Win-A-Rama For America

A Benjamin Cole post

The always-intelligent Market Monetarist and Kentucky economist David Beckworth recently posts on the “shortage of safe assets.”

So what is a safe asset shortage?

“It is the shortage of those (safe) assets that are highly liquid, expected to be stable in value, and used to facilitate exchange for institutional investors in the shadow-banking system. They effectively function as money for institutional investors and include treasuries, agencies, commercial paper, and repos. During the crisis many of the privately issued safe assets disappeared, erasing a large chunk of the shadow-banking money supply,” writes Beckworth, from under his state-icon coonskin cap.

So what? Well, this is what:

“[If] this excess demand for safe assets is big enough it will push down the natural interest rate below zero. Since the central bank cannot push its policy rate very far past 0%, an interest rate gap will emerge and cause output to fall below its potential. That seems to fit post-2008 fairly well.”

Print Money

Okay, put on your seat-belts. A primer: In macroeconomics, everyone defers to Michael Woodford, the Colombia scholar, who even gets invited to speak at the annual central-banker orgy in Jackson Hole, Wyoming.

And Woodford says now is a good time to print money and pay federal bills and debts with fresh cash. See:

The Win-A-Rama Solution

In the U.S., employees and employers pay onerous 15%+ FICA (payroll) taxes, on the first $100,000 or so of wages, into the Social Security and Medicare trust funds.

So, declare a FICA tax holiday.

Compensate for the loss of tax revenue by having the Fed buy $1 trillion a year of T-bonds, and placing the loot into the Social Security and Medicare trust funds.

This is a win for overtaxed productive people and a win for the economy. It will result in more demand and more hiring. I am not sure it would be inflationary, as the cost of employment would drop.


Shrewd observers will note Win-A-Rama does not solve Beckworth’s safe asset problem. It sucks $1 trillion a year in safe assets into the trust funds.

Win-A-Rama would make matters worse not better!

But Beckworth avers one solution to the safe asset shortage is to “shock and awe” the economy with pro-growth government policies, in which case many private assets become perceived as safe. Win-A-Rama could do the trick.

And if not, then millions of productive Americans will have gotten a tax break, without buying Panama hats from greasy-palmed bankers and lawyers.

Not so bad.

4 thoughts on “Win-A-Rama For America

  1. It won’t be inflationary because the Fed doesn’t want inflation. From yesterday’s Bloomberg report of the current and past Fed Chair’s pow-wow:

    She added that the committee is not aiming for a level that will drive inflation above the Fed’s 2 percent target.
    “But it’s also the case that 2 percent is our goal, and it’s not a ceiling,” she added.

  2. If there’s a shortage of safe assets, and the Fed regards itself as obliged to rectify that shortage, it should simply pump up the money supply (by buying stuff that doesn’t count as “safe,” or even by giving the money away): money is the most important “safe asset” and money is directly under the Fed’s control. (Some of the stuff the Fed has statutory authority to buy, such as bonds of foreign governments, would not count as “safe” in an American context; and it could always ask for broader statutory authority. Even if it bought only T-bills, replacing T-bills by base money would reduce the demand for “safe assets.”)

  3. Pingback: That was the week that was – Sunday April 10, 2016 – NGDP Advisers

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