Asset bubbles and the conduct of banks

This is the first of a few blogs that I will write about asset bubbles and modern monetary theory (MMT). The point came up this week in a comment posted by Sean Carmody in response to my blog – Operational design arising from modern monetary theory. It was also raised in the current debate about MMT and debt-deflation, which I will return to on Sunday. The proposition is that if the the central bank maintains a zero target interest rate then lending rates will be so low that there will uncontrollable asset bubbles. As long as fiscal policy is used sensibly I disagree that a zero interest rate policy is destabilising.

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In the spirit of debate … my reply Part 3

The debate seems to be slowing down which means this might be my last response although we will see. But in general the debate has raised a lot of interesting perspectives and I hope it has stimulated interested parties to read more of our work. I also think that while (as in any debate) “battle lines” appear to be drawn, I repeat my initial point some days ago. Steve and I saw this as a chance to focus on the common enemy – the mainstream (neoclassical) macroeconomics. That (failed) paradigm has nothing to say about the world we live in. The work of Steve and the modern monetary theory I work on both have lots to say and should not be seen as being mutually exclusive. Indeed, Steve operates in what we call the horizontal dimension of modern money.

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