Merkel Does The Devil's Work | 167 comments (167 topical, editorial, 0 hidden)

Re: Merkel Does The Devil's Work (4.00 / 5)

Also, from comments to The Free Market is a Myth

Even more surprising than this was Adair Turner's recent paper DEBT, MONEY AND MEPHISTOPHELES: HOW DO WE GET OUT OF THIS MESS? (46p) and presentation arguing for 'overt money finance(OMF)of fiscal deficits' including the Fed directly crediting citizens accounts monthly with an amount equal to the amount now being spent monthly on QE for banks. For a short summary see A breakthrough speech on monetary policy by Anatole Kaletsky of Reuters.

FSA: DEBT, MONEY AND MEPHISTOPHELES: HOW DO WE GET OUT OF THIS MESS? (PDF)

But Weidmann's stress on the negative consequence of Mephistopheles's monetary experiment has been challenged, and by someone who speaks with considerable authority. Professor Harold James of Princeton University is one of the world's pre-eminent economic historians and a leading expert on inter-war German economic history (James 1986). He is also a man steeped in knowledge of German history and literature. And in a short article entitled "Germany should re-read Goethe's Faust Part 2" (James 2012) his take on the consequences is a bit more positive (EXHIBIT 43).
"Everything in the empire improves as a consequence of the introduction of paper money. The generals are pleased because the soldiers are paid once more, the treasurer finds that he can pay off all the debts, tailors are busily making new clothes, ladies become more willing to embark on well paid romantic adventures".
So that while there are undoubtedly subsequent consequences which, in the wake of our own crisis, we would recognise as warning signs - "the property market booms and simpletons can buy big houses" - the potential benefits of paper money creation should not be ignored.

Finance is the brain [tumour] of the economy

by Carrie (migeru at eurotrib dot com) on Sun Aug 25th, 2013 at 01:06:59 PM EST
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Re: Merkel Does The Devil's Work (4.00 / 2)

Adair Turner did refer to Mephistopheles in his FSF pdf cited above, but this mention was in the context of advocating the serious consideration of OMT in this particular situation. He goes on to argue:

But before you decide from that that we should always exclude the use of money financed deficits, consider the following paradox from the history of economic thought. Milton Friedman is rightly seen as a central figure in the development of free market economics and in the definition of policies required to guard against the dangers of inflation. But Friedman argued in an article in 1948 not only that government deficits should sometimes be financed with fiat money but that they should always be financed in that fashion with, he argued, no useful role for debt finance. Under his proposal, "government expenditures would be financed entirely by tax revenues or the creation of money, that is, the use of non-interest bearing securities" (EXHIBIT 1) (Friedman,
1948). And he believed that such a system of money financed deficits could provide a surer foundation for a low inflation regime than the complex procedures of debt finance and central bank open market operations which had by that time developed.

A paragraph later Adair notes:

When economists of the calibre of Simons, Fisher, Friedman, Keynes and Bernanke have all explicitly argued for a potential role for overt money financed deficits, and done so while believing that the effective control of inflation is central to a well run market economy - we would be unwise to dismiss this policy option out of hand.

An explicit argument to authority, but, in this case, sweets to the sweet.

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

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Mon Aug 26th, 2013 at 12:46:41 PM EST
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Merkel Does The Devil's Work | 167 comments (167 topical, 0 editorial, 0 hidden)