No, no, no you fucking idiots

Dear Liberal Conspiracy,

We need more demand, of course it would be better if money was given to normal people but that isn’t on the cards. It would be better to target a nominal anchor like NGDP or a specific price level, but we have to work within the realms of reality.

QE is a politically feasible way to boost demand, which is flagging and will begin really suffering next year. Attacking Adam Posen, who cares about unemployment and siding with George Osborne, who doesn’t, is always the wrong position.

Yours sincerely,

LO

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6 thoughts on “No, no, no you fucking idiots

  1. I agree – tho I think Posen is stronger on diagnosis than remedy.
    What peeves me about that piece is its lack of proportion. £75bn in a £1500bn economy is too small to have a “Titanic” effect, especially as most of it will simply stay in the financial system, as investors swap gilts for cash.

    1. Macroeconomicwise I’m pretty convinced by Scott Sumner, certainly I think his prescriptions on money make more sense than the conventional wisdom or Austrianism.

      What are your thoughts there? You’ve not touched on Market Monetarism as far as I know.

  2. QE just swaps bonds for reserves. There is no mechanism by which QE can directly boost deposits (bank credit) – which is our money supply.

    So QE does not create money that circulates in the economy.

  3. In the current situation what exacty is wrong with deflation?

    Recession is the natural correction of economic distortion. It involves the writing off of badly invested resources and financial loss to creditors. It involves a shrinking of the money supply to reflect real levels of sustainable and efficient resource usage. The problem with these desperate attempts to stave off the necessary economic correction (“recession”) is that the bad investments and resulting economic distortions remain, while more are encouraged. This only makes the final financial unwinding that much more painful. People and governments cannot defy economic reality any more than they can defy gravity or demand that the laws of physics change.

    There will be a recession and there will be deflation. The only question is when it will happen and how severe the correction will be. Central banks and governments only exacerbate the problem.

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