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Tuesday, March 19, 2013

I've got to stop doing this

I have a very high opinion of Matt Yglesias and very much enjoy reading his blog.   I think this post is brilliant.

But I have to learn to skip posts on monetary policy.  I have learned a new rule -- don't read any post with the word "Bernanke" in it.  The latest is a post on what Bernanke can do based on complete indifference to the law.  Yglesias proposes that Bernanke print up a bunch of dollars and give them to Cyprus.  Why pick on Bernanke ? I propose that Yglesias print up a bunch of dollars and give them to Cyprus.  It would be just as legal for him to do it as for Bernanke to do it.

His post.

My comment.

I think I finally understand why you are convinced that the Fed can save the US economy.  You have decided to ignore the Federal Reserve Act and have decided that US monies may be disbursed without regard for the law (that is you have decided to ignore the consitution too).

The policy you describe would be an impeachable offense.  It would be a felony called misappropriation of funds.  Dollars do not belong to Bernanke and he can't give them away.  The Fed can loan to depositary institutions, it can buy US government issued securities and, during a financial crisis, it can loan to entities other than depositary institutions.  It Can Not give.

I should have guessed from all of your references to "helicopter Ben" that you actually believe that a helicopter drop of money would be legal.  Nope.  Bernanke has no more legal right to just print up money and give it away than you do.

If he tried it, Ron Paul would sue claiming to be harmed because his dollars were diluted.  And he would win, because the law is clear and anyone who owns a dollar has standing.

For years we have been arguing about whether monetary policy can do it or whether fiscal policy is needed.  I finally understand that your view is that giving money away is monetary policy.  The key difference is that a shift in fiscal policy requires Congressional assent and can be blocked by Republicans in Congress.  A helicopter drop of money is a combined monetary policy (it expands the high powered money supply not that this matters at all at the moment) and fiscal policy (it increases Federal Government liabilities without increasing Federal Government assets creating the illusion of wealth which is just what we need right now).


Ken Rhodes said...

Hmmm...the total needed is around 5 Billion Euros?

Yes, it's not possible for the U.S. govt to give them a gift. But that number is so small that ten huge multinational banks could get together and pony it up out of petty cash.

And if any stockholder objected, my reponse would be "What the heck did you think was the alternative? Let the whole European economy take a huge hit? Consider it as an "advertising" expense, but with a MUCH higher return on our money."

chrismealy said...

When somebody is good on everything except thing you know about, they're probably not good on anything.

Robert said...

Chris I thought you were a fan (actually my only fan). I know about lots of things other than monetary policy. In fact, as an economist, I decided to focus on everything but money and banking (really). Monetary policy is one of my many areas of relative non expertise

Good proposal Ken. That would work so long as bankers have any ability to work together in their common interests without trying to screw each other (that is when hell freezes over).

Of course they do manage to lobby congress together. My modified plan set up a "screw the poor" superduperpac, raise the $5 B, then send it to Cyprus.

One thing, the US government can send money to Cyprus, but that would have to be approved by the US Congress part of the US government so the cash can get there when hell freezes over. The executive branch can't just send money.

chrismealy said...

I was talking about Yglesias! I am still your fan. I think Yglesias is like The Economist. If you know about economics, he seems smart except about economics. If you know about urban/transportation policy, he seems smart except that. I think he used to be more fun too. I think he's been in a rut for a while now.

Robert said...

I agree he used to be much more fun and is in a relative rut (only compared to Yglesias in the past).

But I think his commentary on economics is generally brilliant. I disagree with what he writes on monetary policy in a liquidity trap. Really just one single solitary question. But he keeps writing about it.