Yes, some (mostly speculative) #credit has been extinguished - *POOF* - and hence security prices have reverted to a level closer to what would be paid by those investing actual saved funds - i.e., capital. Is that a BAD thing? (Caveat: fear-driven overshoot is inescapable) 1/x
However, most of that underlying financial capital still exists (albeit with the notional gains of the past several months -arguably a largely ‘fictional’ overlay- extinguished). The bulk of it, however, remains in existence, even now. 2/x
What is understandably lacking is the will, the confidence, to employ it. Hence the rush to but ‘safe’ government securities as a default, leading to further distortions in pricing (and encouraging a further, damaging nationalisation of capital) 3/x
So, if there is a case for government intervention here, it should be to act as a bridge between that vast pool of capital and the otherwise sound businesses put in jeopardy by the #coronavirus counter-measures. 4/x
Ergo, the state should either offer a ‘credit-wrapper’ -a partial guarantee- for private sector ‘survival’ loans or -perhaps more practicable, if clearly more open to abuse and misplaced effort- to issue hypothecated, time-limited (sinking fund?) #bonds to wary savers... 5/x
...with which to perform that ‘bridging’ function. This would obviate much or all of the need for open-ended deficit spending, make further corrosive #centralbank expansion largely redundant, with all its attendant evils and perverse incentives. 6/x
The aim should be to keep Ray’s Drywall Service from bankruptcy, not to make up for Ray Dalio’s losses. It should be to mobilise existing capital, not further dilute it. For the state to provide nightwatchman support, not opportunistically launch a billion barrels of pork. 7/x
@threadreaderapp unroll
*_”buy”
A point few seem to appreciate is that when a good be omes more scarce (>demand &/or <supply) it is not only natural but positively beneficial that its price rises, to signal to others that they should economise, try to create more, use it only for the most urgent purposes... 8/x
NOT ONLY DOES THIS BASIC AXIOM APPLY ALSO TO CAPITAL, BUT IT COULD BE SAID TO APPLY A FORTIORI!
Keep monetary channels unlogged, fine. But do NOT force rates lower or encourage exhaustive spending. Do NOT add to the confusion by pumping unbacked credit into the mix. 9/x
Keep monetary channels unlogged, fine. But do NOT force rates lower or encourage exhaustive spending. Do NOT add to the confusion by pumping unbacked credit into the mix. 9/x
*_”becomes”
*_”unclogged” (SIGH!)
