Comment by stymaar
17 hours ago
QE without public debt sterilization is going to appear as the costliest macroeconomic mistake of the early 21st century.
17 hours ago
QE without public debt sterilization is going to appear as the costliest macroeconomic mistake of the early 21st century.
Disagree, fairly strongly. In 2008, four trillion dollars evaporated. In order to keep the economy from completely crashing, the Fed created $4T using QE and such tricks. The result was 15 years of flat. No inflation for 15 years. If inflation shows up a decade and a half later, that probably wasn't the fault of how QE was done.
You're getting my point wrong:
- I absolutely agree that inflation has nothing at all to do with QE, people who claimed that are just idiots who have a gold fetish.
- the problem I'm talking about is the fact that central banks didn't use QE as an opportunity to erase the public debt it bought. At the time it wouldn't have been an issue in any way. But now because inflation is back (due to oil) central banks cannot buy government bonds when they reach maturity and have to raise rates. Then the government bonds have become very expensive, and it has to be paid to the private sector on the market, so whenever a US govt security reaches maturity, the budget constraint increases. Sterilization of the debt would have alleviated this issue a lot at no cost.
Also, we should have taken the lessons of the era and raise the inflation target to 4%[1] at that time (it was definitely politically achievable then, now not so much).
[1]: https://www.imf.org/en/publications/wp/issues/2016/12/31/the...
I see. Well, what you propose might have the minor problem of being illegal for the Fed to do. I'm not perfectly sure (and I don't want to take the time to research this rabbit hole right now), but the Fed is deliberately different from the Treasury. It's not supposed to fund the government by creating money.
At a minimum, doing so would have created doubts about the future of the dollar. (Because countries that start having the central bank create money to fund the government often wind up in runaway inflation, with the currency becoming worthless.)
As to a 4% target: Given that they were stuck at 0% for the next decade (and tried, and failed, to get up to 2%), why would they move the target to 4%? They already couldn't do what they said, why double their failure?