Two Questions for the Signers of the Open Letter to the Fed

Let’s suppose you are right:

Let’s suppose that the $600 billion of new cash the Fed proposes to inject over the next months will do what the 4x greater infusion of cash over the past two years has failed to do – i.e., generate inflation.

Question 1:

Why is that bad? The U.S. economy is crushed under a huge load of household debt. Inflation accomplishes a gradual, partial, across-the-board debt reduction. Isn’t that just what the doctor ordered? Why shouldn’t creditors bear some of the costs of adjustment? Why must the whole burden be absorbed by the unemployed and those firms that sell the goods once purchased by the unemployed?

Question 2:

If not monetary stimulus, then what? Spending-side fiscal stimulus is finished, that seems agreed by all. The best tax news we can hope for is a continuation of the same tax-side fiscal stimulus that has been in place since 2001 and 2003. A renewal of the tax cuts seems unlikely to cure a recession that those same tax cuts failed to prevent.

So what’s the answer? Ride this thing out? Wait for the economy to blot up the unemployed at a rate of 160,000 net new hires a month? Even if that number were all it’s represented to be (and it’s not – see post below), we’re looking at more than half a decade before we return to full employment.

Cut government spending in hopes that a balanced federal budget will generate full employment? Even if that were likely to work, the big Republican idea for balancing the budget – the Ryan roadmap – does not begin to generate serious deficit reduction until 2040.

(See charts here by open letter signatory John Taylor.)

So if monetary stimulus is out, what’s in?

I fully recognize the weakness of the Washington syllogism,

“We must do something. This is something. Let’s do this.”

But surely that syllogism is an improvement over,

“We must do something. We ain’t got nothing. So nothing it is.”

This entry passed through the Full-Text RSS service — if this is your content and you're reading it on someone else's site, please read our FAQ page at fivefilters.org/content-only/faq.php
Five Filters featured article: Beyond Hiroshima - The Non-Reporting of Falluja's Cancer Catastrophe.

View the original article here