tag:blogger.com,1999:blog-6399730406480392183.post7041259758025468187..comments2024-03-27T11:18:34.222-03:00Comments on Viable Opposition: Central Banks and Equities - The New Monetary PolicyA Political Junkiehttp://www.blogger.com/profile/03342345936277964422noreply@blogger.comBlogger1125tag:blogger.com,1999:blog-6399730406480392183.post-27423610143119004982019-04-01T10:30:35.547-03:002019-04-01T10:30:35.547-03:00The problem with equities is that it's tantamo...The problem with equities is that it's tantamount to owning bonds as far as monetary policy is concerned. When the Fed buys bonds, the interest rate declines and money flows into the stock market. The same people who own bonds also own stocks, so if you invest in one, it's pretty much the same as investing in the other insofar as the money supply is concerned. Those investors are sitting on piles of cash that they got from selling bonds. And they will also be sitting on piles of cash that they got from selling equities. <br /><br />What the Fed needs to do is find an asset class that is owned by a completely different group of investors. My suggestion is commercial real estate. Buy office buildings, apartments, retail space, etc. Those assets produce income like a bond, but if you buy real estate, you are putting money into the hands of a very illiquid group of investors, and they will turn it over immediately, paying overdue bills, repairing deferred maintenance, etc... much faster than a bank that is already sitting on a big pile of cash that it doesn't know what to do with. The idea is to increase the velocity of money.<br /><br />Of course, real estate is a much riskier and more complex asset to invest in than bonds. But much of the risk can be eliminated by appropriate enabling laws that are applicable only to the Fed. And much of the complexity can be eliminated by contracting with private asset managers to manage the properties. The Fed won't need financing because it's buying with newly printed money.<br /><br />The Fed can pick and choose its sellers to avoid enriching the wealthy. It can buy depressed real estate from pension funds, insurance companies, banks, nonprofits, and other widely owned institutions. When the market recovers, it can sell them back to the private sector before inflation sets in. <br /><br />Another class of real estate the Fed should consider is vacant land. It produces no income, but it is a lot easier to manage.Anonymoushttps://www.blogger.com/profile/13071242968245196775noreply@blogger.com