Typography

Perry Mehrling wrote an interesting post called Why did the ECB LTROs help? He visits the comparison of the Federal Reserve Interdistrict Settlement Account and the ECB Target2 settlement mechanism . I have also found this comparison in a number of other publications, see the list at bottom. Here is the comment I left at the Money View blog. My reading of the Euro-system rules is that deficit national central banks (NCBs) never have to settle with surplus NCBs. These intra-system balances can grow ad infinitum. Thus, deficit NCBs don't have to worry about owning acceptable assets for settlement, since there is no ultimate day of reckoning. The result is that survival constraints for Eurosystem NCBs are far looser than the survival constraints faced by regional Federal Reserve banks, which must settle each year. In the old days this settlement was conducted by transfers of gold certificates amongst regional Federal Reserve banks. After 1975 the settlement medium was switched to secu...

Nick Rowe writes a post called Macroeconomics and the Celestial Emporium of Benevolent Knowledge . It is a conjunction of a bunch of themes he has touched on in the last few weeks, including the great debt debate and categorization. I asked him: In your previous post, you advocated adopting the most "useful" way of dividing up the world into categories. But what does that mean? Useful in terms of teaching students, reaching the layman, articulating theory amongst other economists, calculating statistics, conducting policy? Are you saying that economists should have multiple "categorical universes" in their head? Or is their "one ring to rule them all" way of dividing up the universe that you are trying to tease out? One useful reason for having one standardized way of splitting the world into categories is it makes conversation easier. Having multiple ways adds subtlety but confusion. I am learning that the core of economics (or at least near to it) is abo...

I didn't comment much on the great debt debate, stirred up a Krugman post called Debt Is (Mostly) Money We Owe to Ourselves , but followed it quite closely. Nick Rowe taught me ( here , here , here , and here ), and Bob Murphy clarified ( here , here , here , here , here , here , here , and here ), that present generations can indeed take resources from future generations via debt issuance. I also learnt via Daniel Kuehn here and here that if you use a very unintuitive definition of "generations", than this is not the case. Basically, you can swap the meanings of terms to argue your way out of a tight spot. My comment is from a Murphy post : I’ve learnt that the method by which one aggregates individuals into groups, and the labels that one attaches to such groups, can have an important influence on a debate’s ability to reach resolution. If people are aggregating differently, and using non-standard words for their categories, then the debate will degenerate into shouti...

Tyler Cowen posts on Is there an easy way out of the eurozone? He notes it would be harder than Robert Barro thinks. I agree. My comment: Barro’s is the Euro-as-glove argument. You can slip it on, and slip it off just as easily. I like the Euro-as-Chinese-finger-trap argument. Once you’re in, you aren’t going to get out of it.* *Germany can’t leave it easily, because it is owed some E500b by the ECB via the Target2 settlement system. Leave it and lose it. The PIIGS can’t leave, because as Tyler points out, a bank run will immediately result. And if they dodge the run, they surely won’t be able to dodge euroization: citizens will spontaneously disengorge any newly-created liras/drachmas/etc in favour of the already-circulating and vastly superior Euro.

Lord Keynes continues to squabble with the Austrians on the origins of money in two separate posts, one on Adam Smith and the other on Mises's regression theorem . The combativeness on the blog is unproductive, but I left a few comments anyways. On Smith: I don't really disagree with your claims, although I think you have to read the full Wealth of Nations in order to appreciate Adam Smith's theory of money. For instance, you are quoting from book 1 chapter 4, but Smith also has a very interesting (and much more extensive) chapter describing the complex workings of the system of bills of exchange, so he was by no means focused on gold and silver as money (See book 2 chapter 2). In this way he was different from Menger, who never discusses credit. Like Henry Dunning Macleod (who I see someone has already quoted), Smith was comfortable with credit as money.  The existence of Henry Dunning Macleod, as well as George Berkeley and James Steuart, disconfirms the thesis that clas...

Stephen Williamson talks about clearing and settlement systems, in particular Fedwire. I learn that the Fed offers daylight overdrafts on an uncollateralized basis, but believes itself to be covered by charging a fee and by putting caps on the the amount of credit they are willing to extend. George Selgin pops up again, because he wrote an excellent article called Wholesale payments: questioning the market-failure hypothesis . Available on demand if you email me.

Lars Christensen teaches me some interesting things about Japan and deflation in Did Japan have a “productivity norm”? See also an older post here titled Japan’s deflation story is not really a horror story . This involves George Selgin's idea of the productivity norm. See Less than Zero (pdf). I notice that Paul Krugman has also chimed in on Japan, charting GDP per working age citizen rather than GDP so as to adjust for demographics. *Update: Lars has responded to the Krugman post here , and includes another chart. As I pointed out in the comments, I am not entirely convinced by his chart because he computes it on a per capita basis, not a per worker basis. Krugman's chart measures the ratio of Japan's per worker GDP to that of the US, which is a more powerful way to visually tell the tale. Unfortunately the time axis's resolution is by the decade in Krugman's chart, which gives no granularity, and he only includes the US. So I made my own chart. I think it's...

Lord Keynes at the Social Democracy blog has an interesting post on Carl Menger.called Menger on the Origin of Money . As I point out in my comments, Lord Keynes is mistaken in trying to recruit Menger to the chartalist side of the metallist vs chartalist debate. Menger always was a pure metallist: So while Menger believed that the state might adopt metals as money, it could not legislate into existence a worthless item as money. The state could construct a system of coinage and thereby perfect an existing metallic monetary system, but not create a system based on intrinsically worthless materials.

I commented on the blog Social Democracy for the 21st Century: A Post Keynesian Perspective in a post called Hayek’s Natural Rate on Capital Goods, Sraffa and ABCT . Specifically, the issues in the above blog post are continued in one of my favorite David Glasner posts,   Sraffa v. Hayek . I requote Glasner: "the rate of return from holding all assets net of their storage costs and their current service flows must be equal in equilibrium. If not, you’re not in equilibrium. So all you have to do is find an asset with no storage cost and no current service flow and calculate its expected rate of appreciation and you have the real natural rate of interest."

Econbrowser has a post on inflation expectations as measured via TIPS spreads. This links back to an earlier comment I made on Glasner's blog , in which inflation swaps are posited as an alternative to TIPS spreads. Here is the comment from Econbrowser: "One might worry about characteristics in the TIPS market distorting the estimates of the real yields."  and  "The real yield curve starts at five years, so one can’t be sure what the real yield curve suggests for the horizon less than five years. "  Why not use zero coupon inflation swap prices? They (supposedly) don't suffer from some of the same distortions as TIPS (liquidity premia), and you can get shorter terms.  For instance, here is the 2 year inflation swap.  http://www.bloomberg.com/apps/quote?ticker=USSWIT2:IND Just subtract the 2 year swap rate from the nominal 2 year rate and you have the 2 year real rate.  See the Cleveland Fed's explanation of their methodology for measuring inflation exp...

Lars Christensen had an interesting post on moneyness and the Divisia indexes. He recommended an old paper of Steve Horowitz's which I read some time ago and have always respected. See A Subjectivist Approach to the Demand for Money . Essentially, you can't believe in the concept of moneyness and also believe in the effort to count money through indexes like M1, M2, or even the Divisia indexes. The two efforts contradict each other. The best way to get a market indication of moneyness, or liquidity, is through the introduction of liquidity options. My comment follows: If moneyness is a subjective concept, and I think it is, then trying to sum up various money assets into a Divisia index is problematic. That’s because an asset that appears to be high on one person’s subjective moneyness scale will be low on another’s, the result being that it is impossible to create objective categories for moneyness. Ultimately, the best way to determine moneyness is to back out the market’s a...