Monday, January 18, 2010

Arguments for Easy Money

We're repeating the mistakes of 1930
By Jay R. Feuerstein
October 18, 2009

This article makes a case for deficit spending and continued efforts by the FED to increase the money supply.

What was the mistakes of the 1930s? According to the article, it was the Fed reducing liquidity and raising interest rates under Hoover along with the passage of protectionist legislation.

Ineffectual steps being taken by the FED to increase the money supply:

1) "Quantitative Easing Policy" - Exchanging bad assets on the banks books with Treasuries. Unfortunately banks are hording the liquidity generated as reserves.
2) Direct Injection of Money into the System. Measures of monetary velocity indicate that consumers are saving rather than spending this money.

Possible US Govt actions that could hurt the economy:
1) The Democrats are beholden to unions and are promoting protectionist policies.
2) The Democrats are likely going to raise taxes.

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