How to Save the Economy, ADHD Version

For indispensable reporting on the coronavirus crisis and more, subscribe to Mother Jones' newsletters.

Here is tonight’s seminar in emergency monetary economics, cut to blog-friendly length and delivered in 140-character chunks:

interfluidity Gentle request: When arguing 4 Fed activism, please specify the policy levers u support: buying long Treasuries, MBS, equities; neg IOR, etc

kdrum You pick. I’ll take anything at this point.

interfluidity there’s a strong consensus for “do something”. i bet the Fed gets that….if we want neg IOR (Sumner) or equity purchases (Rowe), it’d help 2 publically make the case rather than ask BB 2 “do something!”

MarkThoma No quarrel — I’ve been a skeptic from day one on Mon pol, have a J. Econometrics paper showing effectiveness is state [dependent]….I think all the focus on the Fed takes the pressure off of Congress, hence it’s a mistake. Tried to convince others, no luck

interfluidity Right now, only nonradical choices r buying long Ts & MBS. i don’t think those work. If BB agrees, he’s stuck til crisis is acute

ModeledBehavior I’m kind of thinking that MBS is the wrong type of debt to buy off of balance sheets at this stage in the game.

interfluidity i agree. but agency MBS is the only thing the Fed can buy besides Treasuries without playing a profoundly fiscal role.

interfluidity buying Treasuries and MBS are the only levers absent a crisis or shift in conventional wisdom. So he has to talk those up now

AndyHarless When safe assets have -100% return, people will buy risky ones (or spend) & the economy will recover…

interfluidity by what legal means would the Fed threaten -100% return? threaten to unilaterally cancel currency? (we won’t honor our notes!)

ModeledBehavior Negative IOR…although that would be an incredible feat.

interfluidity Negative IOR would almost certainly be doable w/o Congress. Call it a variable fee for Fed services. Banks do that.

ModeledBehavior cld directly and dramatically affect real interest rates, without fear of the ZLB.

interfluidity well, go too far below zero and you have to worry about a run the physical cash. but ZLB becomes -0.5% LB at least…

ModeledBehavior I don’t know…1% neg int. on hand-to-hand currency saved Worgl, Austria in 1932 during the G. Depression and according to Irving Fisher, caused no inflationary tendency (flat SRAS).

Did you catch all that? The Fed could buy long-dated treasury bills or Mortgage Backed Securities in order to pump cash into the economy. But that might not work, and if Ben Bernanke agrees then the Fed is stuck. So how do we force banks to put more money into circulation? Answer: right now the Fed pays banks 0.25% Interest On Reserves — that is, interest on cash kept on account at the Fed. Lower that to zero, and banks have less incentive to keep cash at the Fed and more incentive to do something else with it.

But wait! How about if we pay negative IOR? Then banks will really have an incentive to do something else with their money. They’ll loan it out. Real interest rates will decline even though we’re at the Zero Lower Bound already. The economy will boom. And if Fisher was right, it won’t have an impact on Short Run Aggregate Supply and thus produces no danger of excessive inflation. Hooray!

Maybe. Anyway, that’s the seminar. At the moment, though, it doesn’t look like the Fed plans to do anything of the sort. Thus interfluidity’s plea to start talking this stuff up because “the Fed needs cover for radicalism.” So talk already!

THE BIG PICTURE

You expect the big picture, and it's our job at Mother Jones to give it to you. And right now, so many of the troubles we face are the making not of a virus, but of the quest for profit, political or economic (and not just from the man in the White House who could have offered leadership and comfort but instead gave us bleach).

In "News Is Just Like Waste Management," we unpack what the coronavirus crisis has meant for journalism, including Mother Jones’, and how we can rise to the challenge. If you're able to, this is a critical moment to support our nonprofit journalism with a donation: We've scoured our budget and made the cuts we can without impairing our mission, and we hope to raise $400,000 from our community of online readers to help keep our big reporting projects going because this extraordinary pandemic-plus-election year is no time to pull back.

THE BIG PICTURE

You expect the big picture, and it's our job at Mother Jones to give it to you. And right now, so many of the troubles we face are the making not of a virus, but of the quest for profit, political or economic (and not just from the man in the White House who could have offered leadership and comfort but instead gave us bleach).

In "News Is Just Like Waste Management," we unpack what the coronavirus crisis has meant for journalism, including Mother Jones’, and how we can rise to the challenge. If you're able to, this is a critical moment to support our nonprofit journalism with a donation: We've scoured our budget and made the cuts we can without impairing our mission, and we hope to raise $400,000 from our community of online readers to help keep our big reporting projects going because this extraordinary pandemic-plus-election year is no time to pull back.

We Recommend

Latest

Sign up for our newsletters

Subscribe and we'll send Mother Jones straight to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate

We have a new comment system! We are now using Coral, from Vox Media, for comments on all new articles. We'd love your feedback.