Yield-curve control could prove a useful tool

Discussion in 'Economics & Trade' started by LafayetteBis, Feb 10, 2021.

  1. LafayetteBis

    LafayetteBis Well-Known Member Past Donor

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    From here: Yield-curve control could prove a useful tool



    I have to agree with Bernanke - I don't think the US should be going off in an questionable direction of a "more powerful monetary policy". Whyzzat?

    Because the US economy is the richest of all based as it is upon a population of around 330 million individuals and rather low typical unemployment levels. Europe, with a larger population-base (740 million), cannot rival the US in terms of economic activity since its "states" are countries and not "states" as in the US. They therefore have a heavy say in the determination of central economic-policy thus leaving any ambitious policy-making precariously difficult to implement.


    The US economy can willingly turn on a dime if that will is there, which it is and needs no further "comprehensible monetary-policy". Why not? Because that animal simply does not exist in the US. Iow, the phrase is assuming that a "comprehensible policy" is intuitively obvious to all. Which, as economies go, is very rarely the case and the EU makes that point.

    US monetary-policy can turn on a dime if it had to do so - and in the present circumstance such a need exists. Yes, Uncle Sam has and will pay dearly for Covid and not just in terms of total lives lost. But also as regards the fact that Covid induces people to arbitrarily change their buying-habits to accommodate the fact that consumers have barely enough to keep the ship from sinking. But certainly not yet sailing off to a higher economic growth (for a good many months).

    That just aint-gonna-happin. Covid will mollify consumer spending in the US for most of this year. The reestablishment of a more dynamic growth-economy will take the rest of this year to kick-into a "normal" level - that is, American buying habits returning to the normalcy that existed pre-Covid.

    Frankly, the only alternative is massive government spending - which Biden seems to have up his sleeve. And this will happen with a Congress clearly on his side, so he'll likely spend, spend, spend ...
     
  2. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    We have to recognize where these low interest rates are coming from.

    Even that, not everyone can agree on. But what typically often happens is the Fed is the one artificially subsidizing those interest rates. They issue new money, and then loan that money out at near zero interest rates, which are far below what the market interest rate would otherwise be.
    This of course leads to inflation.

    (It would not necessarily lead to inflation if it loaned the new money out at the same interest rate that the private sector market would have charged, but that is a little too complicated to go into)

    Low interest rates are also a sign that there is a lack of economic growth.
    (or real economic growth, apart from speculation and a bubble)
     
    Last edited: Feb 10, 2021
  3. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    You will have to qualify that to really know what it means.

    What are you really trying to say there?

    I will assume you realize that monetary policy cannot exert complete control over the economy and cannot always solve any problem.

    Were you trying to say that the available conventional central bank monetary tools are more than good enough to be able to address economic issues?
     
    Last edited: Feb 10, 2021
  4. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    Lower consumer spending is not necessarily a bad thing.

    Especially if it helps reduce trade deficits.
     
  5. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    Another thread for you to think about...
    If we run deficits now, it means cuts in the future
     
  6. LafayetteBis

    LafayetteBis Well-Known Member Past Donor

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    Not really. It is obvious where there origins lie.

    In any significant downturn of economic vitality, the singular most effective policy is to reduce the cost of money. It works most times, but this time Covid was too broad and too mean for most countries to handle competently.

    Blame Covid? Yes, I blame Covid ... !
     

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