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The Fed's alleged inflation target is 3%, though they are chronically unable to even come close since 2008. And, arguably, the most serious threat to the world economy is deflation. If the USA experienced even 4% wage push inflation for two years that would not likely exceed the difference between the alleged 3% Fed goal and the actuality of the annual inflation rates since 2008. 4% inflation for five years would start to whittle down the debt/GDP ratio about which conservatives obsess. It could also pull the world back from the threat of a debt-deflation death spiral. Having the USA again be an engine of world economic growth would be a good thing!

"It is not necessary to have hope in order to persevere."
by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Sep 4th, 2015 at 08:38:32 PM EST
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When interest rates are close to their functional floor, there is not a lot that the Fed on its own can do to inflate the economy. Paralyzed fiscal policy from a paralyzed Federal Government seems likely to ensure that the sluggish growth will continue until the US has a damp squib of a recession.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.
by BruceMcF (agila61 at netscape dot net) on Tue Sep 8th, 2015 at 02:04:08 AM EST
[ Parent ]
Agreed. It is what an administration could do that interests me. Treassury doesn't issue bonds in order to pay Social Security obligations. It issues checks directly to the accounts of recipients. (I know -there is an SS Trust Fund.) So the mechanism is there. The administration could find ways to increase benefits and use that to inject additional benefits. The big obstacle is the widely but erroneously held notion that federal expenditures must be funded.

In 2017 a Sanders administration could revisit the 'Trillion dollar coin' idea or employ many other mechanisms to increase economic activity. A National Infrastructure Bond Authority could issue 2% bonds that Treasury could purchase with money freshly created by the Fed. The proceeds from these bonds could be used to pay for the infrastructure. Taxes on uses of the infrastructure so created could be used to retire the bonds. This should work for infrastructure to electrify the rail network, to generate renewable energy, etc. Those proceeds could be put into a perpetual trust to finance needed expenditures that do not offer such an immediate payback - such as child care, assistance to the elderly, etc. Sort of like a very limited form of a nationally chartered bank.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Tue Sep 8th, 2015 at 01:55:20 PM EST
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