tag:blogger.com,1999:blog-1110014885778996459.post3144584161958695783..comments2024-03-28T08:45:53.564-07:00Comments on Idiosyncratic Whisk: There has not been an increased demand for moneyKevin Erdmannhttp://www.blogger.com/profile/07431566729667544886noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-1110014885778996459.post-19223958207413978062016-08-27T18:06:22.301-07:002016-08-27T18:06:22.301-07:00"bondholders reallocated that cash into savin..."bondholders reallocated that cash into savings accounts, property, other bonds, stocks or paper cash."<br /><br />I forgot to add the most simple reallocation, which is to spend the money.<br /><br />QE is a great tool. It even appears to liquidate the national debt. The real question is why would anybody not like QE?Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-44872117388612591102016-08-26T21:25:17.027-07:002016-08-26T21:25:17.027-07:00Thanks, Gary.
Well, the semantics of reserves are...Thanks, Gary.<br /><br />Well, the semantics of reserves are what they are. If the banks did increase credit, reserves would probably shrink because the Fed would sell Treasuries to reduce inflationary pressures. But, I'm no expert, really, so I could be wrong in ways that Stephen Williamson would consider elementary.<br /><br />I don't think profit is the constraining element here. There is probably reduced demand because the equity of low income homeowners has been decimated, and that would be a major source of demand. And, the CFPB and the GSEs are enforcing very tight underwriting standards. There is tons of money to be made there, but I suspect that, to the extent that there is demand in spite of the hobbled balance sheets, bankers fear volatility, whether they see it as intrinsic or as a function of Fed policy, and they are watching a political atmosphere where complaining that more bankers should be in jail is an applause line.Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-7122929554583818432016-08-26T20:55:45.050-07:002016-08-26T20:55:45.050-07:00Awesome article, Kevin. I have a question. Stephen...Awesome article, Kevin. I have a question. Stephen Williamson says excess reserves are assets and cannot be loaned out. Banks could loan from the base, at 10 times the value of the reserves, but the actual reserves cannot be loaned out. You would think the banks would make more money creating loans than settling for interest on reserves. Any comments from a market monetarist point of view, Kevin?Gary Andersonhttps://www.blogger.com/profile/15499434824034613894noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-52995256703821123772016-08-26T18:12:56.566-07:002016-08-26T18:12:56.566-07:00You're right. I was probably not clear enough...You're right. I was probably not clear enough in the post. I agree that there were stimulative/inflationary effects from QE.Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-17942036353549949562016-08-26T18:11:30.470-07:002016-08-26T18:11:30.470-07:00Fascinating post.
I do not subscribe to the argu...Fascinating post. <br /><br />I do not subscribe to the argument that the Fed only swapped reserves for bonds.<br /><br />A simplified version of my view is the Fed digitized money and bought bonds with it, and the bondholders reallocated that cash into savings accounts, property, other bonds, stocks or paper cash.<br /><br />I concur that the policy of the US today appears punitive to lower-income people who seek to own property.<br /><br />Local governments are punitive to lower-income people who wish to start up businesses such as push-cart vendors or truck vendors.<br /><br />Property zoning has created artificial scarcity of housing. The Fed is intent on a crippling tight monetary policy and openly frets that unemployment is too low. <br /><br />Then, we tell poor people not to vote for socialism.Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-62406880307157985652016-08-26T18:07:25.863-07:002016-08-26T18:07:25.863-07:00This comment has been removed by the author.Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-56403938342424238832016-08-26T13:45:13.571-07:002016-08-26T13:45:13.571-07:00Well, at this point, that is functionally equivale...Well, at this point, that is functionally equivalent to saying "lower the Fed Funds Rate", which I would agree with. I think this would mainly work through the inflation effect, which would help low income households recover equity that they have specifically been denied, which would create positive feedback and desperately needed real investment. The "Black Hole" is just the decline in asset value that is due to the liquidity premium we have imposed on those neighborhoods. It's like if we passed a Constitutional amendment banning limited liability corporations. The value of productive assets would collapse to account for the required premium, and that would be a real loss of value, because liquidity brings value to an economy, which is reflected in market caps of the corporations.<br />It does happen that, since deposits have continued to grow at a normal pace, the way this played out was through piling up cash in excess reserves.<br />I think the regulatory problems are probably more important than the monetary problems, though. The incredible shift in underwriting at banks and the GSEs isn't constrained by cash. There are plenty of investors who would love to buy GSE MBSs populated with sub-750 FICO borrowers, but the GSEs won't create them. (This has loosened up slightly). Those would be profitable for both the GSEs and investors, and they would be profitable for the borrowers even at higher rates. So, I don't think rates are the constraint here, but it is certainly one leg on the stool.Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-90252784045921825682016-08-26T12:21:31.425-07:002016-08-26T12:21:31.425-07:00So, in other words, the "Black Hole" is ...So, in other words, the "Black Hole" is the excess reserves piled up by commercial banks? To loosen those reserves, the Fed should probably lower IOER which would get the banks making mortgages again. -10 basis point per month until they get some activity flowing. My guess is at about .2% they would see a gusher. <br /><br />Chuck E. Chuck Ericksonhttps://www.blogger.com/profile/04313247742305688489noreply@blogger.com