New Central Bank Rules and Tools
Strict long-term price level targeting (based on an average inflation rate of 2%)
Targets to control asset price growth particularly housing
Allowances for deflation in Basic Essentials
Private debt level targets
Unemployment / underemployment rate targets
Targeting a long-term balance between investment and consumption, as well as current account s
Power to offer monetary financing of public fiscal spending, within strict rules
Power to offer monetary financing to Sectoral Banks, strictly to fund non-lending operations
Monetary financing can only be offered after 2+ years of fiscal surpluses, with a limit on the number of consecutive years of monetary financing, and with a value limit as a percentage of GDP
Power to provide cash top-ups for the Three Pillars Program, within strict conditions
Power to raise minimum deposit amount for mortgages
Power to manage and adjust the 15-25% bank capital requirement
Power to bolster the tax rate and rules on short-term capital inflows
Some additional regulatory powers over the financial system
Rigorous restrictions on providing stimulus during critical political moments such as elections
Restricting monetary financing to specific areas such as infrastructure funding, public works, and Three Pillars funding, gives central banks very direct levers over unemployment rates and consumption demand, without the need for the colossal amount of QE and debt we see today (which are far more indirect ways of influencing unemployment).
Of course, there must be restrictions on when these policies can be used in order to prevent abuse, corruption, and dangerous incentives. Restrictions on timing as well, to safeguard central bank independence from the political process, are also a necessary precursor to such a policy. By offering the possibility of monetary financing in addition to traditional sources of financing as source of growth, there are more options and policy tools to provide liquidity and stimulus in the event of emergency. Some of these tools should be used as a last resort, however they would be incredibly useful in the exceptional monetary conditions much of the world has faced since the late 2000s financial crisis.Using price level targeting, as opposed to a pure inflation target, along with the other new powers we offer, would provide central banks with a potent toolkit to meet its new targets. At the same time, allowing a completely free-floating currency regime without any exchange rate targets, would free the central banks resources to focus on these more important goals, and better allow the economy to adjust to shocks. Finally, by granting the central bank these extra tools, they will not be forced to overuse dangerous levers such as interest rates and quantitative easing, thereby allowing interest rates to be determined more naturally.
The New Physiocrats platform uses tax incentives to ensure long-term thinking in financial markets, so that directors and shareholders are invested in the future of their companies, to compensate the public for high frequency trading methods that most people do not have access to, and to encourage rational decision-making over accidental or emotional market moves. However, the New Physiocrats are also against pure financial transactions taxes. While trying to limit volatility and avoid sudden drops, these taxes instead encourage fewer but much larger, and potentially more catastrophic, market moves. In addition, by limiting financial taxes to profits and capital gains, the entire population can benefit from these returns, especially with the advent of the New Physiocrats proposal for ASP accounts.
This is a financial and monetary plan that seeks to increase safety by creating self-reliant, separated financial institutions, which cannot cause cascading collapse. It creates a wide array of policy options, to diversify solutions in response to unknown future shocks, while not needing to predict them. These strategies replace a whole host of complex regulations, and the loopholes and unexpected outcomes that come with them. It uses the simplest possible solutions, such as significantly increasing capital requirements, a reversal of policies encouraging excessive debt, a separation of commercial and investment banking, and abandoning QE and low rates. With these policies in place, other financial regulations could be scaled back dramatically, corporate financial reporting could be reduced to biannually, and central banks would be empowered with new stimulus options which dont run up private or national debts.