tag:blogger.com,1999:blog-4979477022008569617.post429254604901522996..comments2023-05-02T06:38:35.510-07:00Comments on Roger Farmer's Economic Window: Washington: We have a problemRoger Farmerhttp://www.blogger.com/profile/05213844698773859392noreply@blogger.comBlogger8125tag:blogger.com,1999:blog-4979477022008569617.post-34618451789410591782015-12-03T21:46:27.988-08:002015-12-03T21:46:27.988-08:00Prevent a stock market drop by buying risky assets...Prevent a stock market drop by buying risky assets.Roger Farmerhttps://www.blogger.com/profile/05213844698773859392noreply@blogger.comtag:blogger.com,1999:blog-4979477022008569617.post-74336657467083874652015-12-03T19:08:39.075-08:002015-12-03T19:08:39.075-08:00Roger, you stated that we should raise the rates a...Roger, you stated that we should raise the rates and raise them soon, but that will lead the economy into recession. What, if anything, can the government do to prevent the economy from going into a recession, and instead reach prosperity?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4979477022008569617.post-73942786774836496382015-09-21T11:11:47.183-07:002015-09-21T11:11:47.183-07:00Roger, thanks for the clarification. You write:
&...Roger, thanks for the clarification. You write:<br /><br />"Your graph is interesting. And suggestive."<br /><br />If you're referring to any of the graphs on the post I linked to, those aren't mine: those were created by Jason Smith, who writes that blog.Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-4979477022008569617.post-37286819080615489322015-09-18T22:39:44.644-07:002015-09-18T22:39:44.644-07:00Thanks for your comment Philip. I will take a look...Thanks for your comment Philip. I will take a look at your book.Roger Farmerhttps://www.blogger.com/profile/05213844698773859392noreply@blogger.comtag:blogger.com,1999:blog-4979477022008569617.post-30612811925535817512015-09-18T20:45:07.275-07:002015-09-18T20:45:07.275-07:00Tom
Your graph is interesting. And suggestive.
Ye...Tom<br />Your graph is interesting. And suggestive.<br /><br />Yes. The current problem is deflation. More generally; it is that interest rate control is the lever we use to control inflation. Both on the upside and on the downside. That lever has been effective. But it has been directed at two targets. Inflation and unemployment'.<br /><br />For thirty years, the right way to address both targets had coincided. That is no longer the case. We need a second instrument. That instrument is control of the risk composition of the Fed balance sheet.Roger Farmerhttps://www.blogger.com/profile/05213844698773859392noreply@blogger.comtag:blogger.com,1999:blog-4979477022008569617.post-70633309379159518382015-09-17T23:49:30.008-07:002015-09-17T23:49:30.008-07:00"...it does have a responsibility to control ..."...it does have a responsibility to control inflation. And the lever that controls inflation is the money interest rate. That lever did a pretty effective job for thirty-five years. Right now, it’s set at full speed ahead with no room to maneuver."<br /><br />Roger, just to be clear, in the above your worry with controlling inflation must be on the downside, correct? Because there's plenty of room to maneuver on the upside for rates (i.e. putting the brakes on inflation) and we're currently undershooting the 2% inflation target.<br /><br />But if you're arguing that QE is effective (in this age of ZIRP) then there's room to maneuver outside of the rate lever (equivalent to room on the downside for rates). What am I missing?Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-4979477022008569617.post-19985000468702124762015-09-17T22:00:20.475-07:002015-09-17T22:00:20.475-07:00Roger, you might be interested in this post inspir...Roger, you might be interested in <a href="http://informationtransfereconomics.blogspot.com/2015/09/hot-potatoes-and-entropy-qe-and.html#comment-form" rel="nofollow">this post</a> inspired by your post here.Tom Brownhttps://www.blogger.com/profile/17654184190478330946noreply@blogger.comtag:blogger.com,1999:blog-4979477022008569617.post-90836067232516383272015-09-17T20:32:10.241-07:002015-09-17T20:32:10.241-07:00"Movements in financial wealth do not reflect..."Movements in financial wealth do not reflect future booms or busts. They cause them."<br /><br />That is correct. Unfortunately most economists do not seem to have identified the mechanism that leads from one to the other. In the Great Depression and the Great Recession the mechanism was through the effect on consumer expenditure which in turn caused a fall in aggregate demand. In Japan it was through the effect on company finances and thus a fall in investment demand. That was the first stage. The next stage was through the effect on banks (and shadow banks) and total lending.<br /><br />My book "Redefining Macroeconomics" http://www.amazon.com/dp/B00ZX9O5XQ has the mathematical details and why Keynes was wrong on so many points, though the Keynesian method is basically right. The book also explains many other things: e.g. why recoveries that follow financial asset market crashes are of necessity prolonged, why keeping interest rates low does not help and indeed leads to the next crash, etcPhiliphttps://www.blogger.com/profile/16538860062019540619noreply@blogger.com