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  • Population Growth And Interest Rates [View article]
    Please, do email me about the errors
    Nov 27 01:59 AM | Likes Like |Link to Comment
  • A New Approach To Deposit Insurance [View article]
    No. The 0.05% annual interest rate falls into the category of current accounts which offer essentially 0 interest rate, thus free insurance...
    Sep 2 03:54 AM | Likes Like |Link to Comment
  • A New Approach To Deposit Insurance [View article]
    Exactly: the reason for deposit insurance is to protect the depositor from failing banks. By making a separate fund we are taking the responsibility away from the state which could find it cheaper to bail out a bank than choose to repay the insured amounts. This will make bankers more careful with their bets especially if they know that they will not be saved if they face trouble.

    The amount the fund should have should really be just more than the amount of insured deposits in the country. All other models are mere speculation.

    The reason for providing the opt out is not to make people assume more risk: it is to make people realize that they do it! If you are presented with an option to have your funds insured and earn 1.1% interest rate and another not to have them insured and earn 1.2% which would you choose? Given humans' tendency to risk aversion I would say that they would choose the latter.
    Sep 2 02:57 AM | Likes Like |Link to Comment
  • A New Approach To Deposit Insurance [View article]
    It creates moral hazard though: if a bank is about to fail, then the state has, de jure, a duty to repay all depositors up to a certain amount. Yet, most of the times, the cost of bailing out a bank is much less than the cost of repaying the depositors, something that the banks know. This means that it is much cheaper for the state to bail out than to let a bank fail, meaning that the bankers can assume as much risk as they want if they believe that they are too big to fail.

    By separating the insurance fund from the state we make it possible for the banks who gamble to fail without taking people's money with them.

    The reason for the opt-out is that we do not want to enforce someone to assume insurance if he/she does not wish to. If the depositor believes that he can assume the risk then it is up to him/her to do it.
    Sep 2 02:52 AM | Likes Like |Link to Comment
  • Why Deficits Don't Matter And Government Bonds Are Risk-Free [View article]
    Bogus?
    Jul 21 08:18 AM | Likes Like |Link to Comment
  • Why Deficits Don't Matter And Government Bonds Are Risk-Free [View article]
    Perhaps it's true. Yet, if you do not have that fiat money in the war you either end up bankrupt or uber-indebted. As for example, all the European countries after WW1...
    Jul 21 08:06 AM | Likes Like |Link to Comment
  • Why Deficits Don't Matter And Government Bonds Are Risk-Free [View article]
    If what you claim holds then the next time an investor buys a bond she/he should not ask for a default premium. If this was true then we wouldn't have different bond ratings and different yields and interest rates between junk bonds and investment grade ones.
    Jul 9 11:31 AM | Likes Like |Link to Comment
  • Why Deficits Don't Matter And Government Bonds Are Risk-Free [View article]
    Bryce, credit is essentially faith. You do not have to have any assets backing your currency just the faith that the specific currency would be accepted by people was a means of payment and store of value.

    When you are repaying your debt to a bank what does it ask? Your house or your car? No, just paper.

    And the reason the US did not print all of its money to finance the deficit is because it would lead to inflation. And again the point is that deficits don't matter with regards to sovereign insolvency not that they do not matter at all. That is why I am stating that bonds are risk-free with regards to solvency risk.
    Jul 7 04:36 AM | Likes Like |Link to Comment
  • Why Deficits Don't Matter And Government Bonds Are Risk-Free [View article]
    "Inflation was steady before Robert Mugabe in 1998 began a program of land reforms that primarily focused on taking land from white farmers and redistributing those properties and assets to black farmers, which disrupted food production and caused revenues from export of food to plummet." Source: Wikipedia/hyperinflation.

    Productivity shock as mentioned in the article.
    Jul 7 04:29 AM | 1 Like Like |Link to Comment
  • Why Deficits Don't Matter And Government Bonds Are Risk-Free [View article]
    You are assuming that the government will not print money if the debt is increased, which is wrong.
    Jul 7 04:28 AM | Likes Like |Link to Comment
  • Why Deficits Don't Matter And Government Bonds Are Risk-Free [View article]
    You are missing my point here: I am not arguing that amassing debt and deficits is good for the economy neither that 17 trillion is a small amount (which actually is 11 trillion but anyhow). What I am arguing is that even with a debt this high the US insolvency is not threatened, unless there is a severe productivity shock.
    Jul 7 04:26 AM | Likes Like |Link to Comment
  • Why Deficits Don't Matter And Government Bonds Are Risk-Free [View article]
    What you are saying is basically what should be done and actually this is what Keynes had promoted. The world would have been a much better place if governments acted this way, nevertheless, for reasons either voluntary or involuntary they do not.
    Jul 7 04:24 AM | Likes Like |Link to Comment
  • Why Deficits Don't Matter And Government Bonds Are Risk-Free [View article]
    The case here is rather obvious: lower risk equals lower returns. That is why in general (but not always) bonds have had lower returns than stocks.
    Jul 7 04:22 AM | Likes Like |Link to Comment
  • Why Deficits Don't Matter And Government Bonds Are Risk-Free [View article]
    I am not arguing that 15% inflation would be fair or good. What I am merely stating is that there is no insolvency risk no matter how large the deficit is. The passage you are quoting says exactly that. Bonds are risk-free with regards to insolvency only. There are much more issues involved in whether buying a bond or not, yet insolvency should not be one if a sovereign can issue its own money.
    Jul 7 04:20 AM | Likes Like |Link to Comment
  • Why Deficits Don't Matter And Government Bonds Are Risk-Free [View article]
    You are missing the point: They are risk free in the sense that there is no insolvency risk. Inflation risk is always there no matter if the deficit is 1%, 5%, or -5% and so is every other risk except insolvency.

    Notice again that I am not arguing on inflation risk. I am arguing on insolvency.
    Jul 7 04:17 AM | 1 Like Like |Link to Comment
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