"More than four years ago Allan Meltzer issued a dire prediction: the Fed’s policy of expanding its balance sheet will lead to high inflation. We’re still waiting for that to happen. So it might behoove Meltzer to admit that he was wrong and ask where his analysis went wrong. OK, you can stop laughing now. What Meltzer does, instead, is complain that the Fed has undermined his perfectly fine analysis. You see, those dastardly officials are paying interest on reserves – a hefty 0.25 percent – and this has led to something totally unexpected: The US Federal Reserve Board has pumped out trillions of dollars of reserves, but never have so many reserves produced so little monetary growth. Neither the hawks nor the doves (nor anyone else) expected that. So the money supply broadly defined hasn’t taken off – a complete surprise! – and hence no inflation. Except that this isn’t at all a surprise; it’s exactly what those of us who had analyzed the liquidity trap predicted would happen when you expand the monetary base in an economy at the zero lower bound." krugman.blogs.nytimes/2013/08/14/hawks-doves-and-ostriches/
Posted on: Thu, 15 Aug 2013 05:08:05 +0000
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