tag:blogger.com,1999:blog-1110014885778996459.post5949973719124811940..comments2024-03-28T08:45:53.564-07:00Comments on Idiosyncratic Whisk: Housing Tax Policy, A Series: Part 61 - Strong prejudices and imposed malaiseKevin Erdmannhttp://www.blogger.com/profile/07431566729667544886noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-1110014885778996459.post-11371476994586916462015-09-15T21:05:21.583-07:002015-09-15T21:05:21.583-07:00Do you have a link for the reserve issue? I'm...Do you have a link for the reserve issue? I'm having a hard time understanding what you are saying.<br /><br />Point 2 is well taken, but that is a completely different sort of regulatory capture from the kind usually claimed and from the kind I mention in the post.Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-46071046268687520242015-09-15T20:51:01.535-07:002015-09-15T20:51:01.535-07:00Kevin-
A couple quibbles.
The way banks got thei...Kevin-<br /><br />A couple quibbles.<br /><br />The way banks got their excess reserves was not so much by competing for deposits. <br /><br />When the Fed buys bonds from the 22 primary dealers (Goldmans, Nomuras etc), it then deposits freshly minted (digitized) cash into the commercial bank accounts of the 22 primary dealers, and takes possession of the bonds. So the commercial banks get $4 trillion in deposits rather quickly. <br /><br />As a digression, some people thus erroneously conclude the Fed has only "swapped reserves for bonds," Not true.<br /><br />Little noticed, the Fed also created something called the Primary Dealers Credit Facility, and loaned money to the primary dealers, when they were buying big during QE. <br /><br />So, the ultimate bond-sellers got $4 trillion in cash, AND $4 trillion in cash was deposited into commercial banks. One of the strange things is that the Fed has never surveyed bond sellers to find out what they did with their $4 trillion. The Fed talks about portfolio re-balancing, and suspects the bond sellers re-invest, though I suspect they might be consuming a lot also. <br /><br />Quibble No 2: Yes, Fed staffer pay by itself it hardly important in a nation the size of the US. But---if a culture is created inside the Fed, where everyone is insulated from the real economy, in fact personally benefits from recessionary deflations, what sort of culture would you expect to evolve?<br /><br />As you know, having bias, and then applying high IQs to verify the moral and intellectual righteousness of those biases is common. The Fed has been hiring lots of PhDs for years, is the largest bulk consumer. The "Fedborg" is a bit cartoony, but maybe not that far off...<br /><br />And really, they hold a confab in Jackson Hole and have six panel discussions, and all six are on inflation? Not one on aggregate demand? Or Market Monetarism? Really? Fischer give a keynote lecture and mentions inflation 70+ times and aggregate demand once?<br /><br />Maybe cartoons understate the extremities found in the Fed.....<br /><br /> Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-70889869310515180852015-09-15T10:00:57.674-07:002015-09-15T10:00:57.674-07:00Thanks for the shout out!
I would expect capture,...Thanks for the shout out!<br /><br />I would expect capture, too, and you're right that we should expect it to be run for the sake of the staff, though that is a small issue in the broad scheme of things, I suppose. But, regarding the banks, if they are captured by them, then they are doing a very poor job of it.<br /><br />I would be careful about IOER. I don't think the banks get any significant benefit from it. There are too many moving prices and rates and too much competition for deposits for anyone to grab much in the way of rents, I think.Kevin Erdmannhttps://www.blogger.com/profile/07431566729667544886noreply@blogger.comtag:blogger.com,1999:blog-1110014885778996459.post-29534731050947793752015-09-15T07:21:55.720-07:002015-09-15T07:21:55.720-07:00Great post. Although, usually, it is farmers prese...Great post. Although, usually, it is farmers presented as noble creatures, and of course we have an entire USDA throwing money at farmers...and an entire rural economy federally subsidized...federal water projects, power projects, roads, subsidized airports, subsidized telephone service etc.<br /><br />I concur with you that popular conceptions of the Fed are cartoon-like. And yet...is not regulatory capture to be suspected with every federal agency? <br /><br />Why did the Fed establish an inflation numerical target, but not a numerical employment target? <br /><br />Really, IOER just happens to put money in banker pockets for doing nothing? <br /><br />And Fed staffers are paid as if in sinecures--they are insulated from the real economy. In fact, since Fed staffers get step raises, they would be better off in a deflationary economy. So, if we assume that people operate rationally, then it is in the interest of Fed staffers to recommend deflationary policies. <br /><br />BTW, I praise your wages post over at Historinhas....<br /><br /><br /><br /><br />Benjamin Colehttps://www.blogger.com/profile/14001038338873263877noreply@blogger.com