Repenser le tabou de la monétisation

Mar 18, 2014 Adair Turner

LONDRES – A présent que le rythme de la réduction progressive du programme d'achat d'actifs de la Réserve fédérale américaine a été débattu jusqu’à plus soif, l'attention va de plus en plus se tourner vers les perspectives de hausses des taux d'intérêt. Mais, déjà, une autre question se profile à l’horizon : comment les banques centrales parviendront-elles à « en finir » définitivement avec la politique monétaire non conventionnelle et à ramener leurs bilans gonflés par la politique monétaire non conventionnelle à des niveaux « normaux » ?

Pour beaucoup, un problème plus vaste doit être abordé. La réduction entreprise par la Fed ne fait que ralentir la croissance de son bilan. Les autorités devraient encore vendre 3 billions de dollars d’obligations pour revenir au niveau d’avant-crise.

La vérité rarement admise, cependant, est qu'il n'y a pas besoin de réduire les bilans des banques centrales. Ils pourraient rester plus importants en permanence ; en outre, pour certains pays, augmenter de façon permanente le bilan de la banque centrale permettrait de réduire le fardeau de la dette publique.

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0 Comments on this paragraph, 13 in all 13 Comments on this article

Jim Tucker Mar 12, 2016

When the "debt" in question is just an interest-bearing unit of the currency for which the government is the sole creator and issuer, it is really "monetized" from the moment of its issuance. The debts of currency-issuing governments like Japan or the US are not really debts in any meaningful sense. They are just promises to issue currency and spend it in the future. In any event, I do not believe it a "useful" taboo in a democracy to obscure and obfuscate things from the public, including the real nature (and power) of a fiat monetary system.
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amor moussaoui Sep 26, 2014

le tabou de la monétisation
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Luis de Agustin Apr 14, 2014

According to David Ranson, head of research at Wainwright Economics, it's difficult to foresee any substantial change in the current yield curve. Under Janet Yellen, the Fed seems much more conscious of the poor state of the labor market despite the decline in the official unemployment rate. Tapering, Ranson says, will remain extremely gradual, this despite that quantitative easing inflates but does not stimulate.

According to Ranson, the evidence to support the Federal Reserve’s stimulation of the economy by easy monetary policy is unfavorable. Artificially low interest rates inhibit saving and lending, leaving borrowers no better off than before. What borrowing does take place tilts towards the well to do or the politically connected.

The Fed can print money and buy bonds, but it’s banks that generate money balances. The failure of money in circulation to grow is notorious in spite of enormous debt purchases in the course of the Fed’s quantitative easing initiatives. Wainwright’s analysis finds that the more money the Fed creates to buy up debt, the slower the economy grows.

Creating money is inflationary, especially when inflationary forces are expressed in terms of a market-driven sensitive indicator like the price of gold. In fact according to Wainwright’s findings, no matter which kind of hoped-for stimulus the government relies on, the effect is the same. The research concludes that true stimulus comes from the incentivization of private capital and not from turbo-charged government activity.

Luis de Agustin
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Jason Gower Mar 22, 2014

Wow, it's that easy...who knew! Can really summarize this whole issue with the last sentence. What was the point of independent central banks in the first place? Call it whatever you want but keep playing with fire and the whole house will eventually burn down.
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Procyon Mukherjee Mar 22, 2014

Debt can be partially monetized by allowing inflation to increase (government debt vanishes, being replaced by inflation), this is the same subject on which Janet Yellen in September 2005 had been vocal that interest rates would rise quicker as a consequence (in fact she is still hinting that now).
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Claudio Migliore Mar 21, 2014

Let me dare interpret Mr. Turner's word, if I may.
"The money has already hit the streets so, whichever way the governments' accountants choose to cook the books is irrelevant, except for the fact that we all like to save face. I cannot imagine why economic agents should care whether the pieces of paper stored in their central banks' vaults say one thing or the other or do not exist at all."
I couldn't agree more. Zimbabwe, Weimar, Hungary or Venezuela differ from the US only in that beyond a certain degree, face cannot be saved and monetary illusion collapses. I remember the One Trillion note proposed by Mr. Krugman fondly, because if comes closer to admit reality, i.e. the government can inflate whenever they feel like and they are already doing it with gusto.
That they are doing it in the "right" amount it is another story and that they will be equally willing to deflate when prices catch up is another. The real game is one of redistribution, as different degrees of inflation move wealth between their citizens' pockets.
I hope one day societies are mature enough to live without the thin veil of this illusion.
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edwin knouse Mar 21, 2014

So as a layman, what I'm seeing here is the root of all this is that if you make up money out of thin air. Then you can also make it disappear. Well I guess that's the reason the "Fed" is a private corp.,business whatever you want to call it, it certainly isn't our elected government Now why is that?. Oh that's right it's so we want have banking crisis, I almost forgot I was so worried about the banking crisis.
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Tomas Kurian Mar 20, 2014

There is no way CB could reduce its balance sheets without inflation. State debt is an inevitable tool for keeping economy afloat which enables profits creation and its retention.

To ask for state debt reduction one asks for reduction of personal savings.
To ask for balanced budget means to ask for no increase in savings and profits.

Methods of monetary reform:
http://www.genomofcapitalism.com/index.php/12-methods-of-monetary-reform-2

Read more @: www.genomofcapitalism.com
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Yoshimichi Moriyama Mar 19, 2014

I do not have any good economics knowledge, so I would rather not make a comment on Mr. Turner's Rethinking.
However, I am certain of one thing and it is that the Bank of Japan's monetization policy over the past year is right.

If I may use this space and repeat what I said to Koichi Hamada/Japan's Tax-Hike Test, one major problem with Japan is the low intellectual level, at least in so far as enonomics is concerned, of the Japanese Ministry of Treasury (JMT). As Paul Samuelson said, most bureaucrats of JMT come from the Law Department of Tokyo University, not the Economics Department. They begin to learn economics after entering the office and so never arrive at an adequate or desired level; they cannot compete in discussing economic problems with top-class Japanese economists. They should come from at least a graduate master or doctor course of economics.
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Ralph Musgrave Mar 19, 2014

Hurray. Someone in power is beginning to understand Modern Monetary Theory.

Turner’s point could be taken a lot further: Milton Friedman, Warren Mosler and other economists have long pointed out that government debt is a farce, and that the only liability that should be issed by the government / central bank machine should be money (monetary base to be exact).

That is, it would be perfectly feasible to continue with QE till all government debt had vanished. As to any inflationary effect of that, that can easily be dealt with (at least in principle) by raising taxes. There might be POLITICAL problems there. But there’s no strictly ECONOMIC problem.
- Sergey Ivanovitch Mar 25, 2014
  
  @ G.A. Pakela: How can taxes be inflationary under the profit-maximizing assumption? If the tax rate goes up and a firm raises prices to either keep profit constant or increase profit, that implies that the firm was not maximizing its profit in the first place. This is a problematic assumption.
  
  All else equal, increasing taxes should reduce the money supply which reduces inflation.
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- Ingolf Eide Mar 21, 2014
  
  Looked at from certain angles, in an independent fiat system government debt is a farce. Or, more accurately, a sort of veil drawn over the underlying reality.
  
  Still, replacing government debt with freshly issued money would not be without real-world consequences. Consider Musgrave's suggestion of continuing with QE until "all government debt had vanished". In the case of the US, this would leave the Fed with a balance sheet of close to 100% of GDP and the banking system with the same level of reserves.
  
  Would that matter? Well, one thing immediately stands out: heavily influenced though that market may be, government bonds are still priced by the market, reserves are not, and so yet another signalling mechanism would effectively vanish. One that many see as the most important of all.
  
  And banks, how would they react to having reserves roughly equal to GDP? If the central bank pays no interest on them, or a rate substantially below market, the incentive for individual banks to try to get rid of reserves by purchasing securities and/or increasing lending would be irresistible. Mr Turner suggests any such problems can be dealt with by forcing banks to hold zero interest reserves in proportion to their loans (including securities, I assume). Maybe, for a while at least, but Lord isn't the whole contraption getting a little ramshackle at this point? And let's not forget the banking system as a whole can't get rid of reserves; they're wholly determined by central bank actions. Common sense suggests matters could well spin out of control as reserves replaced government debt. As we clearly saw in 2008, money and finance have a distinctly nonlinear nature lurking under their benign, rational exterior.
  
  Most of this radical monetary activity (both existing and proposed) is aimed at keeping creditors whole. This obsession has precluded sensible policy ever since the crisis hit, and indeed long before. Instead of fighting to keep an unsustainably overgeared system propped up, the focus could have been on debt conversions wherever debt was unsustainable. Backing away from the precipice, in other words, rather than trying to leap over it and effectively risking all.
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- G. A. Pakela Mar 19, 2014
  
  Raising taxes in the face of monetary expansion would increase, rather than decrease inflation as households and firms would demand higher wages and prices to compensate them for the higher tax rates. This scenario was in play in the 1970s when the highly progressive tax rates at all income levels were not indexed for inflation; this meant that tax payers were pushed into higher tax brackets each year. The inflation psychology fed on itself and even the brutal recession in the 1973-1974 only barely slowed the pace of inflation. Inflation returned with a vengeance in the subsequent recovery with effective taxes increasing in each of those years. The Reagan tax cuts only restored tax rates to their earlier levels for most tax brackets except at the top bracket. The Reagan tax policy indexed the subsequent rates and this may have been a factor in the multi-decade fall in inflation.
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