Forget about the $1 trillion coin debate.
The most exciting wonky discussion being had right now is between Steve Randy Waldman and Paul Krugman over whether “base money” and short-term debt are perfectly substitutable or not, and what that may or may not mean for central bank policy.
We confess that we have a bit of a vested interest here because for a long time we’ve been arguing much the same point as Waldman.As you can see, Izabella (and Waldman) came in from the monetary angle. Here's the fiscal side from the Wall Street Journal::
That’s not to say that Krugman is necessarily wrong; he may just be taking Waldman slightly too literally.
So let’s recap the debate as simply as possible.
On Monday Waldman wrote a post arguing that whatever happens from now on..
…cash and (short-term) government debt will continue to be near-perfect substitutes because, I expect, the Fed will continue to pay interest on reserves very close to the Federal Funds rate.This, he says, is because central banks have moved from a pure quantity-focussed regime to what he terms a “floor system”.
It’s a lovely post.,,,MUCH MUCH MORE
LISBON--The Portuguese government is considering a plan to pay public workers and pensioners one month of their salary in treasury bills rather than cash after a high court ruled out wage cuts, a person familiar with the situation said Sunday.
Portugal's government was shaken by a ruling from the Constitutional Court late Friday that said cuts in the wages and pensions of public employees were unfair because they targeted only the public sector. The Portuguese government warned Saturday that the court's decision will put into question the country's ability to fulfill its €78 billion ($101 billion) international bailout program.
Specifically, the court rejected plans to cut one of the 14 paychecks that public workers usually get each year and to slash 6.4% from pensions for retirees.That whole Alphaville post is worth a read, these are uncharted waters and Ms. Kaminska seems to have an almost effortless (appearing) feel for this stuff.
It also overturned a planned tax on unemployment and sickness benefits.
As a result, the government must plug a hole estimated at up to €1.3 billion in its €5.3 billion budget for 2013, according to calculations by several independent economists.
By paying one month of salary in T-bills to public workers and pensioners, the government would save an estimated €1.1 billion in expenses, narrowing the budget gap significantly.
Prime Minister Pedro Passos Coelho will make a televised statement at 5:30 p.m. local time, when he could announce the measure as an alternative to the previous plan.
"This is one of the ideas being considered," the person said.
The mark of a pro is to make it look easy.
More to come.
HT on the Journal story: ZeroHedge
