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George Selgin Profile picture
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24 Jun, 4 tweets, 3 min read
Bill Dudley is absolutely correct: since 2008, the Fed's claim that it still "targets" the fed funds rate, has been more smoke-and-mirrors than reality: bloomberg.com/opinion/articl…
For background see also libertystreeteconomics.newyorkfed.org/2013/12/whos-l…
Att'n: @norbertjmichel @vtg2 @DavidBeckworth @dandolfa @jeannasmialek
For the record, @norbertjmichel and I (among others) have long been insisting on this same point. See forbes.com/sites/norbertm… and alt-m.org/2019/07/25/fed…

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More from @GeorgeSelgin

George Selgin Profile picture
25 Jun
Anyone who thinks the Fed didn't hasn't started tightening has been hoodwinked.
Despite having switched to a "floor" operating regime in October 2008 (and permanently in January 2019), and thereby all but ending interbank lending on the fed funds market, the Fed continued to maintain the pretense of "targeting" the fed funds rate.
But in reality, it no longer used open-market operations to keep a freely-fluctuating interbank funds rate close to its targeted value. Instead, it adjusted its policy stance by altering the interest rate it paid on bank reserves (IOR rate).
Read 16 tweets
George Selgin Profile picture
24 Jun
Thread: It's worth contrasting Bill Dudley's recent claim that, under the Fed's "floor" operating system, the fed funds rate "no longer plays a meaningful role in the economy, and requires occasional fiddling to keep it in line," with his earlier defense of the the floor system.
Back in 2018, he argued for retaining that system on the grounds that "it is operationally much less complex than a corridor system" since "the setting of IOER is largely sufficient to maintain the federal funds rate within the FOMC’s target range" newyorkfed.org/newsevents/spe…
Now, he has belatedly admitted having praised the system for hitting a "meaningless" target! In fact, it given how the fed funds market now works, it can hardly fail to hit it! And yet it must still tweak its administered rates to do so!
Read 4 tweets
George Selgin Profile picture
24 Jun
More Talebaloney: Having asserted that bitcoin "is" worth zero, he writes that, because bitcoins yield no dividend, "_if_ we expect that, at any point in the future, the value will be zero when miners are extinct, the technology becomes obsolete,...
"...future generations get onto other such “assets” and bitcoin loses its appeal to them, _then_ the value must be zero _now_.” Really? Of course it's the merest truism to say that an asset that yields no return will be worthless now if it's expected to be worthless eventually.
Moreover, it's certain that, a few billion years hence, the Earth will be swallowed-up by the sun. Yet BTC somehow hangs in there at about $33k. No doubt Taleb will fault the market for not understanding his theory!
Read 6 tweets
George Selgin Profile picture
23 Jun
I was impressed by @nayibbukele's evident intelligence and candor in his recent interview with @PeterMcCormack concerning El Salvador's Bitcoin Law. But his defense of that law's Article 7, which Peter asks about at 40:16, doesn't hold water.
Bukele claims that Article 7, which requires that "Every economic agent...accept bitcoin as payment" for goods or services, "actually protects the people."
He give the example of a pupuseria shop operator from El Zonte who, having earned some Satoshis, goes to buy medicine with them from a pharmacist, only to have the pharmacist insist on payment in dollars. Article 7, Bukele says, will prevent this.
Read 10 tweets
George Selgin Profile picture
22 Jun
The recent BTC price gyrations illustrate one shortcoming I pointed out in El Salvador's Bitcoin Law, which includes a plan to have the gov't establish a $150m "trust fund" w/ which to absorb BTC-to-USD risk.
I wrote : "If bitcoin's price continues along its recent roller-coaster, with more bitcoin redemptions...during downturns than upturns, [the] fund might gradually trickle down to nothing." alt-m.org/2021/06/17/the…
When Salvadorans don't fear a decline in BTC's price, or expect it to appreciate, more will prefer to hold BTC than exchange it for USD at the "Casa de Cambio" that is to be established at Bandesal, El Salvador's gov't-owned development bank, limiting the fund's growth potential.
Read 6 tweets
George Selgin Profile picture
9 Jun
Thread: Bukele's Bitcoin legislation is certainly a win for Bitcoin. But is it a win for freedom?
As a long-time proponent of free choice in currency, who also favors private-market alternatives to official currencies, I'm inclined to favor any legislation that serves to promote either.
Many of the provisions of the new law serve these laudable ends, by making it easier for Salvadorans to employ Bitcoin as a medium of exchange without incurring any penalties by doing so.
Read 19 tweets

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