17 Mar 2020

My Thoughts on Recent Fed Announcements

Federal Reserve 29 Comments

At Mises.org. An excerpt:

Now what the Fed announced last week is that it will itselfenter the repo market and be prepared to offer up to $1.5 trillion in (newly created) US dollars in order to allow institutions to pledge their Treasurys as collateral and borrow such vast sums. But these transactions won’t be overnight loans; instead, the $1.5 trillion consists of $500 billion bursts of financing in the one-month and three-month repo contracts.

The whole point of this Fed intervention was to keep the implicit interest rate in the Treasury repo market down to acceptable levels. In other words, if the Fed had not intervened, then repo rates would have soared. Remember, last September the repo rate suddenly jumped from about 2.2 percent to 6 percent in two days. That was deemed a crisis at the time, justifying the Fed’s large (and recently expanded) ongoing intervention in the repo markets.

It’s true that when fear grips the world, investors do look to US government debt as a “safe haven.” That’s why US government bond yields collapsed to record lows recently and stock markets are falling: many portfolio managers are switching from equity to fixed-income assets.

But what the spikes in the repo market reveal is that in the very short term, such as a period of 1–90 days, actual cash is king. Right now, asset managers do not at all view a Treasury security “as almost the same thing” as US dollars issued by the Federal Reserve. One way the market communicates such a change in risk appetites is a “skyrocketing” implicit interest rate in the Treasury repo market. People who control actual US cash right now are not as willing to see that transformed into an “equivalent” amount of Treasurys, and so they demand a higher compensation (interest return) to make the asset swap. This is the market process that the Fed is trying desperately to hammer away.

17 Mar 2020

Bob Murphy Show ep. 109: Larry Reed on Maintaining Hope and Speaking Truth to Power

Bob Murphy Show 1 Comment

Here’s the audio, and video below:

17 Mar 2020


Potpourri 5 Comments

==> Robert Bryce has a nice obit on Freeman Dyson.

==> Linked from Bryce, here is Dyson’s 2007 essay on his heretical thoughts.

==> Piketty drops the mask

==> Tyler Cowen gives us another hint that he’s a closet Austrian.

==> Everybody hates market prices in a pandemic, even conservatives.

==> The Fed has eliminated reserve requirements (last section).

14 Mar 2020

Mathematical Challenges to Darwin’s Theory of Evolution

All Posts, Evolution 8 Comments

I don’t remember who recommended this, but it’s very good if you give it a chance. I think the discussion does a good job of distinguishing what the Intelligent Design folks are saying. Also notice how much a senior fellow of the Discovery Institute is allowed to challenge ID itself–does this look like a cult?

14 Mar 2020

Bob Murphy Show Twin Spin

Bob Murphy Show No Comments

BMS ep. 107 is a re-broadcast of Max Sklar’s interview of me on his own podcast, “The Local Maximum.” Our focus was Mises’ distinction between class and case probability, but we touched on some pretty deep issues that might interest the geekier of you.

BMS ep. 108 is my analysis of the Brian Williams’ Bloomberg blunder. I make some of the obvious points, but I took it deeper than the usual commentary.

11 Mar 2020

Sumner vs. Murphy

Business cycle, Capital & Interest, Scott Sumner 4 Comments

In a cosmic coincidence, on Monday Scott Sumner released an essay via Mercatus talking about the effectiveness of monetary policy in preventing recessions, particularly if the Fed implements his idea of level targeting NGDP.

On Tuesday, my next installment in the “Understanding Money Mechanics” series ran, this one offering a summary and critique of Sumner’s Market Monetarism.

06 Mar 2020

BMS ep 106: Why Intelligent Design (ID) Will Be the Public Choice of the Natural Sciences

Bob Murphy Show, Deep Thoughts, Evolution 22 Comments

Oh boy, this one ruffled some feathers. I mention Gene Callahan and Steve Landsburg in the second half.

03 Mar 2020

Lara-Murphy Show ep. 77

Lara-Murphy Show No Comments

After a hiatus, Carlos and I are recording new episodes.