Let there be made another trillion dollars in money to buy Treasuries and MBS. Yes we need this to happen. Perhaps not to this level, but quantitative easing has to be conducted with fiat money. The issue is what is the end game on the other side. The Fed has not mentioned what will happen when the economy improves or what are the signs of success or failure. We are trying to create an asset price bubble so using conventional measures of inflation as the policy target will not work. This is what got us into this mess. The focus was on inflation and not on asset prices.
Lenin was certainly right. There is no subtler, no surer means of overturning the existing
basis of society than to debauch the currency. The process engages all the hidden forces
of economic law on the side of destruction, and does it in a manner which not one man
in a million is able to diagnose.
‐John Maynard Keynes
If there was a greater chance for debauching the currency, we are getting closer to that point. The impact of creating asset inflation and perhaps higher overall inflation is to help debtors and negatively impact savers. You reduce the paradox of thrift if you get people to save less which means that you have to make it less attractive. You want people to borrow and spend and go back to the old ways. The government is savings as the stopgap during the transition to more spending by consumers. This is the goal of printing more money and we should not forget it.
Alexander Hamilton said: "to emit an unfunded paper as the sign of value ought not to continue a formal part of the Constitution, nor ever hereafter to be employed; being, in its nature, repugnant with abuses and liable to be made the engine of imposition and fraud."
Back to basics on prudent fiscal policy. Do we need deficit financing? Yes, however we are discussing a matter of magnitude with the CBO stating the deficit will be even bigger than expected.
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