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Monetary Policy Missteps

Monetary Policy Missteps

Monetary Policy Missteps

The root cause of the falling velocity of money lies in the government policy choice of distributing the unprecedented monetary base increase to corporations and not to consumers. Consumption is approximately 70 percent of the GDP. Thus, consumers would have not hoarded or use the unprecedented monetary base increase to buoy financial markets, they would have spent it on goods and services, and the velocity of money and incomes would have not declined.

Ellis

One thought on “Monetary Policy Missteps

Mikiel de BaryPosted on  10:27 am - Jul 31, 2020

Yes, but CPI would have risen…and without a corresponding increase in production, given businesses’ reasonable caution. Also, the “relief” from higher incomes would have been quite temporary and, when done, the federal deficit would have required higher taxation to service and/or more “helicopters.”
I believe the whole game of promising much, much more than can be delivered honestly (i.e., without money debasement) is over and must be abandoned. Everyone has to get used to lower incomes/spending, and the Fed and Congress have to endure the ignominy of where they have jointly brought us. The alternative is the current Fed path of debasement whose ultimate destination is destroying the dollar, the division of labor, the price system… We don’t want to go there.

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