For most of my life, QE has meant Queen Elizabeth. (An early-childhood thrill was being able to board the Queen Elizabeth I while it was docked at a New York harbor and have the opportunity to look around. This also was an age when trans-Atlantic passenger travel often was conducted on the water because flying still was prohibitively expensive.)
Today, QE2 means "Quantitative Easing, the second round," which is another way of saying the Federal Reserve System is supposed to find a way to convert the massive monetary base in banks into lots of new loans. However, as Paul Krugman and many others have pointed out, with interest rates close to "the zero bound," it does the Fed little or no good to use low interest rates to employ "Monetary Policy." (Krugman does favor devaluation of the US Dollar, as it would raise prices and cut real wages, which, according to Keynesians, would accomplish what the so-called Classical economists held: that unemployment occurs when wages are higher than what the labor market is willing to bear.)
As anyone who has taken a typical course in Macroeconomics, the supposed debate is between "Monetary Policy" and "Fiscal Policy" prescriptions for how government should deal with the economy. The debate between followers of John Maynard Keynes (Keynesians) and followers of Milton Friedman (Monetarists) centers around which kind of policy is effective in situations like the one we face today.
Keynesians say that when interest rates are extremely low, then government needs to take up the slack by borrowing and spending in hopes that the "stimulus" will "prime" the economy and get it moving again, the "traction" argument that Krugman often uses. On the Monetarist side, the Friedmanites say that Keynes was wrong in claiming that "money does not matter," and that the Fed really does have tools to get businesses to borrow once again.
Thus, we see the academic arguments spilling to editorial pages and onto the street, with the assumption that the Monetary Policy -- Fiscal Policy prescriptions take up the entire universe of macroeconomic prescriptions. However, what if there were a "third way" of viewing this matter, one that eschews both arguments?
Neither Keynesians nor Monetarists bring factors of production into the mix and specifically capital. Instead, if they do concentrate on prices, it is prices of final or consumer goods, but even there, the only "prices" that matter are those that are part of the "price indices," or the Consumer Price Index. (True, Friedman did speak out against price controls and he certainly had a better understanding of price theory than does Krugman, but nonetheless the macro arguments from both Keynesians and Monetarists ignore the micro-level system of prices.)
Likewise, both groups tend to view the macro economy as having homogeneous factors of production in which production pretty much automatically happens just as long as there is "enough money" by which to make the requisite transactions that will keep the goods moving. As noted before, they differ on the role of money, but also the nature of economic shocks.
The Keynesians hold that a market economy is internally unstable because individuals have a marginal propensity to save that sets off a cycle of under-consumption/overproduction that drags the economy down to a liquidity trap, which can last indefinitely. The Monetarists, on the other hand, hold that the market economy is stable and that the shocks are external, specifically coming when the monetary authorities at the Fed try to push too much money at one time into the economy. Thus, they argue that the Fed should have monetary growth targets. (Friedman even argued for a Constitutional amendment which instructed the Fed to permit the supply of money to grow about two percent annually.)
So, that supposedly is the crux of the Big Debate. However, as noted earlier, neither Keynesians nor Monetarists are willing to concede the Austrian point that during a boom, capital will be malinvested and the crisis occurs when lines of production are no longer sustainable, given the economic bubble has burst. In order for a recovery to occur, the malinvested capital must be liquidated or transferred to uses that can be profitably sustained. In the Austrian view, factors of production (and especially capital) are heterogeneous, not homogeneous, and that simply adding money or new spending to the mix only will further the malinvestments.
Now, in the current debate, I agree with Krugman and the Keynesians that simply easing loan terms will solve nothing, given that businesses are not going to borrow just for the heck of it. Entrepreneurs (who generally are left out of the macro discussions, since it is hard for these "economists" to find proper mathematical variables to depict them) must see the possibilities for economic profit, and in this current age with the White House spouting out anti-business rhetoric and the New York Times editorializing continuously for criminal prosecutions for "economic crimes," entrepreneurs are seeing the handwriting on the wall.
Furthermore, from what I can tell, Keynesians and the "Progressives" who now hold political power see entrepreneurs as being either evil and greedy or as being "socially useful" when they seek to build enterprises that depend upon government funding. To people like Krugman, production of goods is little more than a technological question that is answered by a production function. I doubt seriously that Krugman would even begin to understand the real role of entrepreneurs, given that I never have read any economic commentary from him that even recognized their existence.
So, in a nutshell, it won't do any good to increase bank reserves, but nor will it do any good for government to launch a massive, bond-fed "spending" program. Yes, some people will be employed and temporarily have money in their pockets, but the larger effects cannot and will not be sustainable.
Thursday, October 28, 2010
Sinking the QE2 and the False Monetary Policy -- Fiscal Policy Divide
Posted by William L. Anderson at 5:33 PM
Labels: Keynesian Economics, Monetarists
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"but the larger effects cannot and will not be sustainable."
But they're not meant to be sustainable. Even AP isn't talking about printing money until hyperinflation occurs. The effects of deficit spending are simply to put money in people's pockets. When they're is a drought, farmers need water. When there is a depression people need liquid equity cash. (It has nothing to do with capital being homogenous bivariate or heterogenous its just the cash Professor As you might guess I'm a monetarist) This can be accomplished two ways. one is the classical Austrian way, by having wages and prices clear to a sustainable equilibrium. If there isn't too much private debt during a bubble this is the best way, as deflation will increase "real" cash balances' But if there is excessive debt, life is made unbelievably cruel by deflation-At least the way bond contracts are constructed, sticky, rigid that don't adjust automatically to a fall in the market value of collateral) Because prices (especially debt are sticky in the short run we need to print money to make life easier for debtors. I know what Bob roddis is going to say. its immoral. Is it immoral to satisfy farmers demands for water during a drought? Like it or not (And I dont like it believe me) the government controls the money supply unfortunately, and it needs to do its job. Money demand wouldn't be a constant variable even in an economy with no legal tender laws ruled by endogenous private market money net cash money. its NOT immoral to alter the terms of an agreement when the terms under which it was constructed no longer apply. (Money doesn't have a constant value)
Now in an ideal world i would agree with the Austrians. Abolish the Fed, abolish legal tender laws, force the government to accept any cash (gold silver, euros, yen, yaun, diamonds coal, ) etc to discharge tax liabilities. Index debt to deflation, especially if the price of the collateral used to secure the debt falls in value. (A borrows money from Bank b to buy a $400,000 home. A recession occurs, the home falls in value too 200,000 dollars. the way debt is constructed now, A is underwater, and thats wrong. A SHOULD OWE JUST $200,000, we need to MAKE SAY"S LAW HAPPEN IN THE SHORT RUN< NOT JUST ASSUME THAT IT DOES PROFESSOR)
“Keynesians nor Monetarists are willing to concede the Austrian point that during a boom, capital will be malinvested and the crisis occurs when lines of production are no longer sustainable, given the economic bubble has burst”
Actually, Keynesians and Monetarists have moved beyond this point. Both Keynes and Friedman recognize a bust must take place to rid of the malinvestment you go on and on about. But what Keynes and Friedman try to address are the remedies to deeper busts, like the balance sheet recession we are living in now. Good or bad, Keynes and Friedman have offered solutions. Austrians? Their solution is mass unemployment and deflation, which in the real world, leads to other issues. Fortunately, no Austrian has or ever will be in charge.
“the White House spouting out anti-business rhetoric “
You really think entreupreneurs give a damn about rhetoric? Entrepreneurs care about sales,and with no demand, there are no sales. Obama has continued the same corporate hand outs and give aways that have been taking place by every administration for decades. You need to spend time in the real world with real entrepreneurs in real markets and you’ll know this rhetoric is just politics, and the usual giveaways and favors are still there. Nothing has changed.
“I doubt seriously that Krugman would even begin to understand the real role of entrepreneurs, given that I never have read any economic commentary from him that even recognized their existence.”
This is a pretty silly criticism. In case you have not noticed, Krugman is a macro economists and writes a macro blog. When he becomes a micro economist and writes a micro blog, then he’ll write about micro issues.
I have never come across essays by you addressing consumer balance sheets? No mention of consumer debt to income? No analysis of bank balance sheets? Nothing written about the inner bank lending markets? What about the difference between reserves and capital? That seems to be confusing for Austrians. Anything that addresses corporate capital structures? Huh, that must mean you just don’t understand balance sheets.
“So, in a nutshell, it won't do any good to increase bank reserves”
Gee, now you sound like me…good job
“nor will it do any good for government to launch a massive, bond-fed "spending" program”
Whoops…the neo liberal in you comes back to haunt. FYI – deficits can be attained by tax cuts, not just spending…
"and that simply adding money or new spending to the mix only will further the malinvestments."
Not if we make sure that people know that the deficit spending is NOT permanent. I know what youre thinking since when has the government ever cut its budget. Um, there was a president two cycles ago, his name was Bill clinton, he presided over a bubble that cut the deficit. WWII is an example. the rationing curbed some inflation, and people didnt think that the spending would last forever. The saings rate during the war was 40% You are neglecting the role of "expectations' professor
So you have given up on the usual Austrian tactic of screaming that QE will cause hyperinflation?? Learned your lesson from the savage beating other Austrians have taken on their hysterical, failed predictions about hyperinflation?
Thus, they argue that the Fed should have monetary growth targets
And when the monetarist attempt to control broad money stock growth rates was tried by Volker in 1979-1982, it was a complete and utter disaster, didn’t work, and was abandoned.
The reason it failed is that broad money stock is endogenous.
Your understanding of Keynesianism is limited and fairly poor.
Krugman isn’t the only type of Keynesian. You would do better to look at Post Keynesianism.
Post Keynesians are well aware that the capital stock is heterogeneous and not perfectly malleable. In fact, the Post Keynesians had a massive debate with the neoclassicals in the 1950s and 1960s called the Cambridge capital controversies, and were arguing precisely that capital goods are not homogenous. They won that debate, but the neoclassicals typically acted like nothing had happened:
Geoffrey Colin Harcourt, The structure of post-Keynesian economics, p. 182
Richard P. F. Holt, Post Keynesian and ecological economics: confronting environmental issues, p. 29
How exciting. A new Austrian critic with no familiarity with any basic Austrian concepts.
As I have said, perhaps we should give up on praxeology because predicting the actions of Austrian critics in never bothering to learn any basic Austrian concepts is almost physics-like, such as predicting the path of a projectile or a chemical reaction.
What’s funny about this post is Prof. Anderson had the opportunity to point out Krugman’s ever changing view on the effectiveness of QE, and that frankly, Krugman does not have a clue about QE.
and Prof. Anderson could have used this post to explain how after 1970, when the US left the gold standard, much of what Friedman had to say was irrelevant since he never moved away from gold standard thinking.
This was a teachable moment. Instead, we get the same gibberish about malinvestment and Krugman does not get capital structure that we always get. Too bad. This was missed opportunity to really show Krugman is in wonderland.
A new Austrian critic with no familiarity with any basic Austrian concepts.
What? That economies move in real time, with fundamental uncertainty, money is not neutral, expectations are subjective and capital is heterogeneous?
If you knew some basic facts about the broader Austrian tradition, say, the work of Gerald P. O’Driscoll and Mario J. Rizzo, then you would know that they have made positive comments about Post Keynesian economics and drawn attention to the common ground:
“[i]t is evident that there is much more common ground between post-Keynesian subjectivism and Austrian subjectivism …. the possibilities for mutually advantageous interchange seem significant.”
O’Driscoll and Rizzo, The Economics of Time and Ignorance (Oxford, UK, 1985, p. 9).
But, like the neoclassicals, Austrians are mistaken in thinking that the money stock is exogenous or that the gross subsitution axiom holds with regard to financial assets and producible commodities.
AP, I don't think Krugman's view on QE has really changed. He just doesn't think it will be effective without a credible inflation target. Also, I think he's implicitly saying that in order to have an effective QE program, the fed will need to buy riskier private assets instead of just t-bills. Late last year he said fiscal policy was second-best after monetary policy, but thinks the fed's conservative nature won't do what's needed.
What? That economies move in real time, with fundamental uncertainty, money is not neutral, expectations are subjective and capital is heterogeneous?
No. It's the failure to address in the real world and in statist economic analysis the role of human beings and their subjective valuations in the determination of prices and how that information system is fatally impaired by money dilution. That is the essence of ABCT analysis. It is never addressed by critics who insist upon picking at various other alleged policy prescriptions which are usually just corollaries of the basic principles and which could possibly be incorrect without impairing the truth of those basic principles.
I note that you have never applied the basic principles to any critique, and here, you have merely cited a book or a paper with no link.
While you mention it, the heterogeneous nature of capital is derived from the fact that it's created by human beings who each value and evaluate it differently. That entire Austrian analysis is also always omitted by the statists because, well, they are statists. People left on their own to pursue their own lives are not good subjects for the Keynesian rat cage.
Again, we find LK's entire "analysis" consisting of finding some disagreement within the Austrian world.
As long as we are citing O'Driscoll:
What Is to Be Done?
After winning the Nobel Prize in Economics in 1974, in the midst of the great inflation of that decade, Hayek (1979: 3) expressed his frustration at what should be done:
I find myself in an unpleasant situation. I had preached for forty years that the time to prevent the coming of a depression is during the boom. During the boom nobody listened to me. Now people again turn to me and ask how we can avoid the consequences of a policy about which I had constantly warned. I must witness the heads of the governments of all the Western industrial countries promising their people that they will stop the inflation and preserve full employment. But I know that they cannot do this. I even fear that attempts to postpone the inevitable crisis by a new inflationary push may temporarily succeed and make the eventual breakdown even worse.
Policymakers “cannot” now keep their promise of full employment, economic growth, and low inflation. The U.S. economy contracted at an estimated annual rate of 6.2 percent in the fourth quarter of 2008, and unemployment was at 7.6 percent in January 2009. Financial markets continue to be roiled. The Fed’s extraordinarily expansive monetary policy is widely expected to fuel inflation in a couple of years. It is fair to say that no legitimate goal of monetary policy is being met.
What absolutely must not be done is to give in to the temptation to inflate our way out of the debt crisis by depreciating the dollar and wiping out creditors wholesale. Yet there are disturbing signs that is direction in which policymakers are headed (O’Driscoll 2008b). If the Treasury and Fed do that, free markets will be euthanized.
"The Fed’s extraordinarily expansive monetary policy is widely expected to fuel inflation in a couple of years"
It has been been close to two years since that was written. Where's the hyperinflation?
And if Hayek were alive, he would be cheerfully clapping his hands for the Fed's well done job of warding off "secondary deflation" and maintaining historically inflation.
>The second situation in which it is true that an increase of employment requires an increase in aggregate demand,” Hayek (1974, p. 5) now maintains, “is found in the later stages of a depression when, in consequence of the appearance of extensive unemployment, the economy frequently is subjected to a cumulative process of contraction of secondary deflation, which may go on for a very long time.” He concludes:
"I am the last to deny – or rather, I am today the last to deny – that, in these circumstances, monetary counteractions, deliberate attempts to maintain the money stream, are appropriate. I probably ought to add a word of explanation: I have to admit that I took a different attitude forty years ago, at the beginning of the Great Depression. At that time I believed that a process of deflation of some short duration might break the rigidity of wages which I thought was incompatible with a functioning economy. Perhaps I should have even then understood that this possibility no longer existed. … I would no longer maintain, as I did in the early ‘30s, that for this reason, and for this reason only, a short period of deflation might be desirable. Today I believe that deflation has no recognizable function whatever, and that there is no justification for supporting or permitting a process of deflation."
historically low** inflation
For Hayek’s recantation:
Hayek, Critical Assessments, p. 253.
AP Lerner said...
"Obama has continued the same corporate hand outs and give aways that have been taking place by every administration for decades. You need to spend time in the real world with real entrepreneurs in real markets and you’ll know this rhetoric is just politics, and the usual giveaways and favors are still there. Nothing has changed."
As one of those entrepreneurs I'd like to correct that fantasy. Here is a new Reason article (and video) on that gives a good example of uncertainty effecting an entrepreneur as this quote illustrates:
Where are the Jobs?
"CEO Joanne Garneau has spent a year waiting for the Federal Trade Commission to announce a new regulation that will determine whether her company hires more employees or even stays in business. It's just one regulation, a tiny one by Washington standards. How will businesses end up being affected by ObamaCare or the 2,300-page financial overhaul? What if taxes go up? Today, like the 1930s, uncertainty reigns."
It turned out that the regulation might put her out of business for no good reason.The same uncertainty surrounds the costs involved with the health bill.
As soon as the financial crisis hit.. angel investors panicked since their stock portfolios went down. Continued uncertainty about the economy on their part is driven by uncertainty about the effects of the health care bill, financial "reform" bill,QE2, potential tax law changes and falling dollar (which may effect their portfolio diversification strategy, e.g. risk funds to emerging countries isntead of local startups, etc).
Unfortunately many of the hand outs you are talking about are favors for big business.. at the expense of small businesses and especially startups. Even when they pretend to do a handout for small businesses.. you need to check the fine print carefully. Regulatory costs are higher for small business.. in some cases much higher. A regulation may appear to hurt a big business but they may like it because it harms small innovative competitors even more.. so on balance its better for them.
The recent small business act promoted a waiver of 100% of capital gains taxes for investments made in small companies up until January 1st, 2011 as long as the stock is held 5 years. At first that
might sound good, but as I'll explain its a handout to big businesses that wish to be protected from startups.
.According to the Kaufman foundation, based on government data, startups create jobs but older companies on net lose them.
(even if some innovative ones keep growing.. sometimes through buying high growth startups).
The first issue with the capital gains waiver is what happens to those who don't mind the terms of the tax break but aren't ready for capital until January 1st.? What do you think will happen to investors on that day? Odds are they will hang around waiting to see if they will get another capital gains tax break and investment will drop off for months while its sorted out one way or another..
In the meantime it'll likely only be a benefit to people who were already prepared to be angel investors. It may speed up some deals and increase their size (at the expense of other deals they might have done after Jan 1st) but likely won't drive more people into angel investing in that short a time.
Next, its the highest growth companies that are more likely to get angel equity investors rather than loans. However the stock has to be held for 5 years. What person in their right mind doing a high tech or innovative company wants to be locked in (by investors) to not selling their company for 5 years? Unfortunately with a shortage of capital some folks will fall into that trap which is what big companies want.
The sort of high growth companies that create disproportionately more jobs tend to need growth capital to expand and grab market share quickly. Large companies have the capital to solve the problem and buy innovative small companies.
If a large company has say 5 large competitors.. they likely realize there may be only 20% chance of being the one to buy a particular innovative company. Its a better bet to prevent the innovative company from being sold for 5 years while they figure out how to compete with it and let the small company be potentially starved of capital.
The other major source of capital is an IPO, but past Sarbanes Oxley regulations have drastically reduced the number of IPOs due to overhead costs and so few dream of that these days as an exit strategy.
oops, I forgot to make the important point that
when investors are uncertain, they don't want to tie up their funds for a long time in a non liquid investment. Investing in a startup.. especially if they know for sure they need to hold the stock for 5 years.. is a longer term commitment. There has been a shifting of angel capital away from initial seed funding of companies that have a business plan but don't have a product on the market yet.. to funding companies that are already on the market. That feels less risky/uncertain to them and shortens the perceived time till they can get their money out again (if they don't fall for the 5 year lockup game for the capital gains benefit).
AP Lerner said... (re: claim Krugman wouldn't understand entrepreneurs):
"This is a pretty silly criticism. In case you have not noticed, Krugman is a macro economists and writes a macro blog. When he becomes a micro economist and writes a micro blog, then he’ll write about micro issues.
Ah, but entrepreneurism has a macro effect since they create most of the jobs. If there are reasons they aren't creating jobs due to uncertainty or whatever then that effects the potential results of any sort of policy action.
They effect the naive assumption that merely inspiring more lending will lead to more jobs.. since it depends on who is doing tbe borrowing. Are lending standards dropped to give at least mom and pop retail type stores that can get bank loans (vs. higher risk capital) getting funding? or e.g. Many dumb but big companies that use cash to buyback stock shares rather than invest in expansion. If they were innovative they would see a use for capital to expand and hire people.
How do you think the nation went from e.g. at one point 40% of the population involved in agriculture down to 2%? New companies started to hire them.
Again, what do you think business people do in a recession? What gets customers to buy more things?
Either creating new products (e.g. the iPad) that people are inspired to buy despite the poor economy, or by improving efficiency and cutting prices to make it more attractive to people to buy.
Unfortunately of course the fed (in part via the dollar drop) drives up commodity and producer prices (up 20% in a year year for raw materials in the last report) and they can't afford to drop prices to bring in more customers. Invisible inflation.. prices that should have dropped e.g. due to a rise in productivity.. didn't. Instead they get squeezed and have less money to hire people, etc.
Even macro economists should understand the simple basics of business,investors and entrepreneurs to be sure they aren't ignoring factors that have macro level impacts. Its a "silly criticism" to complain when someone suggests understanding the role of entrepreneurs is a necessity.
again re: anti-business attitude of the administration..
The financial "reform" act increases uncertainty over what is going to happen in the world of credit cards, since that may have an anti-business effect. Will various restrictions cause tightening of standards?
Unfortunately some startups/small businesses are forced to use them for funding and laws supposedly to "protect people" can damage business.
Pressure to reign in risk and interest rates by itself has already had an impact (companies sometimes yield to political bully pulpits for fear of worse regulations). From a year ago:
The Credit Crunch Continues
" Credit cards are the most common source of liquidity to small businesses, used by 82% as a vital portion of their overall funding. Thus, it is of merit when 79% of small businesses surveyed tell the Small Business Association that credit-card lending standards have tightened drastically and their access to credit lines has decreased materially."
"In case you have not noticed, Krugman is a macro economists and writes a macro blog. When he becomes a micro economist and writes a micro blog, then he’ll write about micro issues"
Micro and Macro issues aren't hermetically sealed. In fact, the line between the two is rather arbitrary. Micro affects macro. Macro without micro is meaningless.
Sorry Entrepreneur, but everything you have written is an excuse why a start up does not get funded, not a reason. Uncertainty exists in an uncertain world and a good idea with a good plan and a good model will not only get funded, it will thrive. This is a great time to be a start up investor since capital is cheap and abundant, costs are low, and valuations very reasonable. There is no credit crunch for good companies with good ideas. If your idea got funded in 2005 and can't get funded today, its' the idea, not uncertainty, that has failed. This is called eliminating the malinvestment. Pizza parlors and law firms not having access to capital is a good thing since too many pizza parlors and law firms were built during the boom. If a business goes away because of the change in one law than its not a business, it's a crapshoot. And healthcare reform is a boom for smart start ups. Taxes are what they are. Blaming tax uncertainty is just another excuse. Here's what taxes will be a year from now: the current lower than ever rates or the 2nd lowest rates ever. People got spoiled during the credit boom and when money was being thrown at everything. Now its back to basics. Real ideas for real plans with real money. It's a great time to be a VC.
Any entrepreneur that is using taxes, healthcare, etc as a reason why their business is failing deserves to fail. That's called eliminating the malinvestment and is a necessary process. If you have a good business or a good idea in the right industry, you should be taking share and raising capital. That's what's happening in the real world. There is so much innovation and VC capital being thrown around these days its amazing.
So small businesses having absolutely no idea how much a new employee will make them liable for in healthcare costs due to an unprecendented healthcare legislation being passed would have nothing to do with them not hiring people? An uncertain world indeed
It occurs to me that the main problem of deflation is that the structure of the banking system doesn't respond to it well. In an inflationary period, the losses banks experience from bad loans can be passed on to depositors by giving them interest rate yields on their savings that are lower than the inflation rate. But in a deflationary period, in order to achieve the same effect the bank would have to start actually reducing the nominal amount of each deposit -- something that would send depositors running for the hills. In the end, banks fail because they are bound to redeem the nominal amount of each deposit, even if the that amount is larger than the market value of all their assets.
More over, most of the reason that people put their money in banks these days is for the ability to move it around safely, not for the interest. This could be done risk free, with no danger of the provider failing, if the services were offered for a fee and the money simply kept instead of being loaned out. But banks are offering these services for "free" in order to entice people to invest, which is basically hiding the costs/risks from the depositors.
This is not a problem of deflation but FRB. As you point out, most people use banks to warehouse demand deposits. Usually, the banks would charge a fee. However, the FED and FDIC enable the banks to lend these demand deposits and earn interest allowing them offer warehousing services for 'free'.
The notion that we should keep expanding the money supply to make this fraud more convenient is laughable.
All the jaw boneing in the world will not shame the banks into making loans.
Look at tiny England and their version of the TARP law, they wrote into their legislation that when the banks accepted English TARP money, they had to make loans.
Neat, efficient, simple and done.
i dont think neat, efficient, and simple in anyway describe what you just said about bailing out failed banks and then forcing them to make loans. That sounds like possibly the worst idea ive ever heard. If your just going to distribute money why give it to the banks? Just rent a helicopter and drop money into the streets, sounds more efficient than funneling it through banks. Try again
in deed, we shouldn't be deliberately causing inflation to perpetuate this flawed system -- though demonizing the FED's specific roll is unnecessary.
Deflation is a necessary corrective measure to punish malinvestment and reward good investment -- and, as such, we should design a system that doesn't break so badly when it needs to happen. That means we need a mechanism to pass losses on to the initial investors.
The key question here is why businesses do not invest more. It is good to read the opinions here of several people. But we need to understand really why the majority of large businesses and small businesses do not invest more. Large businesses seem to be sitting on lots of money. Small businesses seem to be the normal driver for new jobs. Does anyone know a good, politically-unbiased study on why businesses do not invest more? It is all about perception and we need to understand this perception to know the solution.
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