

                      Skippy… “Jealousy of the Jews seems to be a test of sorts but I don’t see why.” – Beardo

                      All things are the result of thermal exchange, some just have to assign agency to it, confusion echos.

                    7. bob goodwin

                      Any chance I could have Skippy and F Beard come over to my house for dinner sometime. I know I sure would enjoy it.

                    8. F. Beard

                      Am I to understand that the time disparity between those two individuals (A&E), as witnessed by genetics, can in anyway be contorted to support popular mythology, seriously.
                      skippy

                      Well, on the male side we are all descended from Noah most recently, not Adam. And, of course, Noah came after Eve. So when did Eve live according to those studies?

                      But in any case, I have a low-pass filter wrt to scientific studies even when they seem to buttress my beliefs since I’ve been burned before though I’m not totally immune to confirmational bias which might not altogether be a bad thing since if the preponderance of evidence indicated I could safely be wicked I should nevertheless not be, even against long odds.

                    9. F. Beard

                      Spiritual yet rational in the face of physical evidence, unlike others. skippy

                      Well, if I have problems with my rationality, reading Scripture should cure it and I remind you that though Islam outshone the West for a while, the greatest scientist ever, Newton, was an expert on the Bible too. Maxwell and Kelvin were believers too, iirc. And quite a few others too, I’d bet. And it’s not unreasonable to expect that Einstein was acquainted with the Old Testament or at least was a product of those who were since he’s Jewish.

                      And if Islam can appear more rational to you, it’s perhaps because Muslim moderates discount the Koran more than Christians discount the Bible, the latter needing far less discounting and thus considered far more rational to begin with?

                      No doubt, you find the Roman Catholic Church more rational too since it has mostly abandoned Scripture except where it appears to buttress its power. But oh, the errors that has led to wrt abusing children i.e. forbidding priests to marry which is CONTRARY to Scripture.

                    10. F. Beard

                      some just have to assign agency to it skippy

                      Actually God assigns the agency – to Himself:

                      Now the Lord had said unto Abram, Get thee out of thy country, and from thy kindred, and from thy father’s house, unto a land that I will shew thee:

                      And I will make of thee a great nation, and I will bless thee, and make thy name great; and thou shalt be a blessing:

                      And I will bless them that bless thee, and curse him that curseth thee: and in thee shall all families of the earth be blessed. Genesis 12
                      King James Version (KJV)

                      Happier with the KJV?

                      BTW, thanks to the Bible I’ve been able to avoid a pitfall of many money reformers – antisemitism. Too bad for Ezra Pound that he didn’t. Not that I object to Jews personally since I hope to marry a girl who happens to be part Jewish but hatred of the banks can easily spill over into hatred of bankers, and so forth.

  9. susan the other

    If he is talking about higher levels of inflation and he really means that all this will be some internal magic so that zirp can go to nirp without any impact on interest rates and the dollar will just devalue – but slowly because China, then I vaguely understand the gist of this post. Otherwise I don’t get it at all. TPB have gone from goldilocks to dreadlocks and seem to caught in a tangle of rationalization all because they are looking for a way to achieve a gradual unwind of the last half century without devastating themselves. Or something like that. But the comments were great, as usual. Wouldn’t MMT accomplish this better? And would also provide justice for both the underwater financial industry and the 99% because interest rates need never be above zirp and if inflation ever occurred taxation would take care of it? But my god – don’t mention taxes!. So Blanchard is just the oligarachs protecting their position.

    1. financial matters

      This is looking to be a good book: ‘Keynes, The Return of the Master’ by Robert Skidelsky (2010)

      ‘Keynes had a profound insight into the nature of social existence, which did not fit into economics then, any more than it does now.’

      ‘This book ends with a proposal to reform the teaching of economics to encourage economists to think of it as a moral, not natural science.’

      ‘Keynes would have been utterly opposed to financial innovation beyond the bounds of ordinary understanding.’

      Talks about reducing market fear by making demand more equitable and reliable. (reminiscent of job guarantee and/or living wage)

      —–

      Also a nice dose of relating to a ‘human being’ rather than to a ‘consumer’ (Russell Brand)

      http://www.youtube.com/watch?v=_bKQXmvdr8o&feature=youtu.be

  10. Hugh

    “One, having your macro house in order pays off when there is an (external) crisis.”

    The real crisis is internal and that is kleptocracy. Note well the lack of agency in that “when there is an (external) crisis,” as if the current crisis is a natural disaster like a flood or quake and not the result of criminals acting criminally.

    “Second, after a financial crisis, it is essential to rapidly clean up and recapitalize the banks. This did not happen in Japan in the 1990s, and was costly. But it did happen in the US in this crisis, and it helped the recovery.

    Amazing what someone can write on acid. American banks were never “cleaned up”. Yes, they received huge infusions of capital, some of which they have used to buy immunity from their frauds, the largest in human history, for pennies on the dollar, but they have the same managements and continue to pursue the same criminal activities which blew up the financial system in 2008.

    As for the US recovery, it is a fiction, a lie. The losses to the fortunes of the 1% who blew up the financial system have been made good but the recession/depression which that blow up visited on the rest of us has never lifted.

    Blanchard laments that the zero rate is binding but then acts like unconventional policies, like QE in the US or the proposed OMT in the EZ, can’t last forever. But in fact the repeated delays in Bernanke’s taper show that unconventional policy quickly becomes binding as well.

    “To be more concrete, if inflation had been 2 percentage points higher before the crisis, the best guess is that it would be 2 percentage points higher today, the real rate would be 2 percentage points lower, and we would probably be close in the US to an exit from zero nominal rates today.”

    Isn’t Blanchard just making up sh*t here? We are in a balance sheet not inflationary recession, that is a deflationary recession aka a depression. Blanchard doesn’t mention deflation once in his piece. Inflation was likely not ever going to be 2% higher going into the meltdown but even if it had been, there is nothing to indicate that giving interest rates 2% further to fall would have sopped up the deflationary pressure on rates. As far as I can see, we already have negative interest rates. The banks borrow money from the Fed, put this money in their reserve accounts at the Fed, and the Fed pays money on them. Of course, these negative rates spill over into bank profits, not the wider economy. Negative interest rates don’t exist in the real economy. This is not a failure of reality or the economy but monetary theory. Blanchard is just jiggering the numbers so that reality conforms to theory.

    “Instead, we are still facing today the danger of an adverse feedback loop, in which depressed demand leads to lower inflation, lower inflation leads to higher real rates, and higher real rates lead in turn to even more depressed demand.”

    Is this even true? I mean it may be true for Greece trapped in the euro, but is it true for countries like the US which are monetary sovereigns? And isn’t demand depressed not by the lack of inflation but by austerian fiscal policies? I mean demand may produce inflation, but what evidence is there that inflation produces demand?

    As for developing countrie, isn’t Blanchard proposing that these countries just try to manage to depreciate their currencies enough to keep them competitive without sending their economies into a tailspin? And when all is said and done, isn’t that just another iteration of “beggar thy neighbor,” that is it can work for some, as long as there is another neighbor to beggar, but if everyone is doing it, all you get is a downward spiral where everyone is trying to depreciate their currency at everyone else’s expense?

    1. Jackrabbit

      I call it ‘beggar thy FOAF’.

      This is the dynamic at work as all developed countries implement QE-like policies.

  11. Chauncey Gardiner

    It was noteworthy that in his speech, the speaker failed to accord a place at the Policy table to those who would like to see a very public conversation about an alternative monetary system, nor to Keynesians seeking fiscal solutions.

    Instead he implicitly directed acolytes toward the road they need to take for professional advancement.

    Gee, I wonder why?

  12. Jackrabbit

    Negative real rates arise from conditions that economists generally view as exogenous to their models: excessive malinvestment from social manias like bubbles.

    This is a flashing warning, not an inconvenience to be finessed (by QE). We are in this ‘liquidity trap’ because: a) we had a massive bubble, and b) TPTB are not dealing realistically with the rot, in part because they listen to respected economists and central bankers who offer myopic, self-serving solutions.

    Bubbles are a boondoggle for Wall Street due to built-in advantages (like the ‘carried interest’ tax advantage), HFT front-running, increased trading volume, and more. Any benefit to the real economy is a short-term mirage. Advocating for bubbles is traitorous because, as Simon Johnson made clear years ago in “The Quiet Coup”, excess Wall Street money is used to “buy” our democracy.

    1. Jackrabbit

      The most sensible policy is to use negative rates as an indicator of how much bogus investment gains were created by the bubble. Then recoup these bogus gains to pay for REAL stimulous that is sized to the problem.

      The rationale for such action is already given by laws for returning ill-gotten gains and our societies recognition of the need to tie executive pay to results that may not be apparent for years.

      If tax (like ‘carried interest’) and other advantages were also eliminated, our markets would function much more like they should, with far fewer bubbles, more rational allocation of resources, and much less economic pain and dislocation.

  13. Fiver

    Have to agree with Hugh and a number of others that this fellow has not missed the ball, he’s missed the park entirely.

    How can he, and Krugman, Summers, or any other “economist” still advance this sort of policy action from the Fed after 5 years of Fed-funded looting by banks and their associated networks of speculators all the while claiming a public interest has been served?

    What they dish out as “expertise” has about the same reality-value as the Yellow Brick Road when one considers they have all supported quantitative easing, an altogether obvious $4 trillion loot and scoot for bankers and their various webs of speculators, rendering the entire exercise bogus as both fraud and contaminated experiment.

    If for some preternatural reason the Fed must be kept, and must be kept as structured, i.e., privately owned, with quasi-political oversight/input, these men could at least have demanded long ago that the Fed be given powers that operate independently of banks – if money need be created to buy Treasury debt, do so openly, just keep it out of the hands of bankers and speculators. Or if money “must” be “printed”, do so for things with specific policy goals other than keeping these zombie banks alive solely for the purpose of circle-jerk looting by senior (and not-so-senior) banksters and their opposites in Government. But they never suggest anything that is both novel and in the public interest – Summers’ idea to punish savers who want to keep their money in a bank comes to mind.

    Economics as practiced by these people is now so completely detached conceptually from the forces shaping the real world’s most probable paths (not good) we’d be better off casting spells, or seeking Delphi insofar as obtaining sound advice. If ever a field needed the sort of intellectual butt-kicking that generates new thinking, this one was it, and the Crisis was the kicking – but like Ford the Crack Mayor, these guys have no shame. Just pushing another way to do the same thing until it breaks, too.

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