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Old 12-28-2011, 01:20 AM
Don Zeko Don Zeko is offline
Join Date: Oct 2009
Location: Exiled to South Jersey
Posts: 2,436
Default Re: Katherine's pants are on fire

Originally Posted by badhatharry View Post
Well, I'm glad I was able to spot the difference between fiscal and monetary stimulus. And certainly one should be distinguished from the other but doesn't the Treasury borrow from the Fed to finance the debt? And who will be paying that back? Aren't the taxpayers the borrowers in this case? So you're definitions aren't quite so black and white.
Would you care to explain to me how, exactly, the government borrowing from itself instead of borrowing from others increases the future burden on the taxpayer? This isn't that complicated. When the government is running a deficit, it sells bonds in order to make up that difference. If it sells them to the Fed, then it has to service and repay that debt, and if it sells them to other parties it has to service and repay that debt as well. This has nothing to do with quantitative easing. When the fed thinks that the money supply is too small, it prints money and uses it to buy US securities, and when it thinks that the money supply is too large it sells those securities that it is holding. You can run a deficit without the Fed buying treasuries and vice versa. The Fed doesn't put money into or take money out of the treasury with open market operations or with quantitative easing.

Originally Posted by badhatharry View Post
But other than that, this monetary stimulus sounds like a win-win. Make money out of thin air, juice the economy and have someone else pay for it! No down-side at all.
When you're in Depression monetary conditions, then yes, that's exactly right. The problem here is that the money supply is too small because of changes in how private businesses and citizens are borrowing and lending, so there isn't enough money in circulation to allow the economy to function efficiently. As a result, we have productive resources sitting idle. When human failures prevent us from maintaining an adequate money supply, then those free market shibboleths about free lunches don't apply.

Originally Posted by badhatharry View Post
However, as someone quite revered once said:

So, according to this guy, in apparently lots of ways, the taxpayer does end up eventually paying for monetary expansion.
Badhat, if you don't understand that monetary policy should change in response to the situation in which we find ourselves, then I can't make you. Certainly those bad consequences Keynes describes occur in countries whose currencies are actually being debased, like Weimar Germany or the Confederacy in 1864. But we are not them, and Keynes well knew that any deflation at all can be just as ruinous as runaway inflation. And today, we don't have a debased currency.We have a core inflation rate of 2.15%, along with persistent high unemployment and a huge private debt overhang. If you look at these facts and start screaming about Weimar and debased currencies, that means you aren't willing to see what's in front of your eyes.
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