Central banks need escape route from cycle of boom and bust \ stacker news ~econ

Central banks need escape route from cycle of boom and bust www.ft.com/content/72b48b7d-ec17-4135-aa40-98b96eec2e64

486 sats \ 23 comments \ @south_korea_ln 2 Nov econ

Concern about sluggish growth and poor productivity is now high on the political agenda across the developed world. Yet the debates around the UK Budget and the US presidential election have failed to touch on one of the most important factors behind this trend, namely a monetary policy over-focused on near-term inflation targets and too little concerned with developments in credit and debt markets.

The widespread adoption of 2 per cent inflation targets has been, at best, a mixed blessing. For a start, equating 2 per cent inflation with price stability — a nebulous concept — is highly questionable. Such a target prevents a natural downward adjustment of prices after increases in productivity or positive supply shocks. If price rises are not allowed to go below 2 per cent, there will be an inbuilt bias towards inflation and against long-run price stability

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91 sats \ 10 replies \ @Aardvark 2 Nov

The escape route from boom and bust is to get away from central banks.

20 sats \ 8 replies \ @Undisciplined 2 Nov

Exactly, they're the cause of the business cycle.

If they could somehow have their ability to expand credit removed, then there could be central banks that don't do anything other than sit on a big pile of real assets. That wouldn't cause business cycles, but there's also no reason any regime would keep such an institution around.

11 sats \ 7 replies \ @Rothbardian_fanatic 2 Nov

Actually, if the Fed quit it with the easing and tightening, the individual banks would expand on their own hook. It is the fractional reserve system, in toto, that needs to be removed. Then let the peoples time preference for money determine natural interest rates.

10 sats \ 6 replies \ @Undisciplined 2 Nov

Sort of, but without central bank credit expansion, bank runs are a real threat to independent banks engaged in fractional reserve lending.

In an environment like that, I'd expect business cycles to be very mild.

18 sats \ 4 replies \ @Aardvark 2 Nov

A good way to promote banks acting responsibly is to stop bailing them out. If they go insolvent, the FDIC makes the customers whole, and the bank shuts its doors.

10 sats \ 3 replies \ @Satosora 2 Nov

If we stop bailing them out, wont they lose even more public credibility?

51 sats \ 0 replies \ @Rothbardian_fanatic 2 Nov

The only way they had credibility was with FDIC. Get rid of the FDIC and the banks will have to behave themselves or go bankrupt. They won’t, theoretically, lend much more than they have taken in as deposits. They won’t be backed by the Fed, they won’t be naked short on commodities. That would cure many, many problems.

10 sats \ 1 reply \ @drlh 2 Nov

Malinvestment drives the economy.

0 sats \ 0 replies \ @Rothbardian_fanatic 2 Nov

Malinvestment drives the economy into the ground. Malinvestment arises due to economic miscalculation because of “unnatural” interest rates. The natural interest rate is the rate that demand for and supply of money balance. That would be savings and loans. With the Fed arbitrarily deciding the interest rates, nobody can do proper economic calculation for investments.

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5 sats \ 0 replies \ @Rothbardian_fanatic 2 Nov

Yes, they are at risk of a bank run, but that is the controlling factor for banks; bankruptcy. Too many fractions, loss of business. THEY earn those consequences.

0 sats \ 0 replies \ @Rothbardian_fanatic 2 Nov

Your choice: BTC or precious metals. Fiat is dooooooooomed!!!!!

42 sats \ 0 replies \ @Cotton 2 Nov

You make a great point! The fixation on short-term inflation targets can distort economic health and ignore bigger trends. A more balanced approach could really help stabilize things long-term.

10 sats \ 1 reply \ @Satosora 2 Nov

Inflation is never a blessing. Just because we are used to it doesnt make it right.

21 sats \ 0 replies \ @Rothbardian_fanatic 2 Nov

never a blessing

No always a curse!!! Always theft!!!!! Always pauperizaton!!!!! Always economic destruction!!!! Always economic miscalculation!!!!!!

0 sats \ 2 replies \ @denlillaapan 2 Nov

Very good read, thanks for sharing.

This, in particular:

"persistent reliance on sovereign intervention to mitigate macroeconomic and social-economic volatility might exacerbate moral hazard and lead to the misallocation of resources towards low-productivity projects and “zombie” companies that produce profits short of debt servicing costs."

10 sats \ 1 reply \ @south_korea_ln OP 2 Nov

Coming from you, that means something :)

0 sats \ 0 replies \ @denlillaapan 2 Nov

The beauty (and curse!) of SN is the many good reads people recommended. Can't keep up

0 sats \ 0 replies \ @OriginalSize 2 Nov

If I want a pony, I have to save for it. Is a government capable of saving? Can it have a low time preference? I think 2% is their version of I'll have just one per day.

0 sats \ 4 replies \ @Rothbardian_fanatic 2 Nov

Let’s see, 2%, OK. 70 divided by 2 equals 35. So, at 2% your money’s worth shrinks in half in 35 years. Yeah, good deal!!!! If you are saving for a retirement, this halves your money every 35 years. Save now halve later!!! It also raises the interest you require to increase your savings by 2%. I don’t see that happening at the zero bound we were in and returning to. Look to Japan to see the results of the zero bounds interest rate. It is coming here sooner than later, unless we get rid of the Fed.

10 sats \ 1 reply \ @jk_14 2 Nov

why 70

0 sats \ 0 replies \ @Rothbardian_fanatic 2 Nov

Because it’s somewhat easier than 72. The logarithmic calculation applied to compound interest. You can use 70, 72 and 69.3. I use 70 for ease of calculation.

10 sats \ 1 reply \ @denlillaapan 2 Nov

The halvening that was always great!

0 sats \ 0 replies \ @Rothbardian_fanatic 2 Nov

It woks as doubling if you are saving. Divide 70 by the rate of interest to find out how long it takes your money to double.

I don’t think the value of your money halving in value is good. The other half goes to THEM.