[At the Milken Institute Global Conference] the Wednesday morning presentation by Dan Arbess, a partner at Perella Weinberg and chief investment officer at PWP Xerion Funds, was startling because of how deeply it broke from the standard narrative.
We've been wrong to assume that the economic crisis is over, Arbess said. We stopped the crisis from reaching Great Depression levels through drastic fiscal actions such as TARP and the Obama administration's fiscal stimulus. But almost as suddenly as we started, we stopped these efforts, which Arbess says has resulted in us being "mired down" for the past four years.
What's kept us afloat has been monetary policy, but that's now reaching its limits, according to Arbess. The threat of deflation is once again rearing its head.
"The persistent risk in our economy is deflation not inflation," Arbess said....
His proposed solution is that we start directly funding government expenditures through the central bank. That is, we should stop relying on taxes or further debt issuances to finance government—or at least reduce our reliance on taxes and bonds. Just let the Federal Reserve pay the government's bills by exercising its money creation powers.John points out that Arbess was clearly influence by Adair Turner and this recommendation has academic precedent in a 1948 paper by Milton Friedman. This is the genuine "helicopter money" (fiscal) rather than QE (monetary).
CNBC
Deflation Is 'Persistent Risk': Money Manager Dan Arbess
John Carney | Senior Editor
"we should stop relying on taxes or further debt issuances to finance government..."
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ReplyDelete"His proposed solution is that we start directly funding government expenditures through the central bank. That is, we should stop relying on taxes or further debt issuances to finance government—or at least reduce our reliance on taxes and bonds. Just let the Federal Reserve pay the government's bills by exercising its money creation powers."
ReplyDeleteWhat is the effective difference between having the Fed pay the government's bills directly, and having the Treasury issue debt to "cover" the deficit only to have the Fed buy up most of that debt?
What is the effective difference between having the Fed pay the government's bills directly, and having the Treasury issue debt to "cover" the deficit only to have the Fed buy up most of that debt?
ReplyDeleteMonetarily, none, other than the interest, which is just a matter of perception, too. But if Congress won't take responsibility fiscally, which they don't seem to be able to do owing to political pressure, then practically speaking having the cb do it with per capita helicopter drops may be more feasible politically.