Really. Because those markets have done SUCH a wonderful job not undermining the whole world. And the leaders of these industries have made it abundantly clear that they would cast the Earth into eternal fiscal chaos if it meant boosting the next second’s earnings by a penny. If it’s their job to supply the world with capital, they’ve done a terrible job of it.

There’s no point in keeping interest rates at zero or inflation at 2%. The only people that benefit from zero interest rates are lenders, and the only people that benefit from low inflation are banks. But this is to be expected, since the banker aristocracy runs everything.

And why the obsession with making a market where people can take on MORE debt? Debt means average pay is not meeting the cost of living. It’s fueled the last three bubbles, and given us the illusion that we can live like decadent demigods in the North Atlantic sphere. The fact that the Fed’s (or Congress’ for that matter) policies aren’t reflecting a need to reduce the risk of another debt bubble through stimulating demand and using the immense power of fiduciary diversification the Fed has to pop the liquidity traps and get that money flowing into the hands of those whose hands build our world, that they are content with a reserve army of unemployed, a finance-fueled plutarchy, subsistence wages and an increasingly anti-competitive and oligopolistic market in every industry thanks to endless mergers and billion-dollar political graft being legalized.

Burn the Fed down!

But maybe it should be allowed to happen, and in happening accelerate the collapse of the system and of routine life in the US. Perhaps it has to happen to inspire the depth of change that needs to be made. After all, one can’t “pick up the pieces” until the object is first reduced to pieces. It’s a painful thing to contemplate, but -

Aren’t we past the point of trying to keep the system from disintegrating?

I mentioned the Swiss national bank to show that, even when your currency has extremely strong pressure to remain overvalued, a central bank has no real limit to depreciate their currency if they so choose.

In the case of the US, NGDP targeting does rely somewhat on the “money multiplier.” In simpler terms, it relies on the money printed actually being spent. The argument goes that both Japan and the US printed mountains of money in their crises but that money was not spent.

That is where the “expectations trap” comes in. If a central bank signals that they will tighten at the first sign of inflation and growth, then the market will rationally not spend or invest the new money.

However, the solution to expectations is not to use fiscal policy as an imperfect, distortionary way of moving existing savings to government spending. It is far better to actually change central bank attitudes to monetary policy at the zero lower bound.

For example, the Fed is nowhere near out of ammunition even if they do never resort to buying anything outside of Treasuries or agencies. For whatever asinine reason, they are paying 0.25% interest to people to not spend the money they printed. With the interest rate on excess reserves back at zero and with every last risk-free, government-guaranteed bond purchased, then the risk-free rate going out to 30 years becomes zero. Mortgage rates would go down to 1-2%. Even at that point, the Fed can still charge a penalty rate on excess reserves to further encourage the new money to be spent.

This is all very extraordinary, but its not like the trillions of dollars in necessary fiscal stimulus is not also extraordinary. If the central bank and congress could just sit on their laurels to raise AD, then it would have been done already.

On the other side, Salmon and Atrios are in good company with Joseph Gagnon, a former Fed insider now at the Peterson Institute for International Economics.

Quoting Gagnon (from the above link): “Research I am doing suggests that it would be much more attractive for the Fed to buy a broad basket of U.S. equities to support the stock market than to try to push down bond yields from these already low levels. Sadly, the Fed is not authorized to buy equities, even though other central banks are allowed to do so…”.

So apparently even some of the folks at the small government Peterson Institute want the government to “support the stock market”. The mind reels…

And the potential for political malfeasance (an administration directing the Fed to buy stocks in order to boost its popularity) is high.

Anyone else find their way here from Atrios’s link? I’m afraid this is another example of the stupidity of Atrios’s expressed desired that the Fed should do more. Here Atrios seems to be endorsing a proposal to have the Fed give more “free money” (Atrios’s favorite phrase) to the owners of large corporations.

Atrios is on the right track generally with his economic commentary, but would benefit by a full embrace of MMT, in my opinion…

However, this seems like a terrible idea to me. Do we really want the government to give more money to the owners of capital while doing nothing for labor? Is this a good precedent to set? Would it result in wild asset price rises?

@mwwaters – How does the Swiss situation show anything about stimulating demand? Switzerland is currently experiencing deflation. Separately, the SNB having to buy massive foreign exchange to maintain the currency floor is a sign of weakness regarding the expectations channel. NGDP Targeting relies on the idea of the money multiplier, which simply doesn’t exist . Lastly, one other form of inflation is cost-push, but that requires incorporating credit into macro models.

He also knows that when the impending economic calamity finally strikes, anxious Americans must see the Fed confidently take some kind of drastic action… effective or not.

Until meaningful short-term stimulus and long-term austerity measures are taken, the Fed will make sure Congress feels our pain.

I’m embarrassed by our Congress. The President is doing exactly what post-Depression economic theory says he should do and Congress is stopping him.

Before rates hit zero, the Fed did have a big effect on unemployment through rates. Look at the early 80′s to see the effect of monetary policy to create lower unemployment.

Higher inflation does not cause consumption but the other way around. Barring a supply-side productivity issue, inflation mainly because demand goes up. Prices do not depend directly on money supply, but instead prices and wages go up when that money is spent. If the new money is not spent, then inflation does not happen.

Is it possible that the new money being spent only leads to inflation? Theoretically, that is possible and that is what happened in the 70′s. More demand led directly to inflation. However, if there is a lot of slack in a sector, then more demand goes to higher employment, not higher wages.