Tuesday, November 22, 2016

Ket feature of stig e bank credit auction ...negative prices

"To achieve full employment may entail an auction of credit at which the price is negative, i.e. the only terms at which potential lenders are willing to “accept” the temporary use of funds, to be repaid later, entail a negative interest rate. "

"The auction may entail a provision (unlike the current system) where a negative “bank rate” has to be passed on (at least partially) to borrowers, in the form of a negative lending rate. Presumably there is some negative rate at which the desired credit creation –that viewed as necessary to ensure full employment--related to new spending (investment or consumption) is achieved. "

But it may be a very negative rate, and the distributive and even allocative consequences of that negative rate may be adverse. Accordingly, it makes sense to look for more effective ways of stimulating the economy. "