What debasement would that be? The dollar is at it's highest point in 5 years. And it's going to go higher. You can't even get your sarcasm correct! As it continues to rise, we'll see how that affects the trade balance. The Fed already made a second hand comment about the strength of the dollar.
I wonder how long it will take for a Fed head to accept Modern Monetary Theory, specifically the part about how the banks don't lend reserves. If the Fed had wanted higher inflation, they would have advocated a lowering of the tax burden on the those with a higher marginal propensity to consume rather than all this QE garbage. I still can't believe people are worried about the debt when you can issue your own currency. (If you understand the Children of the Corn movies, you'll understand these people.) I'd guess it'll take 10 years for MMT to show up in the classroom and another 10 years for it to become mainstream.
Yeah, why worry about debt when you can issue your own currency, right? Every single country on this list that defaulted had it's own currency. As for wanting inflation - congress could have just issued everyone a check for $40,000 (the equivalent of all that QE). That would have done it.
I agree in part. Even if our debt is mostly to ourselves (intergenerational transfer), even if it is denominated in our own currency, there can still be too much of it, though opinions differ on how much is too much. If government prints too much to pay a vast number of bond redeemers (assuming the maturity profile is unfavorable), then it's flooding the economy with currency that will be spent, generating inflation. I disagree with the $40k gift idea. People will come to expect it next time there's a slump. Moral hazard, they may start living as if there will be one. Imo it would be better to create phony jobs (if there's no real work to be done) and give those away.
Oh, I wasn't advocating writing everyone a check. But it certainly isn't any worse an idea than QE was. Moral Hazard was created regardless, it's just that banks now expect it.
Very nice reponse Tao. I appreciate it, though I disagree on a number of points, naturally. I am not inclined to go through point by point at the moment, dinner is to be served soon. But let me just address a few of the main points. I totally agree that you don't see inflation, at least partly because of where much, but not all by any means, of the money went. That is to say, where it is resting for the moment, and as you say, that relates to money velocity. But I disagree when you suggest that means trouble down the road. It could , as we both realize. I maintain, however, that the Fed has ample tools to deal with it. Let's just agree to disagree on that. It's just opinions anyway, and we both know what they're worth. I think you should stop calling the QE "printing". It's in accurate. QE is reversible, and intended to be so, printing isn't. You misunderstood when I mentioned securities being temporarily illiquid. I wasn't referring to Treasuries. (I deserve a little credit here; I'm not not a bloody idiot.) I was referring to the securities that the Fed took off the banks' hands that were not Treasuries, but things like CDOs. These where temporarily illiquid, and that's why the Fed took them. Otherwise, by the rules, the Banks would not have been able to meet their reserve requirement. And that was quite unconventional. Normally the Fed wouldn't touch stuff like that. If Bullard "panicked" when the S&P fell 4%, what did he do when it went further to down 10%? Incidentally, do you think we will get a double bottom in the S&P after the election?
BY MMT, are you referring to Friedman's idea that you could control inflation by controlling the money supply directly? If so, that was tried, and it did become mainstream, for awhile at least. But it didn't work as well as he had predicted it would. The Fed then went back to controlling interest rates as a means of controlling inflation.
We have already seen inflation, that's the first point. No, the CPI has maintained an even keel, but many food stuffs are far more expensive in the last 5 years. Some of this, as Ricter likes to point out, is due to things like drought, famine, etc., and he's right. But others are due to cost-push inflation. The reserves at the Fed may, or may not cause inflation. On this we agree. As for QE being reversible, it's only reversible in theory. The Fed won't be able to reverse it any time soon (again, in the next decade) without a systemic shock. They may get this shock anyway, regardless. And double bottom in the S+P, where? This last correction?