Scott writes

I certainly approve of the cash dispersion, as the principle-agent problem suggests that highly successful corporations will be tempted to waste their cash hoards on boondoggle investments.  So it may be good for the economy.  But I don’t see how it does much for the zero bound problem.  At least I don’t see any first order effects.  If Apple saves less I’d expect the recipients of this money to increase their saving my an equal amount . . .  Those rich enough to own individual shares often have brokerage accounts where the dividends automatically spill into a money market mutual fund.  If at the end of the month you have a tiny bit more in the MMMF, and a tiny bit less in Apple stock, but the total of the all assets remains exactly at say, $857,000, are you really going to spend more on consumption?  I don’t see it.

I don’t think the key issue is consumption per se but whether money used to buy Treasuries is equivalent to money used to buy MMMF shares. I think the answer right now is no.

Right now the yield on T-Bills, the Interest on Reserve Rate and the overnight rate at MMMFs are not moving in total sync.

T-Bill yields are near zero, IOR is at 0.5% and MMMF rates have been on a glide path downward and have recently crossed the IOR rate.

One conclusion – that I tend to support right now – is that these products do not have equivalent envelopes, so that adjusting balances between them does have real liquidity effects. In particular, the marginal dollar on a reserve balance sheet will simply be held as excess reserves while the marginal dollar in an MMMF will be reverse repo-ed to a private sector counterparty using non-treasury collateral.

In addition, though I am still working this out in my head, I think an unstated objective of potential “sterilized” QE would be to eliminate this effect by making the Fed the marginal destination for MMMF inflows.

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