I’m just home from Switzerland, where I gave the Karl Brunner Lecture. It is always eye opening to travel and see how other countries do things, and leads me to question basic assumptions.
A part of it, yes. In general building a central bank balance sheet is a good idea, within reason, along with smaller federal deficits, and moderate inflation.
The person you want as a leader is the person who doesn't crave being the leader. The person you want to lend to is the person who doesn't want more credit.
Switzerland seems to have a structural current account surplus. Assuming this stems from a gap in savings and investment decisions by the private sector and not currency manipulation, the interesting fact is that the political economy appears to be that the Swiss are happy to have the Central Bank manage the accumulated holdings as reserves. Norway is similar and different. It also has a huge current account surplus, but the accumulated resources are managed in a separate balance sheet from the Central Bank. Both are very small economies, it makes sense that huge stocks of savings are diversified away in the world capital markets. In one case it is the Central Bank, in the other a SWF (managed by the CB anyway).
"The main problem with our trade deficits is that they financed government spending which subsidized consumption." You don't say. That's the whole point behind Trump's tariffs, which are 80% or so taxes on consumption, and which are aimed at incentivizing more domestic investment. Some of us have been beating that drum for a while, while the "free trade" fundamentalists have ignored the financing side of the BoP (See Gramm and Boudreaux in the WSJ). It would also be good to reduce out of control government spending and grotesque fiscal deficits which induce the "need" for borrowing from foreigners and/or printing money.
Maybe the Fed should monetize the national debt.
A part of it, yes. In general building a central bank balance sheet is a good idea, within reason, along with smaller federal deficits, and moderate inflation.
The person you want as a leader is the person who doesn't crave being the leader. The person you want to lend to is the person who doesn't want more credit.
Switzerland seems to have a structural current account surplus. Assuming this stems from a gap in savings and investment decisions by the private sector and not currency manipulation, the interesting fact is that the political economy appears to be that the Swiss are happy to have the Central Bank manage the accumulated holdings as reserves. Norway is similar and different. It also has a huge current account surplus, but the accumulated resources are managed in a separate balance sheet from the Central Bank. Both are very small economies, it makes sense that huge stocks of savings are diversified away in the world capital markets. In one case it is the Central Bank, in the other a SWF (managed by the CB anyway).
"The main problem with our trade deficits is that they financed government spending which subsidized consumption." You don't say. That's the whole point behind Trump's tariffs, which are 80% or so taxes on consumption, and which are aimed at incentivizing more domestic investment. Some of us have been beating that drum for a while, while the "free trade" fundamentalists have ignored the financing side of the BoP (See Gramm and Boudreaux in the WSJ). It would also be good to reduce out of control government spending and grotesque fiscal deficits which induce the "need" for borrowing from foreigners and/or printing money.
Thought-provoking.
I hope someday you look at Bank Indonesia's building a balance sheet through the pandemic era. The Bank of Japan has a huge balance sheet too.
Most orthodox US macroeconomists oppose a large central bank balance sheet.
However, such balance sheets can deleverage government, reducing credit risks to government bond buyers, and ease taxpayer burdens.
As seen in Switzerland, Indonesia and Japan, large balance sheets are not axiomatically inflationary.
Cochrane, take a look!
Why do we not save more?
a) Big tax reductions by Reagan, GWB, Trump 1 and Trump 2 not accompanied by big spending reductions so as to keep deficits = public investments.
b) Taxes that remain are mainly on income, not consumption.