2011/11/01

(Past Post)The policy of domestic currency supply to the government.Conduct money supply to the government,and free method for producing a substantially negative interest rates


The policy of domestic currency supply to the government will result in tremendous economic effect.

過去に記述した記事の保存記事です。

Economic effects of the policy of domestic currency supply to the government

The following lists the merits and demeris.

Merit

Currency depreciation.
Free tax or tax cuts can be.
Bonds redemption become easier. Because yield decreases.
Become accurately reflect the sentiment of money. Therefore, eliminating tariffs.

Demerit

The negative interest rate equivalent dilute local currency assets.
New currency migrating risk. *Currently under investigation


At least this can get much greater economic benefit compare to a loss due to catastrophic hyperinflation and default.

Indicators and the procedure is as follows.



The 12 steps of the policy of domestic currency supply to the government

1,Central bank money supply do to the government without government bonds. In this case,the central bank to continue lending to commercial banks.

2,The government compensate revenue all or part from the money supply.

3,The government invest. Or eliminate the tax.

4,Redemption of government bonds performed simultaneously.

5,The National Steering indices are determined as will hereinafter be described in detail.

6,Inflation rate and currency depreciation raise the equivalent from 3% to 7% which included negative interest.

7,Raise the policy rate

8,Steer the bank to risk taking by policy rate raise.

9,Revitalize the bank lending to companies.

10,Revitalize business investment

11,Improve the employment situation.

12,Improve the deposit,consumption, unemployment.



Negative interest rate calculation

I = 1 - TMS / (TMS + GMS)

I: Interest
TMS:Total money supply(Currency and deposit)
GMS: The money supply to the Government



Inflation target

IT = IR + (-I)

IT: Inflation Target
IR: Inflation rate (CPI etc)
I: Interest

Here is an example.

IT = 0.002 + (-1 * -0.07)


IT = 0.072

In the above example, the inflation target is 7.2%.

My own opinion is that should be 3% to 7% per annum inflation rate.This has been 7.2% and 7% surcharge for clarity.

Calculate the money supply to the government.

Total money supply : 1,000 T (Trillion JPY)

GMS = TMS * -I


= 1,000 T * 0.07


= 70 T

I: Interest
TMS:Total money supply(Currency and deposit)
GMS: The money supply to the Government
T: Trillion JPY

A,It is possible to supply money to the government to 70 trillion yen per year.

This is modeled after Japan. The revenue of japanese government is 81 trillion yen.

This means can be tax cuts and pay the cost of reconstruction of the earthquake.

Of course, it is possible to solve the debt problem in Europe and the United States.



The ratio of GDP assets and debts

B=(G+A)/D

G: GDP per capita
A: household financial assets per capita
D: total debt per capita

B set to 300% from 100%.

Less than 100% means too much debt.

More than 300% means less debt.

Japan is now around 150%,it is desirable to issuance of government bonds.

This indicator is not used in their own national economic analysis techniques, it is very special. So many assumptions, Please refer to the link here.



Money supply and debt ratio

MDR=M/D

MDR:Money supply and debt ratio
M:Money supply(Currency and deposits)
D:Debt

I recommend the MDR = 33% ~ 300%.
More secure range from 50% to 200%.

Closer or over 300% then decreases the yield on a bond.
→If the country growing then bond yields decrease. And active investments become bubble.

→If the country recession. Bond yields decrease.
In the recession has no valid new investment, will degrade the existing investment.Therefore, the commercial banks to reduce lending.

Closer or lesser 33% then rise bond yields.
→If the country growing then become slow growth by rising of government bond yields.Investment in new and existing active investment more likely to decline because they could not get enough money.

→If the national recession, increases the risk of default. This is the global financial crisis and the Great Depression.



Currency deterioration speed

The money supply to the government will always happen to currency deterioration.

Here are the following assumptions.
Inflation rate: 0% at all times
Negative interest rates: -3%,-7%

Of course,in fact always takes a certain amount of inflation or deflation.

60year 120year
3% 572% 5,415.55%
7% 3,370% 313,812%

This is a bit confusing. We can now see what happens in the first year is 1 ¢.

60year 120year
3% 5.72¢ 54.1555¢
7% 33.7¢ 31$38.12¢

I personally thinking need to do denomination when inflation of 100,000%, and the one cent become 10$.

Therefore, if negative interest rates -7% continued,in this case 104 years (10$62¢) when will need to do to denomination.



Currency migration risk

Here are some examples of the new currency migration risk.

Denomination in Turkey

· 2005 January 1 Denomination 1,000,000 : 1


The inflation rate in Turkey from 2004 to 2011.

Has remained stable in 2005.


Denomination in Argentina

・1992 January 1 denomination 10,000 : 1

・ 2002 February 11 Migration to floating rate system


The inflation rate in Argentina from 1989 to January 1992.

In 1989, inflation has been more than 5,000%.

1992 january denomination 10,000 : 1


The inflation rate from 1992 to 2011.

2001 December Argentine government bond default.

2002 February 11 Migration to floating rate system


The Argentine peso / USD rate from 1992 to 2011.

Spike formation in 2002, inflation rates may be due in sharp fluctuations in exchange rates.

Ukraine 1996 denomination 100,000 : 1


Iraq will denomination in these years.

Venezuela 2008 january 1 denomination 1,000 : 1


Venezuela has seen a sharp rise in inflation during the same period.

Peru 1985year 1000:1 1991year 1.000,000:1


Germany, Japan, and Hungary in the denomination are held. The exact rate of inflation here is unfortunately not ready.

By example and increase inflation proof shows that the denomination is not necessarily. Examples such as Venezuela, monopoly of market by the richest man in some extreme, in the state can not ignore other factors.



Application to the U.S.

If the policy of domestic currency supply to the government apply to the U.S. government, it is possible to solve the extreme disparities between rich and poor.

I did not get U.S. indicators completely. So this example is guess.

Unfortunately, please regarded as unreliable data.

M2 money supply : 9586.9Billion $ → 9.6Trillion $

Total debt : 54,568.5 Billion $ → 54.6Trillion $

Household financial assets: 35,2 Trillion $ (stock or other securities, cash and Annuities)

Inflation rate: 3.80%

GDP: 14.66Trillion $

Revenue: 2.162Trillion $

Appropriations: 3.456Trillion $

Population: 313,232,044
GDP per capita →: 46,802 $
Household financial assets per capita →: 112,376 $
Total debt per capita →: 174,311 $

To calculate the money supply to the Government

If the desired rate of inflation to 7%...

・Apply the rate of -3.2%.

GMS = TMS * -I

= 9.6 * 0.032

= 307.2Billion$(0.3072Trillion$)

GMS:Money supply to the Government

TMS:Total money supply(Currency and deposit)

A,U.S. can be supplied to the government 307.2Billion $ per a year

・The ratio of GDP assets and debts

B=(G+A)/D

G : GDP per capita
A : Household financial assets per capita
D : Total debt per capita

B = (46802 + 112376)/174311

= 91.318%

A,91.3%

Too much debt.

・Money supply and debt ratio

MDR=M/D

MDR:Money supply and debt ratio
M:Money supply (Currency and deposit)
D:Debt

CDR = 9.6 / 54.6

= 0.175824

A,17.5%

Less money supply.

To summarize the overall trend of problem is too much debt and less money supply.



Application to the euro area

If the policy of domestic currency supply to the government apply to the euro zone government it can solve the problem in Greece.

I try enumerating the indicators in the euro area. Unfortunately, these accurate data has no reliable.

M3 money supply: 9,755 billion euro (17 countries)

Total debt:

Household financial assets:

Inflation rate: 3.00%

GDP: 16.07Trillion $

Annual Revenue:

Expenditures:

Population: 492,387,344
GDP per capita →:
Per capita household financial assets →:
Total debt per capita →:

Very sorry I could not get numbers by myself.

I suppose the case of a negative interest rate - 4%.

GMS = 9.755 * 0.04

= 0.3902Trillion Euro (390.2Billion Euro)

A,EU can money supply to governments 390.2Billion Euro per year.

It is said that a total of 3400 billion euros of the current Greek government bonds.

Compression can be sufficient if the debt supply 3902 billion euros a year.

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