Comments on: John Redwood redefines the word “soaring”

By: freethinkingeconomist

freethinkingeconomist — Thu, 17 Dec 2009 12:51:13 +0000

Stuart

Apologies for any offence caused there. I obviously refer only to those who just cheer views they like to agree with. Implicitly, it excluded thoughtful people.

I like to be honest about my mistakes, so I will not duck the fact if I am wrong. This is not so much a prediction of deflation, as a disagreement about the range of possibilities . . ..

By: Stuart Fairney

Stuart Fairney — Thu, 17 Dec 2009 12:41:50 +0000

A very interesting analysis. I will not comment further but have made a note in my diary to revisit this site (if it is still running) in one year to assess the voracity of your ideas. If they are proven wrong by the passage of time, I do hope you will not fall back on “it’s all George Osborne’s fault” If they are proven right however, I will raise a glass to you (if I can still afford it, having bought into several asset classes rather than holding much cash)

Would you permit me to make one request? I disagree with Mr Redwood on many issues, so please, calling me and many of the others “ditto heads” is just pointlessly pejorative, may I suggest “contributor”

By: freethinkingeconomist

freethinkingeconomist — Thu, 17 Dec 2009 11:24:01 +0000

Tim, that compliment deserves a reply.

You are right. Some of the ideas proposed on Mankiw and Sumner’s sites include money ‘destroying’ itself, basis its serial numbers, to prevent hoarding. As a liberal I see this as producing huge invasive problems. People would buy gold, or furniture. They might buy goods and so forth, in which case it will do its jobs. But politically- impossible. I prefer us doing other stuff with QE money, than devaluing people’s cash, for those reasons.

By: Tim

Tim — Thu, 17 Dec 2009 10:28:14 +0000

Excellent blog site!

Regarding the -ve interest rate idea, what effect would -ve central bank rates have on the rates given to savers holding their assets with private banks? Surely they would not actually be charged for holding cash – if that were the case then I’m sure that many would rather withdraw their cash and stash it under the mattress. What would be the knock on effect of this?

By: freethinkingeconomist

freethinkingeconomist — Thu, 17 Dec 2009 08:04:04 +0000

plenty of thinkers can take negative interest rates seriously

http://www.marginalrevolution.com/marginalrevolution/2009/08/the-monetary-economics-of-scott-sumner.html

http://gregmankiw.blogspot.com/2009/05/negative-interest-rates.html

http://blogs.ft.com/maverecon/2009/05/negative-interest-rates-when-are-they-coming-to-a-central-bank-near-you/

By: Niklas Smith

Niklas Smith — Thu, 17 Dec 2009 06:46:13 +0000

I was thinking a small negative interest rate on reserve accounts only, something like the 0.25% that the Swedish Central Bank charges. And it would hardly savage savers - the idea is to encourage banks to invest in productive assets. (The base rate would still be positive.) That said, according to the Swedish Central Bank "the negative deposit rate has not affected how much money the banks have deposited with the Riksbank", so perhaps it wouldn't work.

By: Alex

Alex — Thu, 17 Dec 2009 00:05:29 +0000

I also think the idea that if the “INFLATION ZOMG!” side shouts loudest in this argument, then it becomes a self-fulfilling prophecy, and we thus get inflation, scares the hell out of me.

By: Alex

Alex — Wed, 16 Dec 2009 23:38:06 +0000

And presumably, when you borrow money under negative interest rates, you have to pay back less than what you borrowed. No way would that work. That’s what the liquidity trap idea is for. It wouldn’t be a trap if you could just use negative interest rates to get out of it.

By: freethinkingeconomist

freethinkingeconomist — Wed, 16 Dec 2009 15:18:49 +0000

I think, politically, it might be suicide. “Savers savaged” headlines. Seriously, if objective macroeconomists were to work out that we *need* rates of minus 4%, i.e. for money to become less valuable in your hands, the outcry from savers, pensioners and hoarders would be immense.

By: Niklas Smith

Niklas Smith — Wed, 16 Dec 2009 14:08:29 +0000

Good. I’d hate to see the return of inflation. As for reserves, do you think the Bank of England should charge a negative interest rate on banks’ reserves (i.e. charge them for the security of having money in a BoE account), given that banks seem to be hoarding most of the QE money rather than lending it (or even buying assets)?