27 October 2013

Should We End Credit Creation Rather Than Do Tapering?

According to this report the Fed may be wary of tapering:

According to reports that I have seen more than 90%of money supply is credit as opposed to base money.

And the Fed is now nervous about ending tapering, yet what it is doing is printing base money.

This problem of causing interest rates to rise once they have fallen too far is the problem that I forecast years ago when I wrote about the Low Inflation Trap and its causes. Asset values are far too sensitive to interest rate increases, yet to get back to normal those increases are necessary.

As an instrument of monetary policy, (management of the money supply), management of credit is difficult and involves manipulation of interest rates. Should we really use that interest rate instrument in the first place? It is imprecise to say the least.

If the supply of money is not enough we can print more, and if it is too much we can ride the inflation that it causes based upon my researches on debt and savings structures - taking away the causes of the Low Inflation Trap, and at the same time we can bring the economy back to normal in a carefully managed way that I have outlined in my draft book online.

For the benefit of anyone that is not yet familiar with my researches, they are saying that savings and loans of every kind are being mis-priced. They are over-sensitive to interest rates. This is the root cause of the financial crises as our Nobel Prize Winners got their prize for pointing out - my book does that but has taken ten years to write. Well actually I do not think they pointed to the cause - the over-sensitivity at least not in the case of mortgages. And this over-sensitivity to interest rates is now the QE dilemma.

A new regime is needed that instead of protecting money capital it should protect wealth. Wealth is a call upon the income of others. Debts are deferred spending of income. If yo lend your wealth to another party it does not cost that other party any wealth to repay that wealth.

Once we get that sorted out the cost of borrowing will be stable, inflation and interest rates will not cause economies to crash, or lenders to crash, and wealth will be safe. There will not be any significant asset price bubbles.

So why no just manage the money supply and allow interest rates to find their own level?

Anyone got a good reason to allow credit creation / leverage to continue when just as much money can be created when needed and given to everyone as a stimulus if needed?

For further reading go to this website:
http://macro-economic-design.blogspot.com

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