IDEAS home Printed from https://ideas.repec.org/a/sae/reorpe/v50y2018i4p691-698.html
   My bibliography  Save this article

The New Triffin Dilemma

Author

Listed:
  • Ann E. Davis

Abstract

According to Pozsar, there is a new kind of “Triffin Dilemma.†Due to rising inequality, a shrinking numbers of large banks, and a ceiling on Federal Deposit Insurance Corporation (FDIC) insured deposits, there is a shortage of “safe assets.†The private supply of safe assets has occurred through the system of shadow banks, and is based on repos, or Treasury Bonds. But the supply of US Treasury bonds is limited by the ceiling on public debt, and is constrained by neoliberal theories of limits to the size of government. As a result, there is a presumed shortage of safe assets, just when the levels of inequality have increased the order of magnitude of assets under management which are in need of protection. There are also large accumulations of cash pools by large multinational corporations, often held overseas to evade taxes. The private provision of safe assets tends to reduce liquidity and increase costs of information, potentially leading to financial instability. Possible resolutions of this issue include (1) progressive taxes to reduce the size of the cash pools, (2) an increase in the ceiling for insured deposits, and (3) increasing support by the Fed for the role of “market maker of last resort.†This paper concludes with the implications of each alternative. JEL Classification: B5, E44, G01, P1

Suggested Citation

  • Ann E. Davis, 2018. "The New Triffin Dilemma," Review of Radical Political Economics, Union for Radical Political Economics, vol. 50(4), pages 691-698, December.
    • Handle: RePEc:sae:reorpe:v:50:y:2018:i:4:p:691-698
    DOI: 10.1177/0486613418767613
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/0486613418767613
    Download Restriction: no
    File URL: https://libkey.io/10.1177/0486613418767613?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Arvind Krishnamurthy & Stefan Nagel & Dmitry Orlov, 2014. "Sizing Up Repo," Journal of Finance, American Finance Association, vol. 69(6), pages 2381-2417, December.
    2. William N. Goetzmann, 2016. "Money Changes Everything: How Finance Made Civilization Possible," Economics Books, Princeton University Press, edition 1, number 10662.
    3. Daniel Covitz & Nellie Liang & Gustavo A. Suarez, 2013. "The Evolution of a Financial Crisis: Collapse of the Asset-Backed Commercial Paper Market," Journal of Finance, American Finance Association, vol. 68(3), pages 815-848, June.
    4. Emmanuel Farhi & Jean Tirole, 2018. "Deadly Embrace: Sovereign and Financial Balance Sheets Doom Loops," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 85(3), pages 1781-1823.
    5. Palma, J.G., 2009. "The Revenge of the Market on the Rentiers: Why neo-liberal Reports of the end of history turned out to be premature (Updated 19 December 2011)," Cambridge Working Papers in Economics 0927, Faculty of Economics, University of Cambridge.
    6. Tony Lawson, 2016. "Editor's choice Social positioning and the nature of money," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 40(4), pages 961-996.
    7. John R Searle, 2017. "Money: Ontology and Deception," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 41(5), pages 1453-1470.
    8. Mr. Zoltan Pozsar, 2011. "Institutional Cash Pools and the Triffin Dilemma of the U.S. Banking System," IMF Working Papers 2011/190, International Monetary Fund.
    9. Posner, Richard A., 2010. "The Crisis of Capitalist Democracy," Economics Books, Harvard University Press, number 9780674062191, Spring.
    10. Maurice Obstfeld & Alan M. Taylor, 2017. "International Monetary Relations: Taking Finance Seriously," Journal of Economic Perspectives, American Economic Association, vol. 31(3), pages 3-28, Summer.
    11. Mark S Peacock, 2017. "The ontology of money," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 41(5), pages 1471-1487.
    12. Costas Lapavitsas, 2013. "The financialization of capitalism: 'Profiting without producing'," City, Taylor & Francis Journals, vol. 17(6), pages 792-805, December.
    13. Robin Greenwood & David Scharfstein, 2013. "The Growth of Finance," Journal of Economic Perspectives, American Economic Association, vol. 27(2), pages 3-28, Spring.
    14. Tobias Adrian, 2014. "Financial stability policies for shadow banking," Staff Reports 664, Federal Reserve Bank of New York.
    15. Gary Gorton, 2017. "The History and Economics of Safe Assets," Annual Review of Economics, Annual Reviews, vol. 9(1), pages 547-586, September.
    16. Ann E. Davis, 2015. "The Property Relation," Palgrave Macmillan Books, in: The Evolution of the Property Relation, chapter 0, pages 3-25, Palgrave Macmillan.
    17. Ricardo J. Caballero & Emmanuel Farhi & Pierre-Olivier Gourinchas, 2017. "The Safe Assets Shortage Conundrum," Journal of Economic Perspectives, American Economic Association, vol. 31(3), pages 29-46, Summer.
    18. Simon Deakin, 2017. "Tony Lawson's Theory of the Corporation: Towards a Social Ontology of Law," Working Papers wp491, Centre for Business Research, University of Cambridge.
    19. Simon Deakin, 2017. "Tony Lawson’s Theory of the Corporation: Towards a Social Ontology of Law," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 41(5), pages 1505-1523.
    20. José Gabriel Palma, 2009. "The revenge of the market on the rentiers," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 33(4), pages 829-869, July.
    21. Brine, Kevin R. & Poovey, Mary, 2017. "Finance in America," University of Chicago Press Economics Books, University of Chicago Press, number 9780226502045, December.
    22. Mr. Manmohan Singh & Mr. Zoltan Pozsar, 2011. "The Nonbank-Bank Nexus and the Shadow Banking System," IMF Working Papers 2011/289, International Monetary Fund.
    23. Ann E. Davis, 2015. "The Evolution of the Property Relation," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-137-34656-8.
    24. Brine, Kevin R. & Poovey, Mary, 2017. "Finance in America," University of Chicago Press Economics Books, University of Chicago Press, number 9780226502182, December.
    25. Gary Gorton & Andrew Metrick, 2010. "Regulating the Shadow Banking System," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 41(2 (Fall)), pages 261-312.
    26. Ann E. Davis, 2015. "Property and Paradigms," Palgrave Macmillan Books, in: The Evolution of the Property Relation, chapter 0, pages 27-56, Palgrave Macmillan.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Imko Meyenburg, 2022. "A possibilist justification of the ontology of counterfactuals and forecasted states of economies in economic modelling," Working Papers hal-03751205, HAL.
    2. Phil Faulkner & Stephen Pratten & Jochen Runde, 2017. "Cambridge Social Ontology: Clarification, Development and Deployment," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 41(5), pages 1265-1277.
    3. Tobias Adrian & Nellie Liang, 2018. "Monetary Policy, Financial Conditions, and Financial Stability," International Journal of Central Banking, International Journal of Central Banking, vol. 14(1), pages 73-131, January.
    4. Hanappi, Hardy, 2021. "Complex World Money," MPRA Paper 106285, University Library of Munich, Germany.
    5. He, Zhiguo & Nagel, Stefan & Song, Zhaogang, 2022. "Treasury inconvenience yields during the COVID-19 crisis," Journal of Financial Economics, Elsevier, vol. 143(1), pages 57-79.
    6. Servaas Storm, 2018. "Financialization and Economic Development: A Debate on the Social Efficiency of Modern Finance," Development and Change, International Institute of Social Studies, vol. 49(2), pages 302-329, March.
    7. Hanappi, Hardy, 2020. "Alarm. The evolutionary jump of global political economy needed," MPRA Paper 100482, University Library of Munich, Germany.
    8. Benedikt Ballensiefen & Angelo Ranaldo, 2023. "Safe Asset Carry Trade," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 13(2), pages 223-265.
    9. Carlos Arteta & Mark Carey & Ricardo Correa & Jason Kotter, 2020. "Revenge of the Steamroller: ABCP as a Window on Risk Choices," Review of Finance, European Finance Association, vol. 24(3), pages 497-528.
    10. Andrea Roncella & Ignacio Ferrero, 2020. "A MacIntyrean Perspective on the Collapse of a Money Market Fund," Journal of Business Ethics, Springer, vol. 165(1), pages 29-43, August.
    11. Stijn Claessens & M Ayhan Kose, 2018. "Frontiers of macrofinancial linkages," BIS Papers, Bank for International Settlements, number 95.
    12. A. Mantovi, 2019. "Information insensitivity, collateral flows and the logic of financial stability," Economics Department Working Papers 2019-EP01, Department of Economics, Parma University (Italy).
    13. Ann E. Davis, 2019. "Salvation or Commodification? The Role of Money and Markets in Global Ecological Preservation," Review of Radical Political Economics, Union for Radical Political Economics, vol. 51(4), pages 536-543, December.
    14. Robert M. Rosenswig, 2024. "Understanding money; Or, why social and financial accounting should not be conflated," Economic Anthropology, Wiley Blackwell, vol. 11(1), pages 71-86, January.
    15. Ajit Singh, 2012. "Financial Globalization and Human Development," Journal of Human Development and Capabilities, Taylor & Francis Journals, vol. 13(1), pages 135-151, February.
    16. Paul Pelzl & María Teresa Valderrama, 2019. "Capital regulations and the management of credit commitments during crisis times," DNB Working Papers 661, Netherlands Central Bank, Research Department.
    17. Habib, Maurizio Michael & Stracca, Livio & Venditti, Fabrizio, 2020. "The fundamentals of safe assets," Journal of International Money and Finance, Elsevier, vol. 102(C).
    18. Eckhard Hein & Daniel Detzer, 2015. "Finance-Dominated Capitalism and Income Distribution: A Kaleckian Perspective on the Case of Germany," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 1(2), pages 171-191, July.
    19. Olivier Accominotti & Delio Lucena‐Piquero & Stefano Ugolini, 2021. "The origination and distribution of money market instruments: sterling bills of exchange during the first globalization," Economic History Review, Economic History Society, vol. 74(4), pages 892-921, November.
    20. Eckhard Hein, 2015. "Finance-dominated capitalism and re-distribution of income: a Kaleckian perspective," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 39(3), pages 907-934.

    More about this item

    Keywords

    safe assets; Triffin dilemma; shadow banking; inequality; fiscal policy;
    All these keywords.

    JEL classification:

    • B5 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • P1 - Political Economy and Comparative Economic Systems - - Capitalist Economies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:reorpe:v:50:y:2018:i:4:p:691-698. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: http://www.urpe.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.