Paul Krugman, The New York Times, March 14, 2008
Four years ago, an academic economist named Ben Bernanke co-authored a technical paper that could have been titled “Things the Federal Reserve Might Try if It’s Desperate” — although that may not have been obvious from its actual title, “Monetary Policy Alternatives at the Zero Bound: An Empirical Investigation.”
Today, the Fed is indeed desperate, and Mr. Bernanke, as its chairman, is putting some of the paper’s suggestions into effect. Unfortunately, however, the Bernanke Fed’s actions — even though they’re unprecedented in their scope — probably won’t be enough to halt the economy’s downward spiral.
And if I’m right about that, there’s another implication: the ugly economics of the financial crisis will soon create some ugly politics, too.
To understand what’s going on, you have to know a bit about how monetary policy usually operates.
The Fed’s economic power rests on the fact that it’s the only institution with the right to add to the “monetary base”: pieces of green paper bearing portraits of dead presidents, plus deposits that private banks hold at the Fed and can convert into green paper at will.
Gee… perhaps it might eventually dawn on the Fed – this great new idea – a non-fiat dollar! Wow!
We had over 100 years of NO inflation and can have it again any time the Fed gets up the courage.
Trouble is, of course, that a non-fiat dollar can’t be printed with wild abandon as is being done now.
Comment by grimgold — March 14, 2008 @ 11:06 am