{"id":936,"date":"2011-02-02T11:32:19","date_gmt":"2011-02-02T16:32:19","guid":{"rendered":"http:\/\/www.multiplier-effect.org\/?p=936"},"modified":"2011-02-10T10:31:12","modified_gmt":"2011-02-10T15:31:12","slug":"a-new-peek-at-the-secrets-of-the-fed","status":"publish","type":"post","link":"https:\/\/blogs.bard.edu\/multiplier-effect\/a-new-peek-at-the-secrets-of-the-fed\/","title":{"rendered":"A New Peek at the Secrets of the Fed?"},"content":{"rendered":"

In December,\u00a0the Levy Institute issued a working paper that\u00a0asked\u00a0how the\u00a0economy\u00a0might\u00a0be affected by the seemingly unusual fiscal and monetary policies implemented by the Fed and other central banks\u00a0since\u00a02008.\u00a0The authors, Dimitri\u00a0Papadimitriou and I,\u00a0used a\u00a0phrase that is not often spoken in this era by governments and central banks\u00a0around the world: “monetizing the deficit.” This phrase traditionally describes the practice of financing a government deficit with money that is “printed” rather than borrowed or raised by taxation. We feel perhaps a little more comfortable\u00a0with our\u00a0use\u00a0of these words\u00a0in light of a recent blog entry<\/a> on\u00a0the Financial Times<\/em> website Alphaville. The blog reports that the Fed has come close to\u00a0running out of securities to buy\u00a0in the markets for certain types of government bonds, having bought so many of them already. Hence, it is increasingly resorting to the purchase of recently issued bonds and notes, which it\u00a0had apparently sought to avoid. This development makes the\u00a0link between deficit spending and monetary policy\u00a0initiatives such as the\u00a0current round of “quantitative easing” in a monetary system like ours easier to grasp. If the Fed buys a Treasury security\u00a0almost immediately\u00a0after it is issued, there is\u00a0less\u00a0reason than ever to think of the\u00a0financing process\u00a0as\u00a0anything other than\u00a0the use of the Federal Reserve’s\u00a0“printing press” to pay for\u00a0government operations–an essential use of “monetization” to stimulate the economy and avoid\u00a0drastic\u00a0fiscal measures during a time of weak tax revenues. Some worry still, but this practice\u00a0has been used\u00a0many times\u00a0by numerous governments around the world\u00a0and\u00a0seems unusual\u00a0only in light of\u00a0common but\u00a0unrealistic\u00a0beliefs about\u00a0monetary systems and how\u00a0they normally work. Hence, those in\u00a0Congress should not\u00a0give credence to\u00a0arguments\u00a0that it is necessary to eliminate entire government\u00a0programs or freeze\u00a0major parts of the federal\u00a0budget\u00a0in order to restore\u00a0some fanciful state of budgetary normalcy.<\/p>\n

February 10 addendum on recent news: A short and interesting article on the implementation of quantitative easing policies<\/a> was posted very recently on the New York Fed’s website. The article mentions changes in the composition of the Fed’s asset purchases, including the recent increase in purchases of newer issues that was reported in the Alphaville blog entry<\/a> linked to above.\u00a0 On the other hand, the new piece, based on a speech by a Fed official, finds no evidence that the Fed’s purchases have caused “significant market strains.” The article covers some other important issues associated with the recent policy actions involving long-maturity securities and might be interesting to people wanting detailed information about these topics.<\/p>\n","protected":false},"excerpt":{"rendered":"

In December,\u00a0the Levy Institute issued a working paper that\u00a0asked\u00a0how the\u00a0economy\u00a0might\u00a0be affected by the seemingly unusual fiscal and monetary policies implemented by the Fed and other central banks\u00a0since\u00a02008.\u00a0The authors, Dimitri\u00a0Papadimitriou and I,\u00a0used a\u00a0phrase that is not often spoken in this era by governments and central banks\u00a0around the world: “monetizing the deficit.” This phrase traditionally describes the […]<\/p>\n","protected":false},"author":193,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[4,49,40],"tags":[106,107,88],"class_list":["post-936","post","type-post","status-publish","format-standard","hentry","category-economic-policy","category-fiscal-policy","category-monetary-policy","tag-federal-budget","tag-monetizing-government-debt","tag-qeii"],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts\/936","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/users\/193"}],"replies":[{"embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/comments?post=936"}],"version-history":[{"count":15,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts\/936\/revisions"}],"predecessor-version":[{"id":950,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/posts\/936\/revisions\/950"}],"wp:attachment":[{"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/media?parent=936"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/categories?post=936"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blogs.bard.edu\/multiplier-effect\/wp-json\/wp\/v2\/tags?post=936"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}