Bernanke quote revisited


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“Under a paper-money system, a determined government can always generate higher spending and hence positive inflation.”

– Ben Bernanke

It also has to know which buttons to press.
QE and lower interest rates are not the buttons for that job.
The button is the budget deficit, and they seem categorically against pressing it due to deficit myths.

Any continuing shortage of agg demand and high unemployment is entirely self inflicted.


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5 Responses to Bernanke quote revisited

  1. warren mosler says:

    the deficits largely come counter cyclically due to the automatic stabilizers where they act to reverse contractions, so the data has to viewed in that light.

    The proactive deficit was engineered by Bush in 2003, for example, and was followed by a reasonably expansion.

    Reply

  2. The problem is with the fundamental belief: “. . . a determined government can always generate higher spending and hence positive inflation.”

    Since we went off the gold standard in 1971, there has been no relationship between federal deficits — even large deficits — and inflation. [See the graph at http://rodgermmitchell.wordpress.com/2009/09/07/introduction/

    Rodger Malcolm Mitchell

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  3. Raul Groom: I don’t see any reason for thinking that, as you put it, “During any period in which government deficit spending is insufficient to support savings desires, the private sector will dissave..”. The whole problem is that this is exactly what the private sector does NOT do in these circumstances. That is, when households are in “saving mode” they just stay in that mode, with unemployment being the consequence. This is Keynes’s “paradox of thrift”.

    Charles Yaker: “creating jobs over there”. Too right: the latest farcical example of this was Citibank’s £8bn loan to Dubai six weeks after being bailout. It would have made more sense for the government /Fed to have printed £8bn of $20 bills and thrown them out of the window, preferably on a windy day. That would have eased the debts of indebted households and/or boosted demand in the US, and reduced unemployment.

    Reply

  4. Charles Yaker says:

    My MY I guess we are paying for Jobs over there and not here. Do they really think we are that stupid?

    Reply

  5. RaulGroom says:

    Was chewing on this today and had a thought – possibly incorrect, so I thought I’d inquire.

    Is it correct to say that:

    During any period in which government deficit spending is insufficient to support savings desires, the private sector will dissave until either deficits increase or the private sector’s increasing debt burden triggers a finance crisis?

    Reply

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