However, it seems that some economists are still taking the position that the Fed should do nothing, such as Amity Shales who believes that it is okay for prices to stay where they are or even fall, the Fed should not try to make them rise. The article concludes by saying that this position is incorrect because we are at an incredibly low risk of inflation and the conservatives who are stopping fiscal and to some extent monetary policy are only preventing us from getting back on our feet sooner.
Friday, November 11, 2011
Can the Fed Stimulate Growth or Only Inflation?
This article discusses what the results of current monetary policy will be. It begins by saying that the Fed would like the government to continue to use expansionary fiscal policy, as opposed to the contractionary fiscal policy it seems to be switching to. The article then discusses all the predictions of Republicans that the Fed's actions over the last few years would lead to stagflation, but in fact, we have seen minimal inflation, and deflation is currently a greater fear.
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The Fed has never tried to stimulate the economy of the 99%, they only stimulate the economy of the 1%, who use it to speculate on European bad debt or play the commodities market. How does the Fed know when they have added too much money? How will targeting NGDP create jobs in the US with so many global opportunities to speculate?
ReplyDeleteThe last decade, low interest in the US created inflation in China until the housing bubble broke and lay-offs diminished demand. The only way to stimulate the economy is to have the money enter the system at the LOWEST point. The Fed pours money in at the HIGHEST point. The only remedy is to fix the housing problem, but everyone is against the idea because it keeps borrowing rates low for the 1%. Like the Depression, the problem is not the quantity of money in the system, it is the distribution and the flow as well as the distribution and magnitude of debt. When you do stimulate the consumer, half of that money leaves the country to increase employment elsewhere.
Fiat money requires capital controls.
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ReplyDeleteRight, I agree that the crisis is caused by the housing market initially, but i do not believe that saving the housing market would save today's economy. First, saving the housing market is much harder than what you might think. The mortgages backed securities makes up hundreds of thousands investment products in the country. The default of the mortgages made these investment products lose value. The amount of the money lost is simply larger than anyone has expected.
ReplyDeleteIn addition, the whole economy today, not just the housing market, is in trouble. To save the whole economy, I believe that a lower interest rate is helpful.
This recession is very different from all others...
ReplyDeleteWhen the tech bubble burst more wealth was lost than in this recession...
However one of the fundamental differences was that banks were under the glass-steagel act as such they were not leveraged as much...
after the bubble burst the Glass-Steagel act was repealed and as such this mortgage crisis has affected all these institutions engaging in the credit creation