@ErrataRob Money printing and inflation led to Zimbabwe needing super large bank note denomintion for utility. The U.S. is similarly printing a lot of money, and arguably we already needed notes large $100 to be useful, but there is systemic resistance. Where does this lead?
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Replying to @jeremiahg
Unknown territory. The seeds of the next financial crisis are being planted now in our response to the current financial crisis. In hindsight, it'll be obvious in the future what mistakes we are making now.
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Replying to @ErrataRob @jeremiahg
All of this story ignores the role of the central bank to retract money supply via banks. Nominal extension !== currency in circulation, ergo not inflation per sae.
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Remember all the (absolutely incorrect) "but inflation!!?!!" takes post great recession? Same deal.
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Further, Zimbabwe was not issuing a reserve currency. The rules are different in that situation. Easy tell: tbill coupon rate.
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The essential difference here is (the perception of) prudence. Zimbabwe got itself into trouble by doubling down on policy that had the (predicted and) predictable effect of destroying economic output. Diametrically opposed to situation where you're issuing to *support* output.
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We can disagree about the likelihood of prudent us govt policy in a recovery -- R behavior '09-now is *not* inspiring; see sequester, debt default, etc. -- but market signals that it trusts policy will be prudent...which is what you need to make expansion low-cost in short run.
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This is a leveraged bet: the govt is saying "we think we can outrun the cost of borrowing w/ growth". The terms of 10 and 30 year borrowing suggest participants (including foreign govts) agree this is prudent.
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So, could Fed inflate another bubble? Won't be the first time. Could Congress continue to mess up recoveries by not challenging rate setters to overshoot (not just undershoot) targets? Sure. Could Republicans continue fiscal-performance-art antics? They surely will.
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The extent to which that melts down society seems, to me, to be much more tied to the fortunes of the folks suffering most rather than anything to do with short-run Fed market interventions (all of which can be retracted w/ understood mechanisms).
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...and it is in the interest of those folks that the interventions are (ham fistedly) taking place. Fingers crossed it works better than last time, but the trajectory and instinct aren't clearly wrong.
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