Tuesday, August 18, 2015

The decline in long-term interest rates

Source: Council of Economic Advisers
Long term interest rates are trending down around the world. And it's not just since the great recession and financial crisis. The same trend has been going on for decades.

The Council of Economic Advisers just issued an excellent report surveying our understanding of this question. A blog post summary by Maury Obstfeld and Linda Tesar.

(Many other interesting CEA reports here. Occupational licensing is next on my in box.)

The report is really well done, for explaining the economic issues in clear simple terms, but without hesitating to use a model and an equation when necessary. If you're wondering how to keep your undergraduate or MBA class (heck, your PhD class) busy this week, this report will do the trick.

There is some grumbling in economics circles about the CEA and what role it should play, between Sunday morning talk show cheerleader for the Administration's policies vs. providing dispassionate  economic analysis to the Administration and country. This kind of report is the kind of CEA I cheer for.

I won't summarize the whole thing. Maury and Linda's blog post blog post does a great job of that, and you should just go read it. A few comments however.



1. Surprise surprise, the trend is a surprise. Hence, beware our current forecasts. This is not a criticism, it's just a fact. The best forecasts have been wrong in the past. They may well be wrong in the future.

2. Said: "The long-term interest rate is a central variable in the macroeconomy. A change in the long-term interest rate affects the value of accumulated savings, the cost of borrowing, the valuation of
investment projects, and the sustainability of fiscal deficits."

Unsaid: The surprise decline in long-term interest rates has been a boon to financing deficits. Current deficit forecasts use the current forecast of a return to higher interest rates. If this forecast is wrong once again, and real interest rates on government debt continue at rock-bottom levels, this will be a boon to "fiscal sustainability." Of course, the opposite is also true: If a trend nobody expected and everyone expects to reverse does reverse, then countries with big debts are in trouble.



3. The long term graph makes nicely a point that's been on the back of my mind lately. People typically assume that long term bonds should pay more then short term bonds, because they are riskier. But that's actually a puzzle: most bond investors hold their money for long periods of time, for which long term real bonds are less risky. It's hard, in fact, to get most term structure models to produce an upward-sloping yield curve.

It was not always so. In the 19th century, short term yields were consistently above long term yields.

The difference, of course, is inflation. In the 19th century we were on the gold standard, as noted in the graph. So long term bonds did not have inflation risk.  So, if inflation continues to die, or if our central banks go on a price level target, we might expect the same pattern to hold again. Which would be great for financial stability too. Short term debt causes runs and crises. If long term debt were cheaper, the inducement to finance short would be less.

4. Uncertainty. A message you read loudly between the lines is, that we have very good theoretical understanding of the various mechanisms that can move the trend in interest rates up or down, we (meaning "economic science") have really very little idea of the quantitative force of various mechanisms. By masterfully explaining each mechanism, and then patiently reviewing the vast literature that comes up with hugely different numbers for each mechanism, the point is made clearly, though between the lines.

They might go further. For example, the section on term premiums (the long rate is the average of expected future short rates plus a term premium) cites the latest studies and plots a line, but no standard error or other uncertainty band around that line. As this is an area I've written papers on, I know where the bodies are buried. Term premium estimates come down to forecasting regressions of future bond returns on current variables. Such regressions have huge bands of uncertainty. All forecasts and decompositions should have error bars. The only problem is artistic, as honest error bars would dwarf the forecasts. Well,  knowing what you don't know is real knowledge.

5. Forecasts. On p. 26, after this implicit devastating critique of the state of knowledge, "To illustrate our analyses, we illustrate different approaches to forecasting the long-term nominal interest rate, as is typically done twice a year in the CEA/OMB/Treasury Budget forecast and midsession review." A process for coming up with a number follows. Clearly, the message of the previous 25 pages is that conditioning decisions on a forecast, cranked out to two decimal places, is a bad idea. Economic policy should embrace uncertainty!

This is really a big deal. Much of the illusion of technocratic competence driving our regulatory state is reflected in absurdly accurate forecasts. The joke goes, we know economists have a sense of humor, because economists use decimal points. I'd love to see a Federal Forecast Accuracy Act: All forecasts made by every administrative agency shall include measures of forecast uncertainty. The CBO will evaluate all forecasts after the fact, and agencies shall be penalized when reality exceeds the stated uncertainty bounds more than half of the time.

6. The CEA ain't buying "secular stagnation," in its perpetual "lack of demand" interpretation.  (As a fact, it's undeniable. The question is the diagnosis and treatment.)  See p. 38.

7. In a report whose summary sections are  Fiscal, Monetary, and Foreign-Exchange Policies, Inflation Risk and the Term Premium, Private-sector Deleveraging, Lower Global Long-run Output and Productivity Growth, Shifting Demographics, The Global “Saving Glut”, Safe Asset Shortage, Secular Stagnation?, and Tail Risks and Fundamental Uncertainty, it is perhaps a bit petulant to complain of left-out factors but I will mention one.

The "supply side" part of the analysis is limited to productivity growth. Higher productivity growth leads to higher real interest rates in equilibrium, and (these days) vice versa. But it takes time and transition dynamics to accumulate capital.

One hypothesis that I learned from Larry Summers is that today's production function needs a lot less physical capital to produce the same productivity. A 1930s steel mill is a lot of accumulated savings. Facebook has nothing but a basketball court sized building full of 20-somethings coding while wearing headphones, and a really cool food court. The company is worth billions but it took comparatively little accumulated savings to start it up. If technology moves so that human, rather than physical capital is the heart of the K in F(K,L), productivity growth may determine interest rates in the long run, but there are lower interest rates on the transition path. Larry:
Ponder that the leading technological companies of this age—I think, for example, of Apple and Google— find themselves swimming in cash and facing the challenge of what to do with a very large cash hoard. Ponder the fact that WhatsApp has a greater market value than Sony, with next to no capital investment required to achieve it. Ponder the fact that it used to require tens of millions of dollars to start a significant new venture, and significant new ventures today are seeded with hundreds of thousands of dollars. All of this means reduced demand for investment, with consequences for equilibrium levels of interest rates.
(This is an update, thanks to email correspondent who found the quote.)

Update: Steve Williamson reminds us all that there is no "the" interest rate, and that the rate of return on capital is both stable and much higher than government bond yields. There is a risk premium, and it's big, and it varies over time. Practically all macro and growth theory forgets this fact. Since I've spent most of my career emphasizing the size and volatility of the risk premium, I should remember this reminder in every blog post. Thanks for pointing it out Steve!

28 comments:

  1. Hi -

    Great post, as usual. I've been enjoying your blog for q while.

    A small nit - FB was started with very little capital (as was the first steel foundry, I betcha) but I would not characterize the $BB they spend on infrastructure as miniscule. Likewise Google doesn't have 'plant' but they spend hundreds of millions of dollars a year making a small number of bits move a small bit faster. And of course once the nerds figure out how to make it go faster the equipment has to get bought, installed, etc, etc...

    For some reason, this made me think of the classic Rodney Dangerfield scene in Back to School: https://www.youtube.com/watch?v=YlVDGmjz7eM

    -XC

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  2. John,

    "If technology moves so that human, rather than physical capital is the heart of the K in F(K,L), there are lower interest rates on the transition path."

    Or there are longer term structures on the transition path. The expected lifespan of a steel mill built in the 1930's was what - 20 years max? What is the expected lifespan of the average human?

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  3. Dr. Cochrane, here's a very short blog post about a possible model to explain it (it being the trend in 10-year interest rates). The model discussed doesn't indicate that interest rates will be rising anytime soon either.

    In fact this model seems to successfully predict the end of rising interest rates in staring in 1980/1981 (using data from several decades prior) even while interest rates were still climbing at the time, using only data up to 1980/1981 or so. Furthermore, using the same data set but extended up to 1995, this model predicts falling interest rates up to today (20 year prediction). It also appears that the model continues to forecast falling interest rates out to at least 2025 (using data up until today).

    Do you have a model (or models) that you're willing to compare it with? I'd love to see some head to head comparisons over the next decade or so.

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    Replies
    1. The author of that model has a new post directly addressing this now.

      Delete
  4. John,

    "Ponder the fact that WhatsApp has a greater market value than Sony, with next to no capital investment required to achieve it."

    WhatsApp is not a standalone company. It was purchased for $16 billion ($4 billion in cash and $12 billion in stock) by Facebook. At no point (that I know of) did it exist as a stand alone company with publicly traded shares. And so the notion of a "market value" for WhatsApp seems a bit of a stretch.

    How thin does a market have to be before it is no longer considered a market?

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  5. The Summers claim doesn't have much in the way of hard evidence to support it. Here is a graph of the ratio of the value nonresidential physical capital (equipment and structures) to private nonresidential value added: https://research.stlouisfed.org/fred2/graph/?g=1EqY

    As you can see, this ratio has hovered around 1.40, its current level, for pretty much the entire postwar era - with a low of 1.17 in 1966 and a high of 1.64 in 1982.

    It's highly influenced by the business cycle: capital is a stock while value added is a flow, so when value added collapses in a recession the ratio tends to rise quickly. Smoothing out the recession-driven peaks, though, one can see a rise from the 60s through the late 70s and early 80s, then a fall through the late 90s or early 00s, then a stabilization and slight rise. There is no hint of an impending collapse.

    The one collapse that *did* happen was the decline from 1929 to the postwar era, and -- peering into the numbers -- this was entirely the result of the railroads, followed by a partial recovery of nonresidential structures thanks to offices, health care, and most recently drilling.

    This tells us that large changes in private-sector capital intensity can happen; but it also tells us that the quantitatively significant changes aren't necessarily the ones that are obvious from Summers-esque introspection. If you asked a panel of economists about the largest secular driver of K/Y in the 20th century, and didn't let them look at the data, how many of them would blurt out "the decline of railroads"?

    You criticized Summers the other day for being too ready to apply his creative, smarter-than-the-rest-of-the-room insights to the policy process. I think this is a complementary anecdote: it shows the danger of spending most of your time dealing with the glamour industries and looking for the Next Big Thing. To Summers, it seems obvious that the new economy is less capital-intensive -- but perhaps that's because he's hobnobbing with Silicon Valley executives and not dealing with the economy as a whole. Or because he hasn't spent enough down-to-earth time wrestling with the data, and coming to realize just how much capital is still embodied in all the offices, power plants, hospitals, shopping centers, hotels, cell towers, and so on.

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  6. Absent Fed intervention, long-term Treasury interest rates are a function of expectations for short-term Treasury yields plus perhaps a term premium ( I'm not sure about the latter). Period. This explains everything. For example, short rates are expected to be lower in the future today than was the case a few years ago. Hence, long-term yields are lower. Or, real long rates were abnormally high during the 1981-84 Volcker era -simply because real short rates were expected to be high. To get back to today, market expectations are for short-term Treasury yields to be 1.00% by Dec. 2016 and to gradually increase to 3.00% by Dec. 2025 (reading off the Eurodollar futures curve). Hence, actual 10 year yields (which are at 2.2%) will be between these two numbers. Long rates are "abnormally" low simply because expected future short rates are expected to be "abnormally low" - no return to 5%, etc. Of course, as Dr. Cochrane illustrates, expectations in the past have generally not been realized (expecially expectations for tightening) - hence the result of lower trending rates.

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    Replies
    1. Charles,

      "Absent Fed intervention, long-term Treasury interest rates are a function of expectations for short-term Treasury yields plus perhaps a term premium ( I'm not sure about the latter). Period. This explains everything."

      Not quite everything. I think you also need to factor in expectations on tax policy. After all, the interest on federal debt is paid from tax revenue, and so expectations on the amount of tax revenue available to service the debt becomes significant.

      This can be seen in countries with aging populations. As the percentage of tax paying residents declines in relation to the total population, so too will interest rates on government debt.

      Delete
  7. Regarding my comment on interest rates. This is my understanding. No one should be 100% sure of anything, of course,

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  8. Interesting topic. A theory I have is that interest rates could be reduced due to regulatory uncertainty - which is associated to but not exactly the same as productivity decline.

    In short, a government bond is not only lower risk than investing, it's also much lower hassle. If you could easily start and run a business, then given a choice between a govt bond @ 2% and running said business for 40 hours a week @ 6%, you might choose the business.

    If regulatory uncertainty and complexity mean that the business is actually going to take 60 hours a week (lots of paperwork and compliance), return only 5% (taxes and compliance costs), and has a significant increased risk (maybe one of your employees will turn out to be a poor performer, you can't fire them, and so your return might be 5% but might be -5%), then suddenly that bond at 2% for no work looks a good idea.

    In short, to the extent that regulation and compliance costs makes running a business less attractive, it increases the demands for passive investment instead. And therefore reduces the returns for that passive investment.

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  9. Dr. Cochrane,

    If one examines the relationship between the Effective Federal Funds Rate (EFFR)[1] and Gross Fixed Capital Formation in United States© (CFR - USAGFCFQDSMEI) [2] there is a strong and statistically significant *positive* relationship. Between the 1st Quarter 1956 and the 4th Quarter 2014 there were 236 Quarters. The mean Year over Year Percent Change (Y/Y%C) in the quarterly EFFR was 6.5 % (Std Dev = 47) and the mean Y/Y%C for CFR was 6.4% (Std Dev. = 5.8). The Median values for each respectively were 3.8% and 6.6%. The Pearson Product Moment Correlation (PPMC) was 0.55 p<0.0001). So there is a very strong, statistically significant correlation between the change in value of EFFR and CFR[3].

    A similar relationship exists between Total Credit Market liability[4] and EFFR. As one goes up, the other goes up. Between the 2nd Quarter of 1954 and the 1st Quarter of 2015, there was a weak but statistically significant correlation between the year over year percent change in the Effective Federal Funds Rate and the year over year percent change in the total debt in the United States economy. The Pearson Product Moment Correlation was ER = 0.213 P = 0.0009 (N = 239). When the EFFR rate increased, total debt increased approximately at the same time and same direction some of the time[3].

    There are two ways to read this data:

    1) When interest rates go up, companies expand their operations through borrowing. This seems unlikely, why would a company wait until interest rates rise to borrow money and then borrow more as rates rise?

    2) When companies expand their operations through borrowing this increases demand for credit and if the supply of credit remains constant, the price of credit, interest rates, increase. This seems to the likelier of the two.

    The simplest explanation for why interest rates of all sorts, not just 10 year sovereign bonds, are falling is that the demand for credit is falling.

    [1] https://research.stlouisfed.org/fred2/series/FEDFUNDS/

    [2] https://research.stlouisfed.org/fred2/series/USAGFCFQDSMEI

    [3] http://capformeffr.tumblr.com/

    [4] https://research.stlouisfed.org/fred2/series/TCMDO

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  10. "[T]he rate of return on capital is both stable and much higher than government bond yields" (citing Gomme, Ravikumar, and Rupert). It depends on the meaning of "is" (i.e., capital). Gomme, Ravikumar, and Rupert use a very broad definition of capital, not just "productive capital"; they distinguish business capital and all capital. Since investment today is dominated by financial (speculative) assets, and since the Fed has been feeding asset inflation with low interest rates, it's not surprising that a broad definition of "capital" would result in a rate of return on "capital" that is "both stable and much higher than government bond yields", but doing so misses the much more significant point: that the rate of return on productive capital has been falling for decades.

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  11. Dr. Cochrane,

    If one examines the relationship between the Effective Federal Funds Rate (EFFR)[1] and Gross Fixed Capital Formation in United States© (CFR - USAGFCFQDSMEI) [2] there is a strong and statistically significant *positive* relationship. Between the 1st Quarter 1956 and the 4th Quarter 2014 there were 236 Quarters. The mean Year over Year Percent Change (Y/Y%C) in the quarterly EFFR was 6.5 % (Std Dev = 47) and the mean Y/Y%C for CFR was 6.4% (Std Dev. = 5.8). The Median values for each respectively were 3.8% and 6.6%. The Pearson Product Moment Correlation (PPMC) was 0.55 p<0.0001). So there is a very strong, statistically significant correlation between the change in value of EFFR and CFR[3].

    A similar relationship exists between Total Credit Market liability[4] and EFFR. As one goes up, the other goes up. Between the 2nd Quarter of 1954 and the 1st Quarter of 2015, there was a weak but statistically significant correlation between the year over year percent change in the Effective Federal Funds Rate and the year over year percent change in the total debt in the United States economy. The Pearson Product Moment Correlation was ER = 0.213 P = 0.0009 (N = 239). When the EFFR rate increased, total debt increased approximately at the same time and same direction some of the time[3].

    There are two ways to read this data:

    1) When interest rates go up, companies expand their operations through borrowing. This seems unlikely, why would a company wait until interest rates rise to borrow money and then borrow more as rates rise?

    2) When companies expand their operations through borrowing this increases demand for credit and if the supply of credit remains constant, the price of credit, interest rates, increase. This seems to the likelier of the two.

    The simplest explanation for why interest rates of all sorts, not just 10 year sovereign bonds, are falling is that the demand for credit is falling.

    [1] http://bit.ly/1v0fqUF

    [2] http://bit.ly/1TV0UHg

    [3] http://bit.ly/1PKBcZa

    [4] http://bit.ly/1TV0Xmc

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  12. "So, if inflation continues to die, or if our central banks go on a price level target, we might expect the same pattern to hold again... Short term debt causes runs and crises. If long term debt were cheaper, the inducement to finance short would be less."

    I am not sure I follow. Aren't you ignoring credit risk? Inflation may come down, while the risk of default (or risk of high inflation) remains. Otherwise large deficits would not matter.

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  13. "Ponder that the leading technological companies of this age—I think, for example, of Apple and Google— find themselves swimming in cash and facing the challenge of what to do with a very large cash hoard."

    They have large cash hoards because they are engaged in various tax planning schemes that leave profits stranded in tax havens where they are invested in Treasuries or deposited in US dollar bank accounts (and show up at the Fed as excess reserves.)

    GE is biting the bullet and repatriating some of its cash hoard. Apple, Google and others should do the same and pay the money out as dividends.

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  14. Frank, thanks for the comment. Maybe I'm being thick-headed but I'm not sure why tax rates would impact interest rates. For example, assume tax rates were changed today. Unless you expected this change would impact expectations for future Fed policy, I don't think that long rates would change. I'm saying its basically an arbitrage situation. So, for example, if the market expects the one year rate to be X% in 9 years, then the difference between a 10 year bond yield and a 9 year bond yield will reflect this expectation and little else. Hope that makes some sense.

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    Replies
    1. Charles,

      Take it to the extreme. Suppose tax rates were reduced to 0%. Do you honestly think that would have no affect on the interest rates on government debt?

      Delete
  15. It would be nice if the study drilled down deeper into who in the developed world or emerging markets have increased saving. In understanding why savings have increased, it should help knowing who has increased saving.

    ReplyDelete
  16. Frank thanks. Yes, if tax rates were reduced to 0%, the increase in the public sector deficit and, mirroring this, the increase in private sector income would be massive.
    This resulting increase in aggregate demand would drive inflation through the roof. The Fed, anticipating this, would raise rates aggressively. The bond market would tank, reflecting not only this increase but expectations for further increases. So, yes, there would be a great impact. But, I think, this narrative is still consistent with the idea that long rates reflect expectations of future short rates. Now during WW2, we have an example of huge deficits boosting private incomes and aggregate demand - and increasing inflation - and the Fed not increasing rates. The Fed targeted short rates at 0.7% I believe, during the period. Hence, long rates didn't move despite the high inflation. Of course, you could correctly point out that the Fed helped "peg" the bond market during this period. So, to your point, bond yields would likely have increased during this period without such support. I guess I would argue such an increase would have reflected expectations of higher short rates at some point in the future. Not sure this is what you mean by the impact of "tax rates at 0" but that's my take.

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    Replies
    1. Charles,

      "Frank thanks. Yes, if tax rates were reduced to 0%, the increase in the public sector deficit and, mirroring this, the increase in private sector income would be massive. This resulting increase in aggregate demand would drive inflation through the roof."

      No, I am not assuming an increase in aggregate demand from the reduction in tax liability. Residents paying no taxes decide to use those higher incomes to pay down private debt or they stuff them in a mattress or they toss them in the wood burner.

      Today at 5:00 P. M. eastern time, the federal government announces that all taxes go to 0%. Today at 5:01 P. M. the federal government auctions off $10 billion dollars in 30 year bonds. What happens to auction yields on 30 year government debt under a 0% tax regime? How about a 0.0001% tax regime?

      Delete
  17. Frank thanks

    "What happens to auction yields on 30 year government debt under a 0% tax regime? How about a 0.0001% tax regime?"

    I would say yields would skyrocket due to concerns about the Fed's concern with aggregate demand. You are rejecting that hypothesis. Are you therefore sayiing rates would skyrocket because there would be no revenues to pay interest on the debt and that would concern investors - regardless of expected Fed policy? Thanks

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    Replies
    1. Charles,

      "Are you therefore sayiing rates would skyrocket because there would be no revenues to pay interest on the debt and that would concern investors - regardless of expected Fed policy?"

      I don't know if rates would skyrocket or if they would plunge. There is an agreement between the banking industry and the federal government called the primary dealer arrangement.

      Primary dealers purchase most of the new issues of federal government debt and subsequently sell off those bonds to other banks, mutual funds, pension funds, and other investors. And so, could the federal government strong arm the primary dealer banks into accepting lower interest rates than they would normally accept or can the primary dealer banks strong arm the federal government into raising tax rates to meet the demanded interest rate.

      I honestly don't know who is the horse and who is the cart in this instance. But I would suspect that the primary dealer banks factor in tax policy when submitting bids on government debt even if the central bank and the rest of us don't.

      Delete
    2. Frank, thanks. I don't know either. Separately, it is useful to know that apparently the dealers are lined up in terms of their ability and desire to bid prior to the auction. Therefore, an auction will not fail, as some people sometimes fear.

      Delete
    3. Charles,

      You are welcome. Please read the next article that Cochrane has published regarding Greenspan and banking capital requirements and feel free to comment. The system as it stands now works because the central bank exists as lender of last resort. A primary dealer is able to borrow from the central bank to buy bonds from the federal government and capture an interest spread.

      Now imagine if banks (including primary dealers) had to issue equity to be able to purchase bonds from the federal government (100% equity financing requirement - no lender of last resort central bank).

      Auctions could and would likely fail.

      Delete
  18. Long term interest rates (on government debt) are low because the market expects future short term interest rates to be kept low by governments so that indebted households can manage their debt. Household indebtedness has increased substantially around the world since 1995. As a larger share of indebted households’ income goes towards debt repayment, less income circulates through the real economy. This also decreases inflation expectations. As a percentage of their budget, households have less money to buy things with. See here for chart https://data.oecd.org/hha/household-debt.htm

    Demographic trends indicate expected asset deflation, as boomers in the first world retire and sell riskier assets in favor of cash. Falling tax receipts due to a smaller percentage of the population supporting a larger amount of retirees means less money for things like social security which means either that prices for goods would have to fall or that taxes will need to increase to maintain current transfer levels. Both would lead to deflation, and lower expected interest rates.

    It might also be the case that advanced economies tend towards deflation rather than inflation as they continue to squeeze out efficiencies from the productive process. The tendency towards deflation would lead to lower interest rates.

    I would think that inflation, rather than deflation, is the exception rather than the norm in advanced economies. And the fed in the early 80’s proved that it is pretty easy to deal with inflation, just raise interest rates. This knowledge is built into market expectations.

    Finally, here is a paper which argues that the "natural" rate of interest is zero:
    http://www.cfeps.org/pubs/wp-pdf/WP37-MoslerForstater.pdf


    -Greg

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    Replies
    1. Greg,

      Not sure I agree here:

      "Since the currency issuer does not need to borrow its own money to spend, security sales, like taxes, must have some other purpose. That purpose in a typical state money system is to manage aggregate bank reserves and control short-term interest rates (overnight inter-bank lending rate, or Fed Funds rate in the U.S.)."

      The central bank is very capable of controlling short term interest rates without a single bond being sold by the federal government. Likewise the central bank is able to impose a reserve requirement without the need for government debt - the reserves simply sit idle earning no interest.

      What I think Mosler and Forstater miss is the insurance aspect that federal debt provides. Federal debt commits future Congresses to spending money in the form of interest payments without going through a formal appropriation process.

      Even though the government has the ability to issue currency directly to fund expenditures, that funding method of spending must be Congressionally approved and does not provide a reliable income stream for an insurance program.

      I would stipulate that in terms of real goods, there is not a single "natural" rate of interest. For instance, there is a nonzero interest rate between apples and airplanes because of the production time difference between growing apples and manufacturing an airplane. I would not lend a million apples to an airplane manufacturer at 0% interest in the hopes of receiving an airplane two years from now. There is default risk and opportunity cost to consider.

      Delete
  19. Greg,

    "Long term interest rates (on government debt) are low because the market expects future short term interest rates to be kept low by governments so that indebted households can manage their debt."

    That only makes sense if households are using floating rate debt. If household debt is fixed rate, then increases in long term interest rates on government debt would have no affect on the interest rate paid by existing borrowers.

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  20. Frank, thanks for the comments on the dealers, Treasury auctions, and Dr. Cochrane's article. I agree with your comment. Thanks for the insights.

    ReplyDelete

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