The model seems presumptuous that government can set the interest rate and fund the government at that rate. Why would we believe this?
Consider the extreme case of the funds rate being set to zero. When the US government auctions hundreds of billions of bills, the market is going to bid a non-zero interest rate. The alternative is the central bank prints money to buy the government debt offering and this money printing makes bonds less desirable.
I think it is an interesting test of monetary policy to have Treasury issuing debt at the short end all while the central bank claims the power to set the overnight funding rate. Maybe the market will accept the fairy tale on interest rates. Will asset prices / inflation confirm this story or press higher?
Frankly, I think the politicians and government paid economists believe in the free lunch and this idea of funding government with short term debt / loans is proof. Rather than reduce the debt burden by cutting spending, we have financial engineering. Even if it works in the short term, eventually the market is going to be stuffed to the gills with bills and demand a much higher interest rate to buy more of them.
Coherent and the Fed is an oxymoron. Forget the model. Liquidate the entire portfolio. Abolish legal tender laws. Substitute privately-provided deposit insurance instead of federally-insured deposits. Each bank can decide the limits or to not offer deposit insurance at all. Allow depositors to decide for themselves. Now we need no Fed. No FDIC. No bailouts. And stop pretending that the Fed or any institution of so-called experts will ever know what the "right" interest rate. Nor the myth that bank regulators can price risk better than markets. And that anyone who has the right to vote has also earned the obligation deposit wisely. The people who have the right to choose who governs all of us should also have the obligation to govern themselves. BTW. I am capable of writing better but then I will be confused with AI. So I take my draft. Convert my writing to be clumsier. And then, voila, Pangram now thinks I wrote the final version when, in fact I also wrote the first draft. I am teaching myself to make more grammatical mistakes. The more polished I write the more I am confused as being AI. Or maybe it is AI being confused with me?
The charts published with this Substack article, and the earlier Substack article and essay, are artifacts of your assumed functions for the integrand in the so-called "Lucas Phillips Curve" you propose. A literature search failed to find any Phillips Curve of that kind associated with Lucas's published works. Furthermore, it is doubtful that the model you advance would find support in the empirical data should you ever choose to attempt to verify the model and its assumptions through a rigorous econometric analysis of current or past time series data. The charts look convincing, but the underlying model is not.
The model seems presumptuous that government can set the interest rate and fund the government at that rate. Why would we believe this?
Consider the extreme case of the funds rate being set to zero. When the US government auctions hundreds of billions of bills, the market is going to bid a non-zero interest rate. The alternative is the central bank prints money to buy the government debt offering and this money printing makes bonds less desirable.
I think it is an interesting test of monetary policy to have Treasury issuing debt at the short end all while the central bank claims the power to set the overnight funding rate. Maybe the market will accept the fairy tale on interest rates. Will asset prices / inflation confirm this story or press higher?
Frankly, I think the politicians and government paid economists believe in the free lunch and this idea of funding government with short term debt / loans is proof. Rather than reduce the debt burden by cutting spending, we have financial engineering. Even if it works in the short term, eventually the market is going to be stuffed to the gills with bills and demand a much higher interest rate to buy more of them.
Coherent and the Fed is an oxymoron. Forget the model. Liquidate the entire portfolio. Abolish legal tender laws. Substitute privately-provided deposit insurance instead of federally-insured deposits. Each bank can decide the limits or to not offer deposit insurance at all. Allow depositors to decide for themselves. Now we need no Fed. No FDIC. No bailouts. And stop pretending that the Fed or any institution of so-called experts will ever know what the "right" interest rate. Nor the myth that bank regulators can price risk better than markets. And that anyone who has the right to vote has also earned the obligation deposit wisely. The people who have the right to choose who governs all of us should also have the obligation to govern themselves. BTW. I am capable of writing better but then I will be confused with AI. So I take my draft. Convert my writing to be clumsier. And then, voila, Pangram now thinks I wrote the final version when, in fact I also wrote the first draft. I am teaching myself to make more grammatical mistakes. The more polished I write the more I am confused as being AI. Or maybe it is AI being confused with me?
The charts published with this Substack article, and the earlier Substack article and essay, are artifacts of your assumed functions for the integrand in the so-called "Lucas Phillips Curve" you propose. A literature search failed to find any Phillips Curve of that kind associated with Lucas's published works. Furthermore, it is doubtful that the model you advance would find support in the empirical data should you ever choose to attempt to verify the model and its assumptions through a rigorous econometric analysis of current or past time series data. The charts look convincing, but the underlying model is not.
Cut rates and front-load inflation?? Why Marr the economy??!! (hint: Weimare)