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Friday, August 27, 2010

Moneyness Technical Issues I: Reading

Technical Base Resources:
Fed Paper: Money, Reserves, and the Transmission of Monetary Policy: Does the Money Multiplier Exist.(2010 Carpenter and Demiralp)

Monetary Statistics of the United States: Estimates, Sources, Methods (1970 Friedman and Schwartz)

Introduction to Concepts:
The Fractional Reserve Banking system.

The Money Multiplier
Measuring Money:

{Oops - I did not mean to publish this yet. However, I'll leave it up. I am working on an answer to several technical questions, and a non-trivial response requires a discussion of money, money supply, and velocity}.

I'm glad you're working on this. The transmission mechanism is clearly broken. If you look at a chart of the average rate on Residential mortgages you'll find it's been stuck at 6% for the last several years. There's discussion on the street to convince the Administration to come up with a plan to reset all mortgages that are current. Big wealth transfer from investors to consumers, but hey, share the wealth.
CF - But it won't work.

Those who are still in those 6% mortgages either have small balances, so it doesn't pay them to refi, or they are bad credit prospects. That means you need the higher interest rates to cover their inevitable pool losses. Turning good loans into bad loans is not going to heal our wounds.

A much better way to improve the situation would be to allow taxpayers with jobs to get a low-interest loan from the government, repaid by payroll deductions, which they could use to repay whatever loan obligation they wished. In return they would have to affirm the debt and agree that it would not be dischargeable through bankruptcy.

Suppose you made that rate 4.5%. The only people who would do it are those who believed they could repay it. Thus you'd get most of it back over time.

But imagine getting say 5K at 4.5% that was used to repay 5K of CC debt currently at 19%. It would make a difference.

Further, the government would actually make money on it, which IMO should be placed out on deposit in banks with ownership vested in the SS trust.
I like your idea better. How about we make the loan Libor +100 capped at 4.5%? Oh, but we can't do that because I'm sure we would be discriminating against some minority.
CF, that is not even funny. The financial reform bill has this provision requiring special loan programs to minorities which also includes a mandate to give them lower loan rates.

Not even funny, man.
Are Jews considered an minority? I think we're less than 1% of the population. Where do I apply?
I hardly know how to break it to you....
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