Which is appreciated, as I'm one of the perplexed on this issue. The Market Monetarists always argue that if the Fed were to stop interest on reserves this would be a major spur to facilitate lending. Sumner himself has probably repeated this claim more times than there are even reserves!
The view of the MMTers on the other hand on the IOR question has to be honest always seemed a little elusive for me. However in reading Izabella I think I might be finally wrapping my head around it a little.
Here she quotes from Peter Stella
"Stella is currently the director of Stellar Consulting, an organisation that provides macroeconomic policy advice and research to central banks, governments, and private clients. He was formerly the head of the Central Banking and Monetary and Foreign Exchange Operations Divisions at the International Monetary Fund. He has co-authored a number of papers on the topics of money supply, collateral and risk-free assets."
"He got in touch with FTAV because of what he feels is a gross misunderstanding in policy and journalistic circles regarding the nature of central bank reserves, and the myth that banks are not lending because they prefer not to."
"Thus, just because deposits are rising at the ECB (and elsewhere), does not mean banks are not lending — something Bank of America Merrill Lynch has attempted to explain before too. "
http://ftalphaville.ft.com/blog/2012/07/03/1067591/the-base-money-confusion/?utm_source=dlvr.it&utm_medium=twitter
"Reserves, also known as base money, can only be extinguished by the central bank as part of strategic balance sheet reduction policy. This in itself can only be achieved through outright asset sales, reverse repos, negative rates or to a lesser extent by auctioning term deposits."
"It thus stands to reason that negative rates — by reducing the central bank’s balance sheet — are contractionary rather than accommodative when it comes to credit supply."
Ok, enough of that for now-still trying to digest it. In an interesting comment at Sumner's Money Illusion, Liberal Roman made this comment:
"If you really want to see a paper that makes your blood curdle, see this:"
http://emlab.berkeley.edu/~ygorodni/CGKS_inequality.pdf
"Is there anything worse than an interest rate hawkish progressive? Yes, I’m talking about you Simon Johnson"
Mark Sadowski answered this way:
"I’m perplexed, as I like that paper. One of the principal reasons monetary stimulus is opposed by people on the left these days is that they see it as making inequality worse. Although the paper is interesting for what it has to say about the effect of monetary policy on earnings heterogeneity, its primary contribution is its analysis of the effect of monetary policy on financial income."
"Thanks to that paper I discovered that it appears to be a regular empirical fact that aggregate financial (dividends, interest and rent) income tends to rise sharply while business income declines after contractionary monetary policy shocks. While the decline in business income is much larger, it is offset for high income households by the increase in financial income. Further, the top 1% of the income distribution receive approximately 30% of their income from financial income, a much larger share than any other segment of the population. This suggests that total income for the top 1% likely rises even more than for most households after contractionary shocks."
Sumner of course came back with this:
"If the left favors ultra-tight money causing millions to be unemployed because they think it makes income more equal, then they are even more clueless than I thought. At least Krugman still understands that’s nonsense."
My buddy and loyal Diary of a Republican Hater reader has told me he likes Sadowski. I actually thought he was Right wing but as this comment suggests, maybe not.
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