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A Few Thoughts on Tapering and the Real Economy

That's what I have today at the LSE blog on US Politics and Policy.  A snippet:  "The Federal Reserve’s recent decision to begin to taper off its quantitative easing (QE) program is long overdue. QE was a mistake from thebeginning and the risks it created will outlast the continuation of the program as its effects cannot be as easily unwound. Ending QE will also allow us to focus on the real problems causing the slow recovery, which have little to do with the need for more expansionary monetary policy."

  • dandolfa

    "The Fed has tripled its balance sheet, mostly by purchasing assets of dubious quality…"

    Treasuries and Treasury-insured MBS are assets of "dubious quality?"
    Why should I believe anything else that is written in this article?

  • QE is not a brilliant anti-recessionary tool. On the other hand continuing with QE till the entire national debt had been monetised would not be a disaster.

    Milton Friedman and Warren Mosler have both advocated regimes in which the government and central bank issue no interest yielding liabilities at all. That is, they issue just monetary base. See respectively:

    Paragraph starting “Under the proposal..” (p.250) here:

    Second last paragraph here:

    As to the idea that banks would go on a wild lending spree because their reserves are miles above the minimum reserve requirement, that’s nonsense. First, banks lend when they see viable lending opportunities, not simply because they have enough reserves. (Or at least that’s what banksters would do if they were into commerce rather than criminality. I.e. banksters do lend to NINJA mortgagors so as to boost their bonuses and in the hopes that taxpayers will bail their bank out when their daft loans go bad. But that’s a separate problem.)