|
Post by oliver on Sept 20, 2017 19:48:33 GMT
You know I'm allergic to red money . And, regardless of the precise financial meaning of the term asset, there is more truth in saying it is an asset to some undefined group of people, or everyone, than to no one, I'd say. Oliver, what if I put it like this: An IOT is not an asset to anyone. The IOTs are what makes the TOMs assets to their holders; or at least what makes the TOMs retain their relatively stable value (compare to hyperinflation where public IOTs are considered "empty promises"). One problem with calling an IOT 'an asset' is that we cannot point to any holder of the asset. Also, if we think of a hypothetical wind-up of the system (something I've earlier argued is expected to never happen), then the TOM-holders would be those who receive goods from the IOT-issuers, and it becomes evident that the TOMs were assets to their holders in this particular situation because they entitled their holders to receive goods from the ones who had incurred liabilities -- the IOT-issuers. No one else benefited from the IOTs in this scenario, and so it would be double-counting to say that the TOMs and the IOTs were assets (the former to their holders and the latter to all members/the system). Still not convinced? I'll have to let that sink in first, before I attempt to reply.
|
|
|
Post by Antti Jokinen on Sept 21, 2017 10:27:46 GMT
The only problem may be that WIR obviously references the CHF as the UoA. But so does the SNB's system use the (abstract) CHF as the UoA ;-) Of course, the strongest operator/bank will see its credit balances retain their nominal value, so it might look like SNB 1CHF balance defines the CHF.
|
|
|
Post by Antti Jokinen on Sept 21, 2017 13:54:07 GMT
I'll fly to Munich tonight, for Oktoberfest. Will join discussion again on Monday! Have a nice weekend, both of you.
|
|
|
Post by oliver on Sept 22, 2017 7:29:21 GMT
Oliver, what if I put it like this: An IOT is not an asset to anyone. The IOTs are what makes the TOMs assets to their holders; or at least what makes the TOMs retain their relatively stable value (compare to hyperinflation where public IOTs are considered "empty promises"). I like that.
I see what you mean. A firm's balance sheet reflects the opportunities and responsibilities of the operator and is divided into two sides that mirror the assets andd liabilities of the people behind them respectively. We may need more words to distinguish the roles of the parties involved.
|
|
|
Post by Antti Jokinen on Sept 26, 2017 17:11:13 GMT
JP, let's go back to your question about monetary policy.
If you think of a central bank as the only bank in the economy (One Bank), what would the goals of its monetary policy be? Higher employment and stable price level / stable inflation? And can it affect these through buying and selling securities (say, Treasuries and MBSs), and by adjusting the overnight rate? How? I'm just trying to get a grip of how you see the basic mechanism through which the central bank's actions affect the targets (whether they are only price level or also employment).
I feel we made quite a jump from the basics of the system all the way to monetary policy, but it doesn't need to be a bad thing. If it helps you to understand what I'm after, then be it.
|
|
|
Post by Antti Jokinen on Sept 26, 2017 17:39:37 GMT
A firm's balance sheet reflects the opportunities and responsibilities of the operator and is divided into two sides that mirror the assets and liabilities of the people behind them respectively. We may need more words to distinguish the roles of the parties involved. Yes. If you're holding an IOU, then you expect to receive something from the debtor, even if it was just a credit entry on your account. That makes the IOU an asset to you. But as a LETS operator (or a bank?), if you're holding an IOT, what will you, or the bank, receive from the debtor?
|
|
|
Post by oliver on Sept 27, 2017 6:53:29 GMT
A firm's balance sheet reflects the opportunities and responsibilities of the operator and is divided into two sides that mirror the assets and liabilities of the people behind them respectively. We may need more words to distinguish the roles of the parties involved. Yes. If you're holding an IOU, then you expect to receive something from the debtor, even if it was just a credit entry on your account. That makes the IOU an asset to you. But as a LETS operator (or a bank?), if you're holding an IOT, what will you, or the bank, receive from the debtor? I don't quite understand your question. As a LETS operator, I'm responsible, within the limits of my mandate, for keeping the system going.
|
|
|
Post by oliver on Sept 27, 2017 20:47:20 GMT
(continuing from above) As such, I am liable to generate a stream of income for those behind the RHS of the BS while those behind the LHS are instrumental for my achieving that goal and can thus be considered assets to me as an operator.
If I employ a cleaning person to clean my home, the cleanliness of my home is an asset to me and at the same a liability to the cleaner. The employment contract is my liability while it is an asset to the cleaner. It's not only double entry, but each entry has a double meaning, depending on which perspective it is viewed from.
|
|
|
Post by JP (admin) on Sept 28, 2017 4:11:36 GMT
JP, let's go back to your question about monetary policy. If you think of a central bank as the only bank in the economy (One Bank), what would the goals of its monetary policy be? Higher employment and stable price level / stable inflation? And can it affect these through buying and selling securities (say, Treasuries and MBSs), and by adjusting the overnight rate? How? I'm just trying to get a grip of how you see the basic mechanism through which the central bank's actions affect the targets (whether they are only price level or also employment). I feel we made quite a jump from the basics of the system all the way to monetary policy, but it doesn't need to be a bad thing. If it helps you to understand what I'm after, then be it. When I think about central banks doing monetary policy I adopt a simple hot potato model. Central bankers use adjustments to the interest rate they pay on balances as their tool for harnessing the hot potato effect. If the rate rises, people will want to hold more balances than before and the price level falls. If the interest rate declines, people will try to get rid of balances and the price level rises. Central bankers use this tool to hit an inflation target. Not sure how that translates into the sort of LETS system you are describing.
|
|
|
Post by oliver on Sept 28, 2017 8:41:23 GMT
I suppose if you are of the opinion that without monetray policy there is no price anchor, then monetary policy is the natural place to start thinking about money.
Translation into a LETS-lik system requires the view from both sides. So, keeping things symmetric for the moment, while higher interest payments on positive balances will increase demand for them, higher interest on negative balances should decrease demand by the same amount. To the extent that those two effects cancle out and overall / gross money does not change, higher interest payments (by debtors) mean more real transfers from debtors to the system which in turn may / should lead to lower asset prices. The latter is the probable net effect.
It's similar if you're thinking in terms of CB asset purchases, I think. If you think of a CB balance sheet as 'neutral' as in the example above, the risk adjusted interest income of the assets purchased determines the interest payed on positive balances. As soon as the latter rate becomes a policy variable, the loss / gain for the holders of positive balances vs. the assets they sold is counterbalanced by an equivalent loss / gain on the CB / public balance sheet. So I suppose there is kind of a fiscal effect there.
|
|
|
Post by JP (admin) on Sept 28, 2017 14:11:08 GMT
I suppose if you are of the opinion that without monetray policy there is no price anchor, then monetary policy is the natural place to start thinking about money.
Translation into a LETS-lik system requires the view from both sides. So, keeping things symmetric for the moment, while higher interest payments on positive balances will increase demand for them, higher interest on negative balances should decrease demand by the same amount. To the extent that those two effects cancle out and overall / gross money does not change, higher interest payments (by debtors) mean more real transfers from debtors to the system which in turn may / should lead to lower asset prices. The latter is the probable net effect. Interesting point. So a reduction in the interest rate on balances has no effect on the price level, since the hot potato effect set off by creditors is offset by a reverse hot potato effect set off by debtors. So how does monetary policy get done, then? Maybe there is no such thing as monetary policy? One way to get an effect would be like this: to tighten policy, increase rates on positive balances from 2 to 3%, and instead of decreasing rates on negative balances from -2 to -3%, increase them from -2% to -1%. But that wouldn't make much sense since the system would be out of balance: income from debtor interest payments wouldn't be enough to fund the cost of paying interest to creditors.
|
|
|
Post by Antti Jokinen on Sept 28, 2017 16:53:57 GMT
Oliver said: "while higher interest payments on positive balances will increase demand for them, higher interest on negative balances should decrease demand by the same amount."
Increased demand for positive balances = less willingness to buy goods now and higher willingness to sell goods now.
Decreased demand for negative balances = less willingness to buy goods now ("on credit") and higher willingness to sell goods now (to reduce debt).
--> Lower price level.
No?
|
|
|
Post by oliver on Sept 29, 2017 7:40:39 GMT
Oliver said: "while higher interest payments on positive balances will increase demand for them, higher interest on negative balances should decrease demand by the same amount." Increased demand for positive balances = less willingness to buy goods now and higher willingness to sell goods now. Decreased demand for negative balances = less willingness to buy goods now ("on credit") and higher willingness to sell goods now (to reduce debt). --> Lower price level. No? Hmm, maybe I have got it wrong. One more try: You agree that what can't happen is that there are suddenly less negative balances than positive balances. So if a higher interest rate incentivises creditors to have more money (rather than spend it) while debtors want to have less debt, at least one of the two groups is going to fail. If debtors try to sell their goods to creditors (on net) then either creditors go along, contradicting their plan to have more money, or they don't, in which case debtors will have failed in their aim to get rid of goods and pay back debt.
So all you're left with is a higher stream of interest payments from one group to the other which may be accompanied by a lower overall stock of positive & negative balances, leaving consumption unchanged. The new, higher discount rate will, however, reflect in lower asset prices.
|
|
|
Post by oliver on Sept 29, 2017 8:03:58 GMT
Interesting point. So a reduction in the interest rate on balances has no effect on the price level, since the hot potato effect set off by creditors is offset by a reverse hot potato effect set off by debtors. So how does monetary policy get done, then? Maybe there is no such thing as monetary policy?
I don't know. Higher and lower asset prices are not nothing. And I think one area that asset purchases have a very pronounced effect is foreign currency interventions. In that case, the CB balance sheet acts as a buffer bewteen two separate economic spheres (the local and the foreign), so the effect is by no means a wash. But yes, someone (the CB / public) is taking on currency risk. The SNB had to stop its euro purchases (and its director resigned) at some point due to political pressure (from the right, mainly).
That sounds like Nick Rowe with two different rates on red and green money. I don't think it's wrong at all. But one has to somehow account for the difference, it's not just imaginary. There is a buffer on the public account that can have an effect, but the buffer doesn't just disappear. There might come a time when it has to be wound down, unleashing the opposite effect.
|
|
|
Post by oliver on Sept 29, 2017 10:52:44 GMT
Oliver said: "while higher interest payments on positive balances will increase demand for them, higher interest on negative balances should decrease demand by the same amount." Increased demand for positive balances = less willingness to buy goods now and higher willingness to sell goods now. Decreased demand for negative balances = less willingness to buy goods now ("on credit") and higher willingness to sell goods now (to reduce debt). --> Lower price level. No?
Continuing:
Ich think we may both be right, but we're not addressing the same question.
The way JP framed the issue was whether a change in interest rate would change behaviour / preferences. I say a view of money as only an asset suggests yes, while a view of money as an asset & liability suggests no.
You, otoh are starting with a change of preferences for more money / less debt which then leads to a recession.
Both accounts could be true at the same time.
But I also could be completely muddled.
|
|