Yet another Keynesian fool tries to explain how good the results of the Fed are and how printing money simply creates wealth... If that were true, they should just print $1 trillion and hand it to each US citizen. This would put an end the Greater Depression.
May 24 (Bloomberg) -- Federal Reserve Board Vice Chairman Donald Kohn said the U.S. economy may get a $1 trillion boost in coming years from the central bank’s purchases of government and mortgage debt, along with $175 billion in extra tax revenue.
[...] “The preliminary evidence suggests that our program so far has worked,” Kohn, 66, said yesterday in a speech during a panel discussion at a conference on monetary and fiscal policy at Princeton University in New Jersey. He cited reductions in longer-term interest rates.
[My comment: What is the success criteria used?]
The Fed is in the process of buying $300 billion of long- term Treasuries through September, as authorized at the March meeting of the Federal Open Market Committee. Policy makers also at the time more than doubled planned purchases of mortgage- backed securities to $1.25 trillion this year and boosted federal agency debt purchases to $200 billion from $100 billion.[...]
Purchases may increase nominal gross domestic product as much as $1 trillion “over the next several years,” Kohn said in a footnote to his remarks.
Other Fed interventions to aid bond dealers, mutual funds and credit markets also “have been successful in supporting economic growth” by lowering rates and “preventing fire sales of assets,” Kohn said.
[My comment: Most assets are still sold for far less a value than just a year ago, the remaining part of the assets are not sold anymore to avoid the fire sales prices, and are now called illiquid assets and toxic assets. Again, what success criteria is Kohn using?]
Kohn, in his speech, said he’s “very much looking forward to” having the central bank “return to more normal modes of operation” as the economy rebounds.
[My comment: When? Is he seeing the economy rebound? Or just the markets?]
While the purchases expose the Fed and taxpayers to potential losses, Kohn said several considerations make such an outcome unlikely. The Fed won’t need to sell some of the Treasury and agency debt because it will mature, and the central bank can fund the purchases at low cost. Also, the purchases boost the economy and tax receipts, he said.
[My comment: How? Why? The only reason can be that the GDP deflator used to calculate the GDP is deeply biased and undervalues the real rate of inflation]
Still, Kohn said “any calculation of the effect of our asset purchases on the economy is highly uncertain.”
[My comment: So why do them? Is there any chance the impact might be a deeper whole?]
Alan Blinder, a former Fed vice chairman who is a Princeton economics professor, said Kohn’s estimate of the effect on GDP from the mortgage-bond purchases is “believable.”
[My comment: Princeton professors are not better than Harvard ones, if you remember Mankiw's foolish remarks]
Kohn said closer cooperation between the Fed and “fiscal authorities” is an “inevitable aspect of effective policy initiatives to meet our macroeconomic objectives in the current financial and economic crises.” He reiterated that the central bank is working with the Obama administration to seek additional powers for the Fed to tighten credit.
[My comment: So much for the independence of the Fed. The Fed is failing at every level you look...]
Plosser, by contrast, said in a May 21 speech that “when a nation’s treasury or finance ministry and its central bank work too closely together, there is a clear risk that the government’s spending will end up being financed by the central bank’s power to create money and that the public will become confused as to their respective roles.”
[My comment: true]
“History shows us that you can get very bad economic outcomes with rapidly rising inflation,” said Plosser, 60, the Philadelphia Fed’s president since 2006.
[My comment: true]