Is it not strange that after all these years, we still have no "standard model" of macroeconomics that a super majority of economists understand and think is entirely useful, not to say "correct"?
Yes, yes, I know that in the world of theoretical physics debates rage and physicists disagree and egos are even larger than economists'. On the other hand, the standard model of physics is so useful it allows us to get to the moon and back, locate ourselves with GPS technology, and invent cell phones that take our pulses with LED radiation.
I'm half a decade older than you, Scott. You make way more sense of the macroeconomy than anyone else I'm aware of. What is it that's keeping us economists from our standard model?
Yes, it's unfortunate. I suppose it's because with such a complex system there are many ways to analyze the problem, and not everyone sees things in the same way.
Until we economists get our egos out of the way and lay out a standard model that works, politicians will have it their way, implementing policies that don't yield stated results. Politicians always seem to find some noted economists willing to back their play. It's shameful, really.
You need to be careful here. We do have a standard micro model, and politicians ignore it. The standard micro model says free trade and no price controls (except perhaps on monopolies.) The fact that Peter Navarro rejects the standard model doesn't mean that there is no broadly accepted model.
You mentioned physics theory sending rockets to the moon. When you compare North and South Korea, I'd say our standard micro model has been amazingly effective.
My daughter is taking an intro macro college course, and I have to bite my tongue hard to not try to inject Scott's thinking into every topic that comes up. "But... but... monetary policy is not setting interest rate targets! Monetary policy is setting market expectations about the central bank's response function.... oh, never mind."
I agree 100% that Scott makes way more sense than anyone else when it comes to macro.
For some reason this post reminded me of a quote from the movie Mystery Men, which goes something like this: "He fell down an elevator shaft onto some bullets. The police ruled his death an accident." I suppose that it when it comes to the Great Depression, it's sensible to view the network effects of a cascade of bad policy decisions that were strongly linked to some fundamental misunderstandings of money. I like to think that we have better policy and better understanding now. But paradoxical attitudes about money and the economy still abound. I want interest bearing savings accounts and a raise in my salary, but I also want inflation to be zero.
I suppose "Dessert Topping Floor Waxes" is a bit long.
I also suppose that by arguing for dual causality where others argue for mono-causality, you might be arguing that there's a bigger theory that encompasses the theories that argue for mono-causality. It's a bit like when geocentric astronomers argued about the cause of epicycles before astronomers developed the theory of universal gravitation.
Your second question is easier. Barsky and Summers showed that under an international gold standard, lower equilibrium interest rates are contractionary (they increase the demand for gold, and boost its purchasing power.) Under a fiat regime with interest rate targeting, a lower equilibrium rate makes money tighter. That's the standard Wicksell model.
Less confident on your first question. I assumed that war fears might make people wish to hoard money, or that saving preferences might rise relative to investment. I can imagine arguments that war fears might boost rates, but I believe they reduced them during the 1930s.
One the one hand, presidents need to be exposed to different points of view. On the other hand, presidents need to know that economists have reached a consensus on some key issues.
Peter Navarro, who served four months in prison, is now the top dog economic adviser again to President Trump.
I am more on the Michael Pettis camp, so I like this guy Navarro.
When it comes to free trade, I contend there is no such thing as free, fair or foul trade, only international trade in a welter of taxes, regulations, indirect or direct subsidies and other huge structural impediments.
I am also a sucker for personal revival stories. Imagine being sent to prison, and then coming back as the top economic adviser in the nation.
On a personal level I admire Navarro.
Navarro said of his defense legal bills, "After this trial is done, I will be eating dog food."
I have very mixed sentiments regarding Trump...but also about the "lawfare" practiced against Trump.
Yes, I admire "comeback" or "redemption" stories. Navarro has gone from prison and "eating dog-food" back to the White House. I am happy for Navarro.
Navarro may have been a "criminal" for refusing a Congressional subpoena (that was his "crime") through I am surprised to hear someone with libertarian sentiments say so.
Side note: Trump was found "guilty" of paying hush money...in what sure looked like Trump getting blackmailed. Again, since you have libertarian sentiments, you you really think paying blackmail or hush money is a crime?
Anyway, we will see what the very checkered Trump and very admirable Navarro (regardless of his economic views) do in the next four years.
Do I think Congress has the right to subpoena documents when investigating an attempt by an administration to overturn an election and destroy democracy? Gee, that's a tough one.
Navarro might be the dumbest economist in America. You don't do yourself any favors by praising him.
Well, in an econ column I did not want to get into an extended conversation on whether or not Trump was trying to subvert the election, and what role, if any, poor little Peter Navarro played in that.
I am not a fan of Trump the man (who is?), though I think Trump is roughly right on trade and immigration (and wrong on Russia, though he seems to be coming around).
How serious Trump's plans were to subvert the 2020 election I don't know, nor do I know if the subpoenas Navarro did not respond to were another witch-hunt, and on some principle Navarro refused to comply.
Maybe Navarro was part of plot to overthrow the elections, but that seems a little farfetched. If Navarro was, then he served his time in prison (although Navarro was never charged with anything except a process crime).
Also, Navarro could have schemed to overthrow the US elections...but that would not mean his economic policies were wrong.
As stated, IMHO there is no such thing as free, fair, or foul international trade, not in the real world.
Another interesting topic is central banks building up balance sheets, which comes really close to being money-financed fiscal programs, and Michael Woodford says it is.
Bank Indonesia owns 25% on that's nation's public debt, acquired during the C 19 thing. CPI at 1.6% on year in November.
Maybe the Fed should build its balance sheet and give taxpayers a break. Congress is going to run big deficits, so what are the real world options?
Even if you disagree, I would like to see a column on this topic.
That's my all time favorite graph. But it takes some work to interpret. The top line is the inverted real wage series, so as the line goes down, real wages are going up. During the 1930s, higher real wages seem to have depressed output.
You could challenge your readers to create elevator pitches of various sizes (the thirty second version, the five minute version, etc.) and reward the winner(s) with acknowledgments, cash prizes, karaoke sessions with Tyler Cowen, etc.
OK, So my serious response is that I think it's easier for me to come up with short elevator pitches, because after devoting so much time to the project I have a better sense of how the story fits together. But I might be wrong--it's possible that an outsider would see the message more clearly than I do. Many of Keynes's followers in the late 1930s thought they understood the General Theory better than the guy who wrote it. So who knows?
You could test the hypothesis by having people submit pitches to an email address, then displaying all the anonymized pitches, including your own, on a webpage and have people vote on which ones they find most compelling, or use a prediction market to have people bet on which is most persuasive.
Scott, I liked this one. If you did a blog post once a week about the GD, chronologically, I'll get you with a drinking buddy, Jack Henneman. He makes The History of the Americans pod, and it's great. We're only on 1675 or so (after 15, but he jumps around a bit, and I'm sure he'd love to have you on. https://thehistoryoftheamericans.com/
You should make peace with me. Today we are 16 years from Camelot2. So it's 1976; 16 years from Camelot1, BUT Nixon lost and everyone saw Cater/Biden shit the bed 4 years early. CRITICALLY: Boomers got to 12% of national wealth by 1980, and after Carter, we had 28 years of rightward drift (1980-2008). Mills (under 45) will got from 7 to 14% by 2028. So Democrats are going wander in the desert...
ANYWAY, I want to run a monetary theory at you. 2 really if you'll indulge me. This first one I did the numbers with Nick Rowe...
This summer, I got ending KYC for BTC put into the RNC Platform. Last year I noticed the BTC Wall Street guys were so Gensler shook that they didn't realize how pissed off the GOP was... I and a ton of guys I know all got de-banked in 2020, everyone in the party now fully agrees "Anon money is liberty"
So here's the model I call Texas Monetary Policy:
1. Red states and USG lever up on BTC
2. We end KYC for BTC. Take $100 bills anywhere on Earth, convert them to BTC on a thumb drive, and convert them back to $100s.
3. This crashes 140 shithole currencies (anyone with 5% inflation has a run), and forcibly dollarizes another 33% of Earth (Fed rushes in with CBDC for taxes and transactions). They get Euro'd like Greece did. And like MUNDELL PREDICTED TO ME with Greece and Italy, shitholes have to start to kiss the ass of talent (run balanced budgets).
4. We just cut US Debt $3T: Suppose 33% of global GDP suddenly becomes dollarized (it wasn't previously dollarized). Assume a 10% currency/GDP ratio. You get to print an extra 3.3% of global GDP right now (a one-shot benefit to the US govt). Then, every year after that, assuming global GDP grows at 3%, plus 2% inflation, so 5% NGDP growth everywhere), you get to print an extra 5%x10%x33% (=0.165%) of global GDP.
5. As I've pointed out, the GOP policy guys now understand a Fed CBDC must be put on "public hosting" (taxpayer paid) so that it is "public space," and Nazis get to march in Illinois. But once you get over that hump... smart contracts, blockchain ledger accounting (write forward only), state-based contract disputes- we really are in a good place for taking on the banks.
6. The Fed has a de facto 2% mandate because "we can't have a flight to BTC." So we're into the world we've always wanted: Fiscal policy is responsible for the P/Y mix.
7. Fun aside: I'm pushing hard with DOGE and GOP House to put forward a bill that requires Fed to score all bills and Executive action before they are enacted on P (inflation) and Y (RGDP), so we can track how much inflation every Congressman votes for and rank them on inflation.
Anyway, pls poke holes. Just assume it's going to happen, what am I missing?
Leftward Camelot lurch, then shit monster sent to DC, and then bed shitter proggie puppet:
JFK/LBJ = Obama
Nixon = Trump
Carter = Biden
Bought us 28 years of rightward drift:
Reagan
Reagan
Bush
Clinton BENDS KNEE and balances budget
Clinton end welfare as we know it
Bush
Bush
Like I said, the reason for 1980-2008 rightward drift was generational, once the Boomers got to 12% of twelfth in 1980, they became yuppies, invented Fox News, and then hired their own shit monster to curb stomp DC proggies who though they were in charge.
For example Scott, 1976, Ford-Dole won 18-21 youth vote. I am hinting at GenX being the most conservative generation in 100 years. We saw the the same thing with 18-21 right now. Same kind of male female split in 1976.
If it helps to get my point, Trump is tough-talking moderate GOP like Nixon. They governed during the leftward launch, just like Clinton governed during the conservative drift.
ANYWAY, I just wanted you to poke holes in ending KYC for BTC...
If I recall correctly, you once used the "perfect storm" metaphor for the Great Recession. That's what I tell people when they say, as they usually do, that that recession was caused by a housing bubble. I tell them, no, it was caused by a perfect storm of many things going wrong at once, the Fed screwing up being one of those things, the housing market fluctuations being another but less important in the scheme of things, the meteor landing in the Yucatan being another.
I think it was mostly caused by bad monetary policy, but the housing bust certainly was a factor in the Fed making the mistake. Similarly, the recent inflation was caused by bad monetary policy, but the Covid situation was a factor that pushed policy off course.
“The US passively supplies coins to meet the demand of the public, *given the stance of monetary policy*.” A strange sentence. The U.S. sets monetary policy: this is its *activity*, which determines how much currency it supplies. But how much in coins? How much in 50-cent pieces? Doesn’t the Fed often fail to gauge the public’s demand for coins, and for particular denominations? And these demands are independent of—not determined by—monetary policy.
My understanding is that the Treasury supplies coins to banks as requested. My point is that it was bad monetary policy that created a situation where banks were not requesting any new coins.
Is it not strange that after all these years, we still have no "standard model" of macroeconomics that a super majority of economists understand and think is entirely useful, not to say "correct"?
Yes, yes, I know that in the world of theoretical physics debates rage and physicists disagree and egos are even larger than economists'. On the other hand, the standard model of physics is so useful it allows us to get to the moon and back, locate ourselves with GPS technology, and invent cell phones that take our pulses with LED radiation.
I'm half a decade older than you, Scott. You make way more sense of the macroeconomy than anyone else I'm aware of. What is it that's keeping us economists from our standard model?
Yes, it's unfortunate. I suppose it's because with such a complex system there are many ways to analyze the problem, and not everyone sees things in the same way.
Until we economists get our egos out of the way and lay out a standard model that works, politicians will have it their way, implementing policies that don't yield stated results. Politicians always seem to find some noted economists willing to back their play. It's shameful, really.
You need to be careful here. We do have a standard micro model, and politicians ignore it. The standard micro model says free trade and no price controls (except perhaps on monopolies.) The fact that Peter Navarro rejects the standard model doesn't mean that there is no broadly accepted model.
You mentioned physics theory sending rockets to the moon. When you compare North and South Korea, I'd say our standard micro model has been amazingly effective.
My bad. I wasn't taking about micro, which is solid as a rock. My observation is about macro and the political economy.
My daughter is taking an intro macro college course, and I have to bite my tongue hard to not try to inject Scott's thinking into every topic that comes up. "But... but... monetary policy is not setting interest rate targets! Monetary policy is setting market expectations about the central bank's response function.... oh, never mind."
I agree 100% that Scott makes way more sense than anyone else when it comes to macro.
Is it possible the Standard Model is "Alternative Approaches to Monetary Policy", and Scott has realized it before the rest of the world?
That most economists are hidebound by what they "know" from the lessons of the Great Depression, many of which don't apply in a fiat world?
"Is it possible the Standard Model is "Alternative Approaches to Monetary Policy", and Scott has realized it before the rest of the world?"
Anything is possible. :)
For some reason this post reminded me of a quote from the movie Mystery Men, which goes something like this: "He fell down an elevator shaft onto some bullets. The police ruled his death an accident." I suppose that it when it comes to the Great Depression, it's sensible to view the network effects of a cascade of bad policy decisions that were strongly linked to some fundamental misunderstandings of money. I like to think that we have better policy and better understanding now. But paradoxical attitudes about money and the economy still abound. I want interest bearing savings accounts and a raise in my salary, but I also want inflation to be zero.
Off-topic, the NYT should replace Krugman with competing weekly columns by Prof. Sumner and Dean Baker......
I suppose "Dessert Topping Floor Waxes" is a bit long.
I also suppose that by arguing for dual causality where others argue for mono-causality, you might be arguing that there's a bigger theory that encompasses the theories that argue for mono-causality. It's a bit like when geocentric astronomers argued about the cause of epicycles before astronomers developed the theory of universal gravitation.
Is this the basis for fiat money, the flexibility in responding to shocks that theory struggles to forecast or explain in hindsight?
I think major shocks can generally be explained in hindsight.
The argument is that fiat money can better stabilize the growth path of NGDP, compared to alternatives like gold.
I don't understand, "War fears can lower the equilibrium rate of interest".
I also don't understand, "which indirectly makes monetary policy tighter."
Much appreciated if you help me either directly or by pointing me to a chapter in "Alternative Approaches..." or "The Money Illusion". Thank you!
P.S. Another great post
Your second question is easier. Barsky and Summers showed that under an international gold standard, lower equilibrium interest rates are contractionary (they increase the demand for gold, and boost its purchasing power.) Under a fiat regime with interest rate targeting, a lower equilibrium rate makes money tighter. That's the standard Wicksell model.
Less confident on your first question. I assumed that war fears might make people wish to hoard money, or that saving preferences might rise relative to investment. I can imagine arguments that war fears might boost rates, but I believe they reduced them during the 1930s.
Thanks for taking the time to explain it to me.
Lovely post, Scott. Classic(al) economics. On the one hand this, on the other, that.
President Truman was supposed to have asked for a one-handed economist, was he right? Well...on the one hand...
One the one hand, presidents need to be exposed to different points of view. On the other hand, presidents need to know that economists have reached a consensus on some key issues.
Off-topic, with DOGE now exploring FDIC abolition, I've found myself disagreeing with Adam Ozimek and Jeremiah Johnson. Here's a classic Sumner post related to that topic: https://www.themoneyillusion.com/bank-architecture-financial-architecture/
Peter Navarro, who served four months in prison, is now the top dog economic adviser again to President Trump.
I am more on the Michael Pettis camp, so I like this guy Navarro.
When it comes to free trade, I contend there is no such thing as free, fair or foul trade, only international trade in a welter of taxes, regulations, indirect or direct subsidies and other huge structural impediments.
I am also a sucker for personal revival stories. Imagine being sent to prison, and then coming back as the top economic adviser in the nation.
On a personal level I admire Navarro.
Navarro said of his defense legal bills, "After this trial is done, I will be eating dog food."
You "admire" criminals? Then you must adore Trump.
I have very mixed sentiments regarding Trump...but also about the "lawfare" practiced against Trump.
Yes, I admire "comeback" or "redemption" stories. Navarro has gone from prison and "eating dog-food" back to the White House. I am happy for Navarro.
Navarro may have been a "criminal" for refusing a Congressional subpoena (that was his "crime") through I am surprised to hear someone with libertarian sentiments say so.
Side note: Trump was found "guilty" of paying hush money...in what sure looked like Trump getting blackmailed. Again, since you have libertarian sentiments, you you really think paying blackmail or hush money is a crime?
Anyway, we will see what the very checkered Trump and very admirable Navarro (regardless of his economic views) do in the next four years.
Interesting times.
Do I think Congress has the right to subpoena documents when investigating an attempt by an administration to overturn an election and destroy democracy? Gee, that's a tough one.
Navarro might be the dumbest economist in America. You don't do yourself any favors by praising him.
Navarro served his time, and deserves to be brought back into society.
I like the Navarro, Angus Deaton, Michael Pettis, Dani Rodrik way of looking at international trade.
Open borders for trade and immigration---not sure that works for the employee classes of any developed nation.
I think all the aforementioned economists are intelligent, but have a different point of view than you.
Ma? I am just wag, a guy kibbitzing on websites.
When you fail to respond to my point, I take it as an admission that I'm correct. So just say so!
Well, in an econ column I did not want to get into an extended conversation on whether or not Trump was trying to subvert the election, and what role, if any, poor little Peter Navarro played in that.
I am not a fan of Trump the man (who is?), though I think Trump is roughly right on trade and immigration (and wrong on Russia, though he seems to be coming around).
How serious Trump's plans were to subvert the 2020 election I don't know, nor do I know if the subpoenas Navarro did not respond to were another witch-hunt, and on some principle Navarro refused to comply.
Maybe Navarro was part of plot to overthrow the elections, but that seems a little farfetched. If Navarro was, then he served his time in prison (although Navarro was never charged with anything except a process crime).
Also, Navarro could have schemed to overthrow the US elections...but that would not mean his economic policies were wrong.
As stated, IMHO there is no such thing as free, fair, or foul international trade, not in the real world.
Another interesting topic is central banks building up balance sheets, which comes really close to being money-financed fiscal programs, and Michael Woodford says it is.
Bank Indonesia owns 25% on that's nation's public debt, acquired during the C 19 thing. CPI at 1.6% on year in November.
Maybe the Fed should build its balance sheet and give taxpayers a break. Congress is going to run big deficits, so what are the real world options?
Even if you disagree, I would like to see a column on this topic.
Another problem is when structural impediments become so large..they are the tail wagging the dog.
There are concerns that populations of ordinary people need some sort of economic-social stability.
The Detroit story is perhaps not a success tale.
I like Michael Pettis on trade issues.
Ha. There was never enough cash to give the panic inspired customers. And there wasn't sufficient collateral for discounting in the first place.
Has any graph in macro ever had more explanatory power than this one??
http://www.themoneyillusion.com/wp-content/uploads/2010/02/Screen-Shot-2013-01-30-at-8.19.49-AM.png
That's my all time favorite graph. But it takes some work to interpret. The top line is the inverted real wage series, so as the line goes down, real wages are going up. During the 1930s, higher real wages seem to have depressed output.
One implication for me is "This is why monetary policy matters. If wages weren't sticky, then monetary policy wouldn't really matter much at all."
Yes, although debt contracts would still be an issue.
You could challenge your readers to create elevator pitches of various sizes (the thirty second version, the five minute version, etc.) and reward the winner(s) with acknowledgments, cash prizes, karaoke sessions with Tyler Cowen, etc.
If I answer this seriously and you're joking, I look like a fool. If I ignore you, I seem stuck-up.
Decisions, decisions . . .
Perfectly serious, aside from the karaoke remark.
OK, So my serious response is that I think it's easier for me to come up with short elevator pitches, because after devoting so much time to the project I have a better sense of how the story fits together. But I might be wrong--it's possible that an outsider would see the message more clearly than I do. Many of Keynes's followers in the late 1930s thought they understood the General Theory better than the guy who wrote it. So who knows?
You could test the hypothesis by having people submit pitches to an email address, then displaying all the anonymized pitches, including your own, on a webpage and have people vote on which ones they find most compelling, or use a prediction market to have people bet on which is most persuasive.
Or they could put them in this comment section.
Scott, I liked this one. If you did a blog post once a week about the GD, chronologically, I'll get you with a drinking buddy, Jack Henneman. He makes The History of the Americans pod, and it's great. We're only on 1675 or so (after 15, but he jumps around a bit, and I'm sure he'd love to have you on. https://thehistoryoftheamericans.com/
You should make peace with me. Today we are 16 years from Camelot2. So it's 1976; 16 years from Camelot1, BUT Nixon lost and everyone saw Cater/Biden shit the bed 4 years early. CRITICALLY: Boomers got to 12% of national wealth by 1980, and after Carter, we had 28 years of rightward drift (1980-2008). Mills (under 45) will got from 7 to 14% by 2028. So Democrats are going wander in the desert...
ANYWAY, I want to run a monetary theory at you. 2 really if you'll indulge me. This first one I did the numbers with Nick Rowe...
This summer, I got ending KYC for BTC put into the RNC Platform. Last year I noticed the BTC Wall Street guys were so Gensler shook that they didn't realize how pissed off the GOP was... I and a ton of guys I know all got de-banked in 2020, everyone in the party now fully agrees "Anon money is liberty"
So here's the model I call Texas Monetary Policy:
1. Red states and USG lever up on BTC
2. We end KYC for BTC. Take $100 bills anywhere on Earth, convert them to BTC on a thumb drive, and convert them back to $100s.
3. This crashes 140 shithole currencies (anyone with 5% inflation has a run), and forcibly dollarizes another 33% of Earth (Fed rushes in with CBDC for taxes and transactions). They get Euro'd like Greece did. And like MUNDELL PREDICTED TO ME with Greece and Italy, shitholes have to start to kiss the ass of talent (run balanced budgets).
4. We just cut US Debt $3T: Suppose 33% of global GDP suddenly becomes dollarized (it wasn't previously dollarized). Assume a 10% currency/GDP ratio. You get to print an extra 3.3% of global GDP right now (a one-shot benefit to the US govt). Then, every year after that, assuming global GDP grows at 3%, plus 2% inflation, so 5% NGDP growth everywhere), you get to print an extra 5%x10%x33% (=0.165%) of global GDP.
5. As I've pointed out, the GOP policy guys now understand a Fed CBDC must be put on "public hosting" (taxpayer paid) so that it is "public space," and Nazis get to march in Illinois. But once you get over that hump... smart contracts, blockchain ledger accounting (write forward only), state-based contract disputes- we really are in a good place for taking on the banks.
6. The Fed has a de facto 2% mandate because "we can't have a flight to BTC." So we're into the world we've always wanted: Fiscal policy is responsible for the P/Y mix.
7. Fun aside: I'm pushing hard with DOGE and GOP House to put forward a bill that requires Fed to score all bills and Executive action before they are enacted on P (inflation) and Y (RGDP), so we can track how much inflation every Congressman votes for and rank them on inflation.
Anyway, pls poke holes. Just assume it's going to happen, what am I missing?
"So Democrats are going wander in the desert..."
You don't understand our political system. Each party wins half of the elections.
Leftward Camelot lurch, then shit monster sent to DC, and then bed shitter proggie puppet:
JFK/LBJ = Obama
Nixon = Trump
Carter = Biden
Bought us 28 years of rightward drift:
Reagan
Reagan
Bush
Clinton BENDS KNEE and balances budget
Clinton end welfare as we know it
Bush
Bush
Like I said, the reason for 1980-2008 rightward drift was generational, once the Boomers got to 12% of twelfth in 1980, they became yuppies, invented Fox News, and then hired their own shit monster to curb stomp DC proggies who though they were in charge.
For example Scott, 1976, Ford-Dole won 18-21 youth vote. I am hinting at GenX being the most conservative generation in 100 years. We saw the the same thing with 18-21 right now. Same kind of male female split in 1976.
If it helps to get my point, Trump is tough-talking moderate GOP like Nixon. They governed during the leftward launch, just like Clinton governed during the conservative drift.
ANYWAY, I just wanted you to poke holes in ending KYC for BTC...
If I recall correctly, you once used the "perfect storm" metaphor for the Great Recession. That's what I tell people when they say, as they usually do, that that recession was caused by a housing bubble. I tell them, no, it was caused by a perfect storm of many things going wrong at once, the Fed screwing up being one of those things, the housing market fluctuations being another but less important in the scheme of things, the meteor landing in the Yucatan being another.
I think it was mostly caused by bad monetary policy, but the housing bust certainly was a factor in the Fed making the mistake. Similarly, the recent inflation was caused by bad monetary policy, but the Covid situation was a factor that pushed policy off course.
“The US passively supplies coins to meet the demand of the public, *given the stance of monetary policy*.” A strange sentence. The U.S. sets monetary policy: this is its *activity*, which determines how much currency it supplies. But how much in coins? How much in 50-cent pieces? Doesn’t the Fed often fail to gauge the public’s demand for coins, and for particular denominations? And these demands are independent of—not determined by—monetary policy.
My understanding is that the Treasury supplies coins to banks as requested. My point is that it was bad monetary policy that created a situation where banks were not requesting any new coins.
Did banks really request dollar coins (Susan B. Anthony, Sacagawea, etc.) any time in the last century?