Hey, Janet, How’s That Interest Rate Increase Working Out?

But the real problem is that the Fed has not understood why banks are holding all those reserves. There are two reasons. First, there is incredible risk aversion caused by the random, frequent regulations and lawsuits emanating from the Obama administration. Second, there is the small matter of loan demand. Banks are holding reserves because they don’t see demand for loans whose return is worth the risk. The only way loan demand will increase is for the economy to ascend to a decent growth rate. Until that happens, the Fed should just give up. Continue Reading →

I Was Wrong About ZIRP

Not, mind you, because the Fed will raise interest rates any time soon. No, the geniuses at the Federal Open Market Committee and the Board of Governors seem to be leaning in a different direction: NIRP. … Better get used to seeing those initials. They stand for negative-interest-rate policy. That’s right. The Fed thinks they can drive nominal short-term interest rates below zero. Continue Reading →

Money, Income, and Wealth

money is used to purchase goods and services. While income and wealth are valued in money units, that is their only relationship with money. Income is the annual flow of purchasing power earned by an individual. Wealth is the accumulation of past saving plus any increases or decreases. Continue Reading →

More on the Deficit and the Debt

The U.S. federal government debt is owned by many different people, governments, businesses, and institutions. But it’s important to understand at least the basic components of the debt and how they relate to each other. I hope this has been a small contribution to this discussion. Continue Reading →

The One Trillion Dollar Coin

Default is a failure to make payments on debt obligations when the payment is due. … But … the government has a steady stream of tax revenue arriving every second. It is up to government officials … to decide the uses to which that tax revenue is put. They can choose to not pay the debt obligations but let’s be clear on one thing: default is a choice, not a necessity. Continue Reading →