Writing in today’s Washington Post,
former Obama economist Larry Summers put forth the strange hypothesis
that more red ink would improve the federal government’s long-run fiscal
position.
This sounds like an excuse for more Keynesian spending as part of another so-called stimulus plan, but Summers claims to have a much more modest goal of prudent financial management.
And if we assume there’s no hidden agenda, what he’s proposing isn’t unreasonable.
But before floating his idea, Summers starts with some skepticism about more easy-money policy from the Fed.
Maybe it’s possible to push interest rates even lower, but it certainly doesn’t seem like there’s any evidence showing that the economy is being held back because today’s interest rates are too high.
Read more: http://finance.townhall.com/columnists/danieljmitchell/2012/06/06/obama_economist_solution_borrow_more_money
And if we assume there’s no hidden agenda, what he’s proposing isn’t unreasonable.
But before floating his idea, Summers starts with some skepticism about more easy-money policy from the Fed.
Many in the United States and Europe are arguing for further quantitative easing to bring down longer-term interest rates. …However, one has to wonder how much investment businesses are unwilling to undertake at extraordinarily low interest rates that they would be willing to undertake with rates reduced by yet another 25 or 50 basis points. It is also worth querying the quality of projects that businesses judge unprofitable at a -60 basis point real interest rate but choose to undertake at a still more negative rate. There is also the question of whether extremely low, safe, real interest rates promote bubbles of various kinds.This is intuitively appealing. I try to stay away from monetary policy issues, but whenever I get sucked into a discussion with an advocate of easy money/quantitative easing, I always ask for a common-sense explanation of how dumping more liquidity into the economy is going to help.
Maybe it’s possible to push interest rates even lower, but it certainly doesn’t seem like there’s any evidence showing that the economy is being held back because today’s interest rates are too high.
Read more: http://finance.townhall.com/columnists/danieljmitchell/2012/06/06/obama_economist_solution_borrow_more_money
1 comment:
The problem, of course, is that when government borrows, it squanders the money. It is the most inefficient manager of funds and programs. Social security was a trust fund...but the fund was spent and replaced with IOU's. Medicare/medicaid are busted and riddled with massive fraud. The Post Office is back at the trough, again. We're still owed tens of billion by the 'bailed out' automakers. We're pouring money into so-called 'green' programs that are abject failures and money losers. The list of government mismanagement and waste is endless. Giving more money to the government is akin to giving an installment payday loan online to your unemployed drug addict cousin. The private sector is far more efficient at utilizing capital to create economic activity, jobs and actual GDP growth.
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