The former is supporting sovereign fiscal deficits, which may or may not be a good idea depending on circumstances. The latter is bailing out the people who used to hold the ShitpileTM at the expense of the full faith and credit of your currency. I am not sure I can see any possible scenario in which that is a good idea.
- Jake If you only spend 20 minutes of the rest of your life on economics, go spend them here.
... the risk is on the asset side.
If the assets are sovereign debt, they can certainly be used to drain reserves out of the system again should the finance sector (unexpectedly) get back on its feet. It is a straightforward technical operation that central banks worked out long ago.
If the "assets" are notional valuations of chickenshit that could only be sold at a fraction of their book value, and which, indeed, the Central Bank dare not sale in order to avoid pressure to value them closer to market value ... then there is the possibility that normal monetary policy will run down their genuine income generating assets and facing a trade-off between pursuit of monetary policy and sacrifice of policy independence, if they have to go cap in hand to the fiscal authority for funding of the central banking system itself. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
If the "assets" are notional valuations of chickenshit that could only be sold at a fraction of their book value, and which, indeed, the Central Bank dare not sale in order to avoid pressure to value them closer to market value ... then there is the possibility that normal monetary policy will run down their genuine income generating assets and facing a trade-off between pursuit of monetary policy and sacrifice of policy independence, if they have to go cap in hand to the fiscal authority for funding of the central banking system itself.
Just as the damage to the financial sector done by the bubble is realized when the bubble pops, the damage presently being done to the Fed balance sheets during the recession will be realized when the recession passes.
Which could of course be one to four years from now. I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
