Larry Summers Says Print More Money, Globally

A Benjamin Cole post

Probably, He Is Right

Among serious economists, the words “print more money” are not used, and of course the thought is sacrilege for many. Evidently, some prefer a decade or so of 20+% unemployment (see Spain, Greece), or the perennial loss of about 10% of GDP (the United States) to the idea of printing more money.

So it was with interest that I read a recent post by Larry Summers, “The Case For Expansion.”

First, Summers sums up the global economy thusly: There is the “specter of a vicious global cycle in which slow growth in industrial countries hurts emerging markets which export capital, thereby slowing western growth further. Industrialized economies that are barely running above stall speed can ill-afford a negative global shock.”

Summers correctly points out that interest rates are already low, especially in Europe and Japan. Though Europe is experimenting with negative rates, there doesn’t seem to be much oomph there.

The Solution

Summers avers, “What is needed now is something equivalent but on a global scale—a signal that the authorities recognize that secular stagnation and its spread to the world is the dominant risk we face.”

Like all serious economists, Summers cannot bring himself to say “print more money.” But he does say central banks “must be prepared to consider support for assets that carry risk premiums that can be meaningfully reduced. They could achieve even more by absorbing bonds to finance fiscal expansion.”

In other words, print money to finance national budgets, which China’s central bank, the People’s Bank of China, has been doing with infrastructure projects for decades. China has grown at about 10% annually compounded for decades, and now has inflation of 1.5%. They obtained these results even with a dubious system for allocating capital.

My Solution

Anyone who travels other First World cities, and then views U.S. public spaces and airports, surely suspects more infrastructure spending is indeed warranted. Summers’ suggestions strike me as very worthy.

But, as I am suspicious of federal programs (as enacted by the U.S. Congress), my pet idea is for the U.S. Federal Reserve to buy Treasuries and place them into the Social Security and Medicare trust funds, and then deliver a hefty cut on payroll taxes to workers and employees. FICA taxes are now more than 15% of a typical worker’s paycheck. Cut FICA taxes in half for a few years, and we might see some real demand in the U.S.

The Fed should buy about $500 billion in Treasuries a year, under this plan.

Print more money, in other words.

7 thoughts on “Larry Summers Says Print More Money, Globally

  1. Boycott:

    What is BAC?

    As for global cabals, I would say the tight-money nuts at the Bank of International Settlements come close to fitting that description.

    Sorry, I am a fan of printing a lot of money, especially now.

      • The Fed can buy other assets. Imagine a world without government. How would a monetary authority introduce currency if not buying private assets ?

  2. Great post. This particularly caught my eye: ” They obtained these results even with a dubious system for allocating capital.” At the very least, it’s a great way to pack a lot of meaning into just one sentence that has serious implications for both inflation nutters and bubble fear mongers. It deserves some expansion. And, by the way, happy New Year! 🙂

  3. The debt to GDP ratio is the highest it’s been in a very long time. Almost all of that debt is Treasury bonds and bills. So in what sense is there a shortage of Treasury bonds? Gary Gorton says the financial industry wants more “safe assets” because they use them as collateral for repurchase agreements. But why anyone thinks it’s the government’s job to validate the business practices of Wall Street is beyond me.

  4. Mr Nunez and Benjamin, I agree that descent into negative rates, demand deflation, and a cashless society pose the greatest risk for America, economically. I wrote this article with that in mind. I mention Benjamin Cole. I agree with market monetarists on many crucial things, but I also fear their solutions will be hurtful to main street and the Fed will not have their backs, it will not keep the pedal to the metal. I think it cannot because of the hoarding of bonds, as long bonds are in massive demand. Please let me know what you think about this and where can I go from here: How do we grow the ecnonomy to NGDP without hurting fixed income folks, and people who get bad Loans. I talk about those things in the article.

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