Notes and Handouts for Berkeley Physics Colloquium, May 11, 2009
Audio: http://www.j-bradford-delong.net/2009_mov/20090511_physics.m4a
- The fall in the adult employment-population ratio
- The increase in risk and the collapse in risk tolerance
- The fall in monetary velocity
- What determines monetary velocity?
- Policy to fix it 1: dump money into the economy
- Unjust enrichment
- Inflationary overhang
- Might not work when i<<1
- Policy to fix it 2: raise Treasury bond interest rates
- By making Treasury bonds less attractive to hold--flood the zone
- But then you have to spend the money you have earned by selling the Treasury bonds
- By making corporate bonds more attractive to hold
- Guarantees
- Asset repurchases
- Bank recapitalizations
- By making Treasury bonds less attractive to hold--flood the zone
- How did we get here?
- Herd behavior
- Short horizons
- Limits to arbitrage
- What do we do for the long term?
What is happening to employment?...
Increasing risk and collapsing risk tolerance...
Are the banks about to fail?...
Increasing risk and collapsing risk tolerance affect all asset prices...
Why asymmetry? The fall in monetary velocity...
Asymmetry arising from deflation...
Flight to safety produces a collapse in monetary velocity...
Normally we deal with collapsing velocity via monetary policy...
But may not work if interest rates are very low...
Guess where we are now?
Time to try alternative policies to try to raise the short-term interest rate on Treasury bonds...
How did we get here?
