QE3? Google it. G finds 6.37 million hits.
Of the first few, the one I like best has Rogoff's name in it. Because R writes of "Fed Asset Purchases" which pretty well defines what QE is. Asset Purchases. Printing money and using it to buy stuff from people who already have money.
That's why QE does not fix the economy. Because the money goes to the people who already have money. For QE to work, money must go to people who don't have money.
The economy is transaction. To fix the economy by printing money, you have to give it to people who don't have money, so that they spend it, creating transactions, creating economic activity.
If you print it and give it to people who already have all the money, they just put the new money with the old money and sit on it. A higher cushion to sit on. Something to fart in. No transactions are created that way.
If you print it and give it to people who don't have money, and those people use it to pay down their debt, then the people who already have all the money get the new money. Like QE, but private-sector debt is reduced in the process. And that's better than what QE has been doing. When debt is low enough, people will spend again.
Robin Hood. 12th century. Took money from the rich. Gave it to the poor. That was in the days we used gold for money. So if you wanted money then, you couldn't just print it. You had to take it.
Now we use paper. We don't even have to take from the rich. We can, if you want, if you think that would be the easy way, if you think everybody would go for it, if Congress would go for it. I think you're wasting your time.
I think printing is easier. That's what they're doing, anyway. Printing, not taking. They're just doing the wrong thing with the money they print, that's all. That's why it doesn't work.
The Fed didn't watch what Robin Hood did with the money once he had it.
3 comments:
We don't even have to take from the rich. We can, if you want, if you think that would be the easy way, if you think everybody would go for it, if Congress would go for it. I think you're wasting your time.
Ah, but we do. I will be not easy -alas, to the point of impossibility, nobody would go for it, most especially the boot-lickers in congress. But any other solution is a waste of time.
The wealth and income disparity, and the rent-seeking that this enables and encourages are what is killing th economy. It is, to a pretty big extend, the direct cause of the debt overhang.
OTOH, I do believe you are right about QEx
Here's Krugman on a related topic.
http://krugman.blogs.nytimes.com/2011/08/15/mmt-again/
Cheers!
JzB
The way I understand QE Is that when the govt deficit spends it borrows by issuing bonds. But with QE the Fed buys the bonds instead. The Fed buys the bonds thru banks because the Fed is not allowed to buy direct.
This is regarded as printing money because normally the process takes money (by bond purchase) out of the economy and then puts it back (by spending).
But QE didn't work because nobody was willing to borrow so the 1.6 trillion Fed bond purchase is just sitting in the banks as reserves.
IMO QE was designed to obscure the fact that no one wants to borrow. The banks would have had to put that money in treasuries anyway. The 1.6 trillion (plus another 0.6 trillion the banks have used to purchase treasuries) would have all gone to treasuries had there been no QE. This is the money that is accumualting in the banks from people not borrowing, saving and paying back debt. Normally when people are willing to borrowing the banks don't hold that much in treasuries.
Jim -- Good summary. It is always useful to go back to the basics of how stuff works.
"...normally the process takes money (by bond purchase) out of the economy and then puts it back (by spending)."
The key thing about this for me is that bond purchases take money that is *in* savings (or money that is *going in* to savings) and put that money back into circulation "by spending" as you say. The process takes sedentary money and makes it circulate. And when money circulates, there is economic activity. You can't have growth without economic activity.
"...QE didn't work because nobody was willing to borrow..."
Yeah. The unwillingness to borrow is a lack of demand for debt. Everybody suddenly decided they had enough debt, they didn't want any more. That is how we got into the deleveraging.
At the Federal Reserve, they want to see the demand for debt growing again. I say the quickest, best, and safest way to get there is to satisfy the urge to delever, ASAP.
Jazz, when my argument gets there, I expect to agree with you on taxes. Meanwhile, the economy cannot afford to wait for a sufficient number of voters to agree with you. Anyway, as I said, they're already printing the money they need to get a recovery going. They're just using it wrong. If you want people to borrow more, but people think they have enough debt already, then the solution is to reduce their debt for them until they start to want *more* debt again.
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