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Under certain Keynesian views, Fed policy is mostly irrelevant, and only fiscal policy matters. Or actual printing... which low rates and QE are very different
by nwah1 4y ago
Under certain Keynesian views, Fed policy is mostly irrelevant, and only fiscal policy matters. Or actual printing... which low rates and QE are very different from.
Another view from the neoclassical school has a similar conclusion dubbed the Policy Ineffectiveness Proposition.
But others say Fed policy does matter because in the real world contracts and prices are sticky.
https://en.wikipedia.org/wiki/Policy-ineffectiveness_proposition https://en.wikipedia.org/wiki/Policy-ineffectiveness_proposi...
- Proven 4y ago
- zeusk 4y agoHow is QE or low rates not money printing? Low rates causes higher private lending, borrowing creates money (fractional reserve banking). QE also creates money by Federal Reserve buying Treasury's bonds with printed dollars. Both of these are temporary, but we have had QE and low rates for over a decade now. QE was supposed to be unwound in 2018, but covid pushed it to new peaks.
- deleted 4y ago[deleted]
- nwah1 4y agohttps://www.pragcap.com/bernanke-explains-why-qe2-is-not-money-printing-again/ https://www.pragcap.com/bernanke-explains-why-qe2-is-not-mon...
- adam_arthur 4y agoSuppressing rates via QE multiplies the spending power of a dollar, which has a very similar effect as creating more currency
- nwah1 4y agoWe should consider a lot of this to be zero-sum. Creditworthy demand for loans doesn't magically increase when rates change or the Fed buys bonds. In QE, like with accounting, you debit one side and credit the other. Netting to zero. The effects it all has probably are real in terms of steering where people park their money. And that matters in the long run. But that would mainly amplify whatever underlying incentive structures exist for investment. If you steer people to stocks, and the economy has only ponzi schemes to offer, it might be because they haven't figured out a policy framework that promotes actual production. But you can't magically add production by rewriting the knobs so that they all go to 11. Printing is differently zero sum, but the analogy works there as well.
- adam_arthur 4y agoYou're ignoring refinancing. Cash out refis on homes, businesses and government debt. Somebody doing a cash out refi for 100k to add an extension to their house can certainly be inflationary
- nwah1 4y agoInteresting point. I'm sort of steelmanning the anti-monetary perspective to the best of my limited ability. Partly in hopes of hearing good rebuttals. I will have to think about this.
- JumpCrisscross 4y ago> Creditworthy demand for loans doesn't magically increase when rates change or the Fed buys bonds This is fundamentally untrue. Projects that don’t make economic sense at a high discount rate do at a lower one. This is measurable with mortgages [1], alongside side a host of other cases. [1] https://app.oarklibrary.com/file/2/f047273e-32ba-40f7-9b83-5cfa5d6d94f8/acd592db-07e1-4d6b-abea-b99e3d8b212b.pdf https://app.oarklibrary.com/file/2/f047273e-32ba-40f7-9b83-5...
- nwah1 4y ago
- imtringued 4y agoWhenever people say money printing I don't know what that is supposed to mean. If you mean the government does deficit spending, i.e. spends more than it earns, then yes it indeed does do that, in fact, it even does it to increase inflation but it doesn't change the fact that it is still directly liable for the money it spent via debt, unlike the printing of physical currency. Money and debt is like matter and anti matter. They both emerge from nothing when separated and disappear into nothing when they come into contact.
- 3np 4y ago> How is QE or low rates not money printing? In any case, it is not the case here as private banks and bonds do not exist.