Three big questions for Larry Summers, Janet Yellen, and anyone else who wants to head the Fed – Quartz


Three big questions for Larry Summers, Janet Yellen, and anyone else who wants to head the Fed – Quartz.

The formula MV = Py states that money supply is finite…it is the rate of printing the money that will cause inflation or growth. Too much money circulating in the market will cause high inflation. Money supply, and thus, circulation is within the formula and not without it. The banks keep a record of our money transactions with the money supply in the market in mind. The bank is not allow to provide record of money (generating a new bank transaction) outside the money supply. If they are allow to do so, they will tip the balance and thus inflation will not happen. But because they are not allow to do so, too much QE will tipped the balance of the equation (MV = Py) causing inflation.

We get employed and earn an income, it is when we have an income that we open a bank account. When we have a bank account, we then apply for credit/debit card to do electronic payment. The bank service of electronic payment is provided only because we earn income from our employers (provided employers are legitimate business). Electronic payment is within the money supply in MV = Py and not outside it. If it is outside of it, it is true that whatever we pay using electronic means will not add to inflation since it will not be a legitimate bank transaction.

 

I reckon this article and writer is arguing for a negative interest rate rather than electronic payment. Because only by eliminating the so-called ‘zero lower bound’, there will be negative interest rates and only when there is negative interest rate, compound interest (in the long run) will see its positive effect. And it is the Fed’s job to ensure that, in the long run, the ill effects of negative interest rates will be zero out – provided the free-market respond positively to borrowing and repaying their loans. The free-market might respond negatively and the positive effects of negative interest rates cannot be seen in the long run (or longer than expected) since the free-market start to be skeptical and the cynicism and skepticism will stall any spurring of the economic growth (due to unproductive debates as can be seen NOW everywhere around the globe, except for those space men in the International Space Station).

P.S: My guess is snooping is also causing a lot of jitters globally and thus capitalism is at risk since no one wants to play into the hands of shrewd snoopers who snoop only for their personal gains. Big Brother has got two important things to handle, they are, the world economy (due to the Fed Reserve interest rates) as well as how bad snooping can be curbed to ensure honour and justice. The only way to stop bad snooping is a good guy with a good just sense of snooping.

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