Marko on Market Monetarism

     I can't help but wonder is this the Marko, namely Markos of the Daily KOS? Of course, I'd like to think that-if so, then the first thing I'd ask for him to do is end my ban over at KOS.  Ok, I don't really think it's him-though I don't know for sure that it isn't him. However, whoever he is, Marko left an interesting comment on my earlier piece about Sumner and Market Monetarism 

    "Market monetarists could easily lay claim to being the most realistic and practical of the economic schools if they'd just admit that monetary policy is credit policy , and then incorporate that into their ngdp-targeting concept."

     "By targeting ngdp at a certain growth rate , say 5% , and specifying a range of safe allowable leverage across the economy , say 150-180% , you then know you want to see a steady-state growth of new credit at ~7.5-9.0 % as a share of ngdp per year."

     "You accomplish the dual goals of "great moderation"- type growth and financial stability by hitting your ngdp and leverage targets. Easy-peasy , and when people see the results , you're a hero. Not a mere 'maestro' - more like The Second Coming."

     "There's a catch , of course. Times will arise , due to animal spirits and such , when the private sector refuses to take up new credit at the specified rate. The public sector could step up its deficit spending to fill the gap , "crowding-in" the necessary ngdp growth until the private sector gets out of its funk. This is pretty much how the economy functioned during the Golden Years after the war , and most everyone would kill to get that kind of performance back."

    "It's only the MM's unhinged hatred of Keynes and gov't spending that keeps them from certain fame and fortune. Instead , they'll be a mere footnote in some dusty old economic history text of the future. What a shame."

     http://diaryofarepublicanhater.blogspot.com/2014/02/scott-sumners-dream-walking-ramesh.html?showComment=1393373225865#c7300945662082215333

     See, as I've argued more than once-or even twice-in the past, this unhinged hatred of Keynes is a feature not a bug-it's certainly not as Tom Brown or even Mark Sadowski might suggest, merely an accident. Sumner doesn't want to use fiscal stimulus to achieve an NGDPLT target. The whole point of all types of Monetarism is to convince us to not use fiscal policy as monetary policy by itself will solve the business cycle. 

    As for this idea that they should admit that 'monetary policy is credit policy', this is the last thing they would ever admit. In fact Sumner just wrote a missive against that view. For him credit policy is just part of the 'real economy' and therefore not the cause of the business cycle-this is caused by nominal shocks thanks to sticky wages. 

    "When there is a big crop of apples, the value of apples tends to fall.  There is no need to discuss obscure “channels” such as bank lending.  Apples are worth less for “supply and demand” reasons. When there is a big crop of money, the value of money tends to fall.  Again, no need to talk about “channels.”  This post was motivated by a recent comment, which is something I see pretty often:"

The CB [central bank] interacts with counterparties that have little or no propensity to spend and the lending channel is blocked.

    "That’s a fairly common view, and yet it contains no less than three serious fallacies.  This is what the commenter overlooked:

   "1.  Counterparties don’t matter.  The Fed buys assets from counterparty X, who almost always immediately cashes the check and the new base money disperses through the economy almost precisely as it would if the Fed had bought assets from counterparty Y, or counterparty Z."

     "2.  The propensity to spend doesn’t matter for the same reason.  Once counterparties get rid of the new base money, the impact on NGDP depends on the public’s propensity to hoard money, and any change in the incentive to hoard.  In the long run money is neutral and NGDP changes in proportion to the change in M, regardless of whether the person receiving the money has a marginal propensity to consume of 90% or 10%.  Either way they’ll almost always “get rid of” the new money, either by spending it or saving it.  Saving is not hoarding, it’s spending on financial assets."

    "3.  The lending channel doesn’t matter.  In the long run all nominal prices rise in proportion to the change in M.  In the short run sticky wages and prices cause the new money to have non-neutral effects.  Those non-neutral effects reflect wage and price stickiness, not “channels” of spending."

      http://www.themoneyillusion.com/?p=26213

     What this is really is a return to the whole debate over "Cantillion Effects."

     http://diaryofarepublicanhater.blogspot.com/2014/01/cantillion-effects-anyone.html