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They are suppose to print money if things are deflating in price. They are printing money when things are going up! Strange.
The Fed has a charge to control inflation and deflation but also one to aid employment.
We’re hashing over the same debates our grandfathers had in the 1930s.
I've been reading posts here from right-wingers for four years and reading in the WSJ for the same amount of time, how QE1, QE2, etc. is going to be disastrous because it will cause hyperinflation and "debase" the value of the dollar. Yet, in these last four years inflation has been mild and the dollar strong. In other words, the conservative view of monetary policy has been decidedly wrong.
To the annoyance of conservatives, Paul Krugman has been 100% correct:
Quote:
One of the themes I’ve hit on many times is the fact that the crisis and slump have been a testing ground for economic doctrines. People came into this mess with very different views about how the economy works, and the crisis in effect provided natural experiments that tested those views.
Most notably, what we got was a test of demand-side versus supply-side stories about the nature of depressions.
Demand-siders like me saw this as very much a slump caused by inadequate spending: thanks largely to the overhang of debt from the bubble years, aggregate demand fell, pushing us into a classic liquidity trap.
...
For if you believed a demand-side story, you would also believe that even a large monetary expansion would have little inflationary effect; if you believed a supply-side story, you would expect lots of inflation from too much money chasing a reduced supply of goods. And indeed, people on the right have been forecasting runaway inflation for years now.
Most practical men, confronted with the prospect of unprecedented deficits in the United States, the UK, and elsewhere, extrapolated from their usual experience, in which increased borrowing drives up interest rates. And so there were widespread predictions of sharp rate rises. Most famously, perhaps, Morgan Stanley predicted in late 2009 that interest rates on 10-year US bonds, then around 3.5 percent, would shoot up to 5.5 percent in 2010; in early 2011 Pimco’s legendary head, Bill Gross – who had correctly predicted low rates in 2010 — predicted a rate spike by the summer. And in each case these views were very widely held.
But economists who knew basic macroeconomic theory – specifically, the IS-LM model, which was John Hicks’s interpretation of John Maynard Keynes, and at least used to be in the toolkit of every practicing macroeconomist – had a very different take. By late 2008 the United States and other advanced nations were up against the zero lower bound; that is, central banks had cut rates as far as they could, yet their economies remained deeply depressed. And under those conditions it was straightforward to see that deficit spending would not, in fact, raise rates, as long as the spending wasn’t enough to bring the economy back near full employment. It wasn’t that economists had a lot of experience with such situations (although Japan had been in a similar position since the mid-1990s). It was, rather, that economists had special tools, in the form of models, that allowed them to make useful analyses and predictions even in conditions very far from normal experience.
And those who knew IS-LM and used it – those who understood what a liquidity trap means – got it right, while those with lots of real-world experience were wrong. Morgan Stanley eventually apologized to its investors, as rates not only stayed low but dropped; so, later, did Gross. As I speak, deficits remain near historic highs – and interest rates remain near historic lows.
Moreover, deflation is BAD, contrary to the silly video. Economist Irving Fisher pointed out long ago (pdf), debtors are likely to be forced to cut their spending when their debt burden rises, while creditors aren’t likely to increase their spending by the same amount. So deflation exerts a depressing effect on spending by raising debt burdens – which, as Fisher also points out, can lead to another kind of vicious circle, in which depressed spending because of rising real debt leads to further deflation.
Also, in a deflationary economy, wages as well as prices often have to fall – and it’s a fact of life that it’s very hard to cut nominal wages — there’s downward nominal wage rigidity. What this means is that in general economies don’t manage to have falling wages unless they also have mass unemployment, so that workers are desperate enough to accept those wage declines.
But you are now saying, MTAtech, prices are rising, so we don't have deflation. Yes, but economic problems get worse as inflation falls, and that too low an inflation rate may actually be economically damaging. That’s why the fact that inflation, while still positive, is below the Fed’s target is bad news; and it’s why respectable people like Olivier Blanchard (pdf) have suggested that a higher target, something like 4 percent inflation, might make sense.
Let us not forget that Romney's chief economic adviser, Harvard's Greg Mankiw said, in the Economic Report to President Bush, that:
"Aggressive monetary policy can reduce the depth of a recession."
The fed is pouring 40 billion a month in MBS. They aren't paying market value either. The homes aren't worth what they first were when these thing were packaged up and sold over and over again. We are printing up money to buy out fake pieces of paper or more likely entries on a spreadsheet to make the banks and the MBS and trusts whole. It's all complete and utter BS.
The Fed has a charge to control inflation and deflation but also one to aid employment.
We’re hashing over the same debates our grandfathers had in the 1930s.
I've been reading posts here from right-wingers for four years and reading in the WSJ for the same amount of time, how QE1, QE2, etc. is going to be disastrous because it will cause hyperinflation and "debase" the value of the dollar. Yet, in these last four years inflation has been mild and the dollar strong. In other words, the conservative view of monetary policy has been decidedly wrong.
To the annoyance of conservatives, Paul Krugman has been 100% correct:
Moreover, deflation is BAD, contrary to the silly video. Economist Irving Fisher pointed out long ago (pdf), debtors are likely to be forced to cut their spending when their debt burden rises, while creditors aren’t likely to increase their spending by the same amount. So deflation exerts a depressing effect on spending by raising debt burdens – which, as Fisher also points out, can lead to another kind of vicious circle, in which depressed spending because of rising real debt leads to further deflation
Inflation usually is countered with higher interest rates.. don't see that.. matter of fact Bernanke says the interest rates will state low till late 2014 ..as food and energy prices rise.. Bernanke has been pushing the date further and further . Money can't grow with low interest for the savers . Can't spend the interest when there is none.
Inflation usually is countered with higher interest rates.. don't see that.. matter of fact Bernanke says the interest rates will state low till late 2014 ..as food and energy prices rise.. Bernanke has been pushing the date further and further . Money can't grow with low interest for the savers . Can't spend the interest when there is none.
We don't need to counter inflation today because inflation is already relatively low.
No wonder your hold the views you do, you read conspiracy crazy talk.
What conspiracy.? I guess the liberal media doesn't want to talk about how bad the country is really doing.. keeping you in the dark... It is reality. it is a housing crisis.. look at trulia.. one city alone, Orlando has 14,000 foreclosures listed today.
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