Finance Basic To Advance Level Knowledge

Something interesting is happening in the United Kingdom. Some government officials there are pushing for the Bank of England to adopt an NGDP target. From the  Independent : Officials in the UK Treasury are “probably” considering whether to change the Bank of England’s inflation-targeting mandate due to the massive economic shock imparted by the coronavirus crisis, according to a former minister.  Lord Jim O’Neill, who was commercial secretary to the Treasury in 2015, wants the central bank to shift from its current target of keeping inflation at 2 per cent to targeting a steadily rising trend of nominal UK GDP growth instead. Since the U.K. Treasury determines the monetary policy target for the Bank of England, t hese rumblings are more than noise .  The U.K. Treasury's increased interest in an NGDP target is driven, in part, by the efforts of Jim O'Neil. He has written articles ,  done interviews , and made a forceful case for this approach to mo...

Peter Stella joined me on the podcast this week. He was back by popular demand and we touched on two important and related questions: how should the government finance its relief efforts and who should ultimately manage the public debt?  The U.S. Treasury may seem like the obvious answer to both questions, but it is not the whole story. The Federal Reserve can also finance the relief efforts and, in so doing, affect the structure of public debt. But is this a good thing?  Peter Stella says no, at least in the longrun. He makes the case that it  is economically and politically cheaper to return the financing and management of the public debt back to the U.S. Treasury once the COVID-19 recession is over. In other words, the Fed's expansion of its balance sheet, an understandable response to the crisis, needs to be unwound as the economy improves. Otherwise, we might end up with two government agencies with very different objectives trying to manage the public debt.  T...