date line:
May 1, 2009
brad;
" If you hold your money in a six-month Treasury Bill you get essentially no interest—0.3% per year Monday afternoon—and you run the small risk that interest rates might rise over the next month and your Bill might lose a little value."
if you want to cash it in ahead of its 6 month maturity date
why'd u buy the note ?
"If you hold your money in cash you get exactly no interest and it is safe—FDIC insured. "
ya they are both default risk free
but
how is this better then holding the note to maturity ?
uncertainty about cash needs
if such exist
why can't you borrow against your notes ?
transaction cost> then loss from note sale cost
obviously if you expect to need cash between now and maturity date
.you either buy a shorter note or hold more cash
so its liquidity in the face of uncertainty
that drives deposit holding
and mistakes in optimal liquidity are a separate calculation
------------------------------------------
more basic
"start with the quantity theory of money:
PY = MV"
yup when lecturing the public brad uses 18th century notions
like velocity
and gives it a life of its own
dancing about with interests rate
" When the central bank tries to boost nominal spending through standard monetary expansion it might prove ineffective: interest rates will drop even closer to zero as the ratio of money to bonds rises, and the velocity of money might well drop to offset the boost to the money stock"
velocity this vast abstraction with unstated motives
"might well drop to offset the boost to the money stock "
the purchase of notes and bonds on the secondary markets by the FOMC
drives up the price and lowers the effective rate
on the note to any other agents simultaneously purchasing these note
we have a gain on the note to holders selling etc etc
then comes this gem
"The Federal Reserve is boosting the money supply with extraordinary force
and the velocity of money is dropping like a stone."
" In order to ensure that monetary expansion is effective,
you need to do something to boost interest rates"
get that
"boost interest rates "
comes the rest of the ass backwards narrative
"Here is where “large and continuous deficit budgets” comes in."
" When the government runs a deficit it floods the market with bonds. Once again by simple supply and demand more bonds means a lower price of bonds which is the same thing as higher interest rates. "
brad has uncle run deficits to raise interest rates to put the money stock into hot potato mode
thru increasing the opportunity cost of holding this money
"The government cannot hold on to the money it gets from selling bonds for that would reduce the money stock"
when uncle wants to increase its velocity
" the whole point of the exercise is to make the increase in the money stock effective."
that line is a monuent to mud making
continuing
uncle " has to return the money to the private sector by spending it"
". And it can spend it in four ways:
- By buying up assets like mortgage-backed securities.
- By buying up companies like GM and Citigroup.
- By refunding the money to taxpayers by cutting taxes.
- By spending the money directly."
" The answer is that we really do not know which of the ways would be most effective"
and that is the reason that we are trying them all right now,
with Tim Geithner
buying GM and mortgage-backed securities with the government’s money
and Peter Orszag
directing the flow of spending and tax cuts that is the American Recovery and Reinvestment Plan"
amazingly fearful symmetry !!!!!
and what a four flusher and bully mouth sycophant
