CovenantNews.com

In Defense of Deflation

Doug French / LewRockwell.com:
The Obama stimulus and bailouts haven't decreased unemployment rates or bankruptcy filings while home prices and home sales have fallen and can't get up. PIMCO's Bill Gross told Bloomberg this can all be fixed with nearly zero interest rates and additional debt to stimulate the animal spirits of investors and entrepreneurs. The federal-funds rate has been pegged at 0 to .25% since December 16, 2008, and Uncle Sam's debt is $13.3 trillion and counting. If this hasn't goosed the animal spirits, what will? The failure of central bankers to make things all better again by creating some money and lowering some interest rates has the financial press fretting about deflation and thinking the US economy is turning Japanese. James Bullard, who heads the Federal Reserve Bank of St. Louis, came out with a paper entitled "Seven Faces of 'The Peril'." He concludes that the Federal Open Market Committee's (FOMC's) "extended period language may be increasing the probability of a Japanese-style outcome for the U.S." To avoid that outcome, Bullard argues that the Fed's most important tool is quantitative easing – printing money to buy government debt.

Posted by Editor at August 13, 2010 01:30 AM