Thursday, January 24, 2013

Ralph Musgrave — The non-existent shortage of safe assets

Journalists, academics and economics bloggers have recently taken to worrying about the alleged shortage of safe assets.
This alleged shortage results from the fact that a number of assets regarded as safe before the crunch are clearly no longer safe: e.g. collateralised debt obligations based on dodgy mortgages, and the debt of Euro periphery countries.
The above individuals can stop worrying. The only important consideration here is whether this alleged shortgage results in the excess saving of money, which in turn might lead to paradox of thrift unemployment. And if paradox of thrift unemployment does appear, then the solution is easy. It was spelled out by Keynes decades ago and more recently to advocates of Modern Monetary Theory: have the government / central bank machine print money and spend it into the economy (and/or cut taxes).
Problem solved. Yawn, yawn.
The non-existent shortage of safe assets
Ralph Musgrave

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