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Forum Post: The "Unintended Consequences" Of Ultra Easy Monetary Policy From... The FED!!?!

Posted 11 years ago on Aug. 27, 2012, 7:56 p.m. EST by kaiserw (211)
This content is user submitted and not an official statement

The case for ultra easy monetary policies has been well enough made to convince the central banks of most Advanced Economies to follow such polices. They have succeeded thus far in avoiding a collapse of both the global economy and the financial system that supports it. Nevertheless, it is argued in this stunningly accurate paper via none other than the Dallas Fed (and BIS economist William White), that the capacity of such policies to stimulate “strong, sustainable and balanced growth” in the global economy is limited. Moreover, ultra easy monetary policies have a wide variety of undesirable medium term effects - the unintended consequences:

They create malinvestments in the real economy

threaten the health of financial institutions and the functioning of financial markets

constrain the “independent“ pursuit of price stability by central banks

encourage governments to refrain from confronting sovereign debt problems in a timely way

and redistribute income and wealth in a highly regressive fashion.

While each medium term effect on its own might be questioned, considered all together they support strongly the proposition that aggressive monetary easing in economic downturns is not “a free lunch”. Absolute must read!

As we noted earlier:

Hopefully instead of setting up his own irrelevant strawmen, and then knocking them down with a Fed-dictated script, [WSJ's Jon] Hilsenrath, and his profound financial journalist experience, can at least pretend to tackle the questions noted above...

...well he won't. So luckily the Dallas Fed will do it for him...

Dallas Fed QE http://www.scribd.com/doc/104109398/Dallas-Fed-QE




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[-] 1 points by jesicaaniston (1) 11 years ago

Government policies like monetary policy and the Fed have severely weakened the economy’s aptitude to create wealth.

Ed Butowsky discussed the impact of monetary policy here - http://www.foxbusiness.com/investing/2012/09/10/obama-chose-monetary-policy-and-youre-feeling-it/

[-] 1 points by MattLHolck (16833) from San Diego, CA 11 years ago

(in this case, reducing the tax burden on corporations and individuals).

that is not fiscal policy

fiscal policy would be taxing the necessary founds to run government programs

[-] 1 points by richardkentgates (3269) 11 years ago

The document was a lot more to the point than is most economic text.

[-] 1 points by richardkentgates (3269) 11 years ago

Thx for the links.

[-] 1 points by kaiserw (211) 11 years ago

Of course, no problem.