Inflated expectations, Krugman on inflation - Politics Forum.org | PoFo

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#15171445
"But will this lead to inflation? Way back in 2009 some of us argued, in vain, that there was much less risk in going too big than in going too small, because if the stimulus turned out to be bigger than needed the Fed could always tap the brakes

A more explicit critique comes from Larry Summers, who has warned that the stimulus may lead to stagflation. He appears to believe that the Fed can’t use monetary tightening to offset overheating generated by fiscal expansion without causing a nasty recession. But I have to admit to being a bit puzzled about why. Indeed, the Fed has done that in the past: in the 80s and again in the 90s it acted to rein in booms without causing recessions.

So even if you’re uncomfortable with President Biden’s fiscal policies, you should be very cautious about making arguments against them that rely on novel propositions about why inflation can’t be contained. Conventional analysis says what Janet Yellen said: If the stimulus proves bigger than needed, the Fed can keep things under control. If you’re asserting otherwise, think hard about why you’re saying that."

https://www.nytimes.com/2021/05/07/opinion/federal-reserve-janet-yellen-inflation.html?action=click&module=Opinion&pgtype=Homepage
#15171573
late wrote:A more explicit critique comes from Larry Summers, who has warned that the stimulus may lead to stagflation. He appears to believe that the Fed can’t use monetary tightening to offset overheating generated by fiscal expansion without causing a nasty recession. But I have to admit to being a bit puzzled about why.

The way I see it, it is just moving spending around, from the Central Bank (the Fed) to the government.

If government starts spending more and throwing more money into the economy, that's going to be money that the Fed can't spend, and will leave fewer options available to the Fed.
Granted, money to stimulate the economy is still money to stimulate the economy, but we need to recognize that massive deficit spending just comes at the expense of what the Fed can then do.

Don't forget about the relationship between the Fed, interest rates, the National Debt, and deficit spending.
#15171574
late wrote:Indeed, the Fed has done that in the past: in the 80s and again in the 90s it acted to rein in booms without causing recessions.

But the government seems to be doing everything possible right now to cause a boom, a boom that's probably not going to be sustainable.
#15171575
late wrote:Conventional analysis says what Janet Yellen said: If the stimulus proves bigger than needed, the Fed can keep things under control. If you’re asserting otherwise, think hard about why you’re saying that."

How will the Fed be able to control this inflation?

This isn't inflation being caused by the Fed, this is inflation being caused by the government. Those are really two different types of inflation.

If the inflation isn't simply caused by the Fed expanding the money supply (and adding to its Reserve Assets in rough proportion), then it's going to be much more difficult to "reign in".

The amount of Reserve Assets held by the Fed is the key here. The Fed can't simply "pull back money" when it doesn't have the Reserve Assets to sell off to do that.


There's a lot of stupid people who are going to go into things like the Fed setting interest rates or the reserve rates, and I'm not even going to waste the breath dealing with that stupidity.

That goes into some complicated economic theories which I believe are just plain wrong.

What people need to understand is the Fed doesn't "magically" control the economy. They can't solve all problems.
It's an issue that ultimately comes down to money and purchasing power.
#15171576
late wrote:So even if you’re uncomfortable with President Biden’s fiscal policies, you should be very cautious about making arguments against them that rely on novel propositions about why inflation can’t be contained.

How about you should be very cautious about making arguments for them, that rely on questionable propositions about why inflation can be contained??

What they're really implying is that non-mainstream theories, or rather non-mainstream theories questioning mainstream theories, can't be trusted. When it is an inherently ideologically biased side that pushed these "mainstream" theories in the first place and views them as facts.

"Mainstream" doesn't mean classical, here. These theories did not really exist a long time ago. (It's not like Greek philosophy)


The people who run the NY Times just love the idea of more money printing. More money for government to spend.

If these people all ran a country together, they would bankrupt it and run it into the ground.
#15171594
Puffer Fish wrote:
How about you should be very cautious about making arguments for them, that rely on questionable propositions about why inflation can be contained??



As Krugman pointed out, we've contained inflation before, and more than once.

That's what we call a fact.
#15171693
late wrote:As Krugman pointed out, we've contained inflation before, and more than once.

That's what we call a fact.

With that type of attitude you can be sure to run into trouble.

Other countries in the world have had a very different experience. Why do you think the US is so different?
#15171696
I'm not going to worry about inflation as long as inflation expectations 2 years from now are anchored at around 2% or less.

If the Fed has to raise rates, and that causes a recession... Well, it is indeed possible it may be the case. But inflation would not really be the concern in that event.
#15171698
late wrote:So even if you’re uncomfortable with President Biden’s fiscal policies, you should be very cautious about making arguments against them that rely on novel propositions about why inflation can’t be contained. Conventional analysis says what Janet Yellen said: If the stimulus proves bigger than needed, the Fed can keep things under control. If you’re asserting otherwise, think hard about why you’re saying that.


Sure the Fed can counter excessive fiscal policy. The point is though, it shouldn't have to do so. That's the point where debt becomes an issue.
#15171709
Rugoz wrote:
Sure the Fed can counter excessive fiscal policy. The point is though, it shouldn't have to do so. That's the point where debt becomes an issue.



Not a problem, all you have to do is create a permanently stable economy.
#15171710
Puffer Fish wrote:

Other countries in the world have had a very different experience. Why do you think the US is so different?



We're the reserve currency, for one thing.

For another, it's not clear that the limits you think exist are actually there.
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