tag:blogger.com,1999:blog-582368152716771238.post8227221838151569890..comments2024-03-28T14:41:03.793-05:00Comments on The Grumpy Economist: Segregated Cash AccountsJohn H. Cochranehttp://www.blogger.com/profile/04842601651429471525noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-582368152716771238.post-22338002014791807082014-12-02T09:52:17.790-06:002014-12-02T09:52:17.790-06:00I see this as an integral step toward the run-free...I see this as an integral step toward the run-free financial system you've described. The next step I think should be to eliminate the deductibility of interest on all instruments with maturity of less than 90 days (or whatever is politically feasible).PJGhttps://www.blogger.com/profile/12161085228475118853noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-22564925676133747042014-11-22T14:18:20.400-06:002014-11-22T14:18:20.400-06:00Mike I think you are pointing out that the frictio...Mike I think you are pointing out that the friction being removed with these segregated accounts is a very small one, because we already have MMFs that are limited to investments in government debt. What we don't have is a good substitute for *prime* MMFs, which were rescued with guarantees during the financial crisis. Prime MMFs are at a different point on the efficient frontier, and many people want to be there with their short-term holdings - especially large companies with massive cash pools.Anwerhttps://www.blogger.com/profile/08277173974258559733noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-72801107961450377492014-11-22T10:45:50.125-06:002014-11-22T10:45:50.125-06:00Seems more like a step toward socialized banking a...Seems more like a step toward socialized banking and away from free markets. Right now, a private bank can accept deposits and buy US bonds, thus holding 100% reserves of US bonds against its deposits. Under the new system, the same private bank accepts a deposit and deposits it with the Fed, which in turn buys US bonds, thus holding 100% reserves of US bonds against its deposits. At least it's not mandatory yet, but just wait. <br /><br />Also, central banks have been known to become insolvent, and are not run-proof.Mike Sproulhttp://www.csun.edu/~hceco008/realbills.htmnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-48327747568216624632014-11-22T05:08:11.975-06:002014-11-22T05:08:11.975-06:00I remember a presentation by Darrell Duffie on cen...I remember a presentation by Darrell Duffie on centralized clearing parties and their need for collateral, where he noted that people are starting to ask about the availability of risk-free government debt. Is there enough to meet the need for it in such applications? <br /><br />How would an economist answer a question about shortages? Perhaps by looking at prices. The deposits described in this post do allow the Fed to raise rates, but the equilibrium rate in the US and the EU is negative, and people are looking for ways to lower rates below the zero bound. The proposed segregated accounts would also allow for parking fees, but we really need to look for ways to raise the equilibrium risk-free rate.<br /><br />Shadow banks can offer yields higher than zero by exposing their investors to some risk. The financial innovation that we need is a way to deliver such risk exposure and higher yield without the systemic fragility that we saw in the crisis. That is the way to get "interest-paying money". The other way is to do so much QE that the US would need to pay interest to borrow short term.Anwerhttps://www.blogger.com/profile/08277173974258559733noreply@blogger.com