Comments for Alt-M http://www.alt-m.org Ideas for an Alternative Monetary Future Wed, 10 Feb 2016 05:35:00 +0000 hourly 1 http://wordpress.org/?v=4.1.10 Comment on No Exit by Walker Todd http://www.alt-m.org/2016/02/09/no-exit/#comment-16303 Wed, 10 Feb 2016 05:35:00 +0000 http://www.alt-m.org/?p=30805#comment-16303 Well done, George. Walker Todd, Chagrin Falls, Ohio

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Comment on No Exit by George Selgin http://www.alt-m.org/2016/02/09/no-exit/#comment-16302 Tue, 09 Feb 2016 22:15:00 +0000 http://www.alt-m.org/?p=30805#comment-16302 "This would convert excess reserves into requirement reserves resulting in an
explosion of the money supply because each dollar of required reserves supports
about $11.5 in checkable deposits: Banks currently hold about $3.3 trillion in
excess reserves. While I frequently suggested this option when I was an
economist at the St. Louis Fed, I did so tongue-in-cheek, the idea being that
it would create a massive inflation that would force the FOMC ineffective and
ultimately damaging zero interest rate policy."

But you assume, Dan, that the Fed would not be compelled to sell assets as the multiplier recovers, precisely so as to avoid the inflationary consequences to which you refer. That seems to me a wrong application of ceteris paribus reasoning. Surely those who would like to see a Fed policy geared toward a revival of the base-money multiplier all take for granted that such a revival would be accompanied by an offsetting reduction in the quantity of base money. Indeed, the fact that it would compel such a reduction, and corresponding return of the Fed to something like its former "footprint" on credit markets, is all the more reason, in my opinion, for favoring a policy of negative interest rates.

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Comment on Interest On Reserves, Part II by Andrew_FL http://www.alt-m.org/2016/01/05/interest-reserves-part-ii/#comment-16301 Tue, 09 Feb 2016 20:51:00 +0000 http://www.alt-m.org/?p=26220#comment-16301 George I realize it's been quite a while since this post went up but I only just actually looked into it: what do you mean the word incentivize is superfluous, exactly? Every source I've looked at claims "incent" is a back formation from incentivize-though it is itself a newish word. Every use of "incent" before the 80s appears to be as a name. I'm assuming I'm missing some obvious word that came before both that made coining incentivize unnecessary since I was born well after incentivize came into general use.

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Comment on No Exit by Dan Thornton http://www.alt-m.org/2016/02/09/no-exit/#comment-16300 Tue, 09 Feb 2016 19:16:00 +0000 http://www.alt-m.org/?p=30805#comment-16300 I agree with Walker
Todd’s first three statements based on an excerpt Vice Chairman Stanley Fischer’s
speech, but not his suggestion that negative interest rates might be
beneficial. I have no doubt that they would give bankers an additional incentive
to “restructure legacy debt,” but I would have thought that the extremely low
interest rates that we’ve had in recent years would have been incentive enough.
Moreover, the Fed can only achieve this by making the IOER negative. This would
cause banks to make loans or other investments that yield positive returns.
This would convert excess reserves into requirement reserves resulting in an
explosion of the money supply because each dollar of required reserves supports
about $11.5 in checkable deposits: Banks currently hold about $2.3 trillion in
excess reserves. While I frequently suggested this option when I was an
economist at the St. Louis Fed, I did so tongue-in-cheek, the idea being that
it would create a massive inflation that would force the FOMC ineffective and
ultimately damaging zero interest rate policy. I didn’t really want this
outcome because inflation is terribly destructive and because experience has
shown that once the inflationary process begins is tremendously difficult to
stop.

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Comment on Can Money-Market Mutual Funds Reliably Avoid the Problem of Runs? by Julien Noizet http://www.alt-m.org/2016/02/03/can-money-market-mutual-funds-reliably-avoid-the-problem-of-runs/#comment-16299 Sat, 06 Feb 2016 02:40:00 +0000 http://www.alt-m.org/?p=30480#comment-16299 JP,
I think the answer might be in the amortized cost accounting practice. If you don't mark to market your assets, the NAV doesn't change in line with the fair value of the assets. In order to substract $1 share you'd need the NAV to be fully fair valued, in real time. Investing in illiquid assets also make the NAV even more uncertain (ie valuation can be either way off if amortized, or fluctuate widely if fair valued).
Although to be honest, investors placing money in an MMF purchasing illiquid securities are looking for trouble in the first place.

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Comment on Can Money-Market Mutual Funds Reliably Avoid the Problem of Runs? by Mike Sproul http://www.alt-m.org/2016/02/03/can-money-market-mutual-funds-reliably-avoid-the-problem-of-runs/#comment-16298 Sat, 06 Feb 2016 00:00:00 +0000 http://www.alt-m.org/?p=30480#comment-16298 Of course, the contract was already breached the moment the bank became insolvent and could not meet its debt obligations. Suspension of convertibility is just making the best of the bad situation. There are also situations where, by contract or by custom, everyone understands that banks suspend during runs. So while it is not universally true that 'inconvertible bank note"=MMMF, it is often true enough.

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Comment on Can Money-Market Mutual Funds Reliably Avoid the Problem of Runs? by Lawrence White http://www.alt-m.org/2016/02/03/can-money-market-mutual-funds-reliably-avoid-the-problem-of-runs/#comment-16297 Fri, 05 Feb 2016 05:07:00 +0000 http://www.alt-m.org/?p=30480#comment-16297 For an ordinary bank or a government bank that has issued debt claims, defaulting on those claims is a breach of contract. It's not "just like an MMMF," because an MMMF is an equity claim by contract, not by breach of contract.

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Comment on Can Money-Market Mutual Funds Reliably Avoid the Problem of Runs? by Mike sproul http://www.alt-m.org/2016/02/03/can-money-market-mutual-funds-reliably-avoid-the-problem-of-runs/#comment-16296 Thu, 04 Feb 2016 15:50:00 +0000 http://www.alt-m.org/?p=30480#comment-16296 When a note issuing bank suspends convertibility of its notes, it converts them from debt claims to equity claims, just like an MMMF. So the Bank of England already implemented your idea in 1797, and the fed did it again in 1933.

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Comment on Can Money-Market Mutual Funds Reliably Avoid the Problem of Runs? by Bill Woolsey http://www.alt-m.org/2016/02/03/can-money-market-mutual-funds-reliably-avoid-the-problem-of-runs/#comment-16295 Thu, 04 Feb 2016 14:05:00 +0000 http://www.alt-m.org/?p=30480#comment-16295 I have read (and not verified) that businesses must account for MMMF as investments unless there is a commitment not to "break the buck," which allows them to account for them as "cash." Of course, to the degree customers really want a bank without certain regulations, such as interest rate ceilings initially, then there is a strong incentive to make a MMMF into a bank in everything other than name. Since interest rate ceilings are less relevant today, avoiding capital requirements would be a more obvious motivation for a MMMF to operate as a bank in everything but name.

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Comment on Can Money-Market Mutual Funds Reliably Avoid the Problem of Runs? by Max http://www.alt-m.org/2016/02/03/can-money-market-mutual-funds-reliably-avoid-the-problem-of-runs/#comment-16294 Wed, 03 Feb 2016 23:18:00 +0000 http://www.alt-m.org/?p=30480#comment-16294 The market has clearly spoken: it wants MMFs that are de facto banks, warts and all. So I have to agree with the Cecchetti statement: MMFs are banks, but regulated in a different way. Classical banks are regulated by capital requirements, while MMFs are regulated by asset requirements.

The strictest regulation of MMFs would be to require them to hold only overnight repos or the equivalent. Then there would no problem of maintaining a stable asset value, except in the case of default.

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