Friday, January 27, 2012
Little bit
Looks like one economist with Establishment credentials has picked up on the evils of the Fed's zero-interest policy.
Warren Mosler:
Since 2006 our economy has been trying to run on the counterfeit Wealth Effect generated by homeowners borrowing against a nonexistent increase in fictional value. At the same time we have completely canceled and deleted the honest Wealth Effect of stability and frugality.
In a civilized economy, storage of value allows people, businesses and governments to feel secure and confident. When you feel secure and confident, you're willing to spend money in sensible ways. You're less likely to gamble.
In a chaotic 'bets and debts' economy, with no storage of anything, you're always on the edge. You're vulnerable to every exigency of nature, to every scam and fraud, to every loss and expense. You're ready to risk it all on one roll of the dice.
The song, of course, expressed the attitude of a working man in Gilded Age Version 1, which we see repeated now in Gilded Age v2. Cynical and utterly realistic. The working man knew damn well that a Little Bit wouldn't help. When you owe your soul to the company store, when every dollar of income has to outgo immediately, only a one-in-a-billion Superball is enough blooming luck.
However: In a civilized economy where jobs are stable, money is constant, storage is secure and saving yields a meaningful return, you only need a Little Bit of luck. When your money goes into savings first, each small bonus, each slight increase in sales, gives you a permanent gain. ¶ 5:47 PM
Warren Mosler:
It would serve public purpose if the Fed made it clear that in today's rate environment, what's called 'quantitative easing' in fact removes interest income from the private sector, thereby functioning much like a tax...
Furthermore, all the evidence so far indicates this source of fiscal drag may be at least offsetting any positive effects of lower interest rates on aggregate demand.
This brings up my second criticism with regards to the interest income channel. Lowering rates in general in the first instance merely shifts interest income from 'savers' to borrowers. And with the federal government a net payer of interest to the economy, lowering rates reduces interest income for the economy.
Since 2006 our economy has been trying to run on the counterfeit Wealth Effect generated by homeowners borrowing against a nonexistent increase in fictional value. At the same time we have completely canceled and deleted the honest Wealth Effect of stability and frugality.
In a civilized economy, storage of value allows people, businesses and governments to feel secure and confident. When you feel secure and confident, you're willing to spend money in sensible ways. You're less likely to gamble.
In a chaotic 'bets and debts' economy, with no storage of anything, you're always on the edge. You're vulnerable to every exigency of nature, to every scam and fraud, to every loss and expense. You're ready to risk it all on one roll of the dice.
The song, of course, expressed the attitude of a working man in Gilded Age Version 1, which we see repeated now in Gilded Age v2. Cynical and utterly realistic. The working man knew damn well that a Little Bit wouldn't help. When you owe your soul to the company store, when every dollar of income has to outgo immediately, only a one-in-a-billion Superball is enough blooming luck.
However: In a civilized economy where jobs are stable, money is constant, storage is secure and saving yields a meaningful return, you only need a Little Bit of luck. When your money goes into savings first, each small bonus, each slight increase in sales, gives you a permanent gain. ¶ 5:47 PM
