The Fed’s logic is faulty but may yet end up with the right answer

A James Alexander post

The last blog post was a great analysis of the last thirty years of US monetary policy as the Fed focused on Core PCE inflation and unemployment and for most of the time accidentally got NGDP growing on target. When the Fed switched rigidly to focusing on its own projections for Core PCE things started to go awry, both with unemployment and NGDP.

Still focusing on those projections since 2009 it has got things right in fits and starts only. Unemployment has ever so gradually returned to 5%, a record slow recovery. That said, there is still tons of labor market slack as evidenced by the participation ratios, ultra-low nominal wage growth and low quit rates. These factors mean there is very little productivity growth as the labor market is so lacking in energy. Core PCE keeps missing Fed projections of a return to 2%.

This troubled but not yet terrible situation is summed up by, actually caused by, the dreadful growth rate and level of NGDP.

So why does the Fed want to raise rates?

Trying to put myself in the mind of the average FOMC member I came up with this “logic”, although it is not logical – perhaps because it reflects so many competing views and not just one human brain:

1. The Fed wants to raise rates to give it the room to cut them when the data goes bad – even though we know the data will go bad due to the raising of rates, or the constant threat of raising rates.

2. The Fed is thus stuck as it really doesn’t want to:

a. use negative rates because the banks, insurance companies, money market mutual funds and savers will complain very loudly;

or,

b. do more/wider QE because too many politicians, internet Austrians/goldbugs, alt-right, progressives, socialists, etc. will all            complain about the Fed creating winners and losers “and may require legislation” as Yellen said;

or,

c. do helicopter money, defined here as directly new-money financed fiscal expenditure as it is bound to run up against any unaltered Core PCE inflation target projections

3. While the Fed needs rate-cutting firepower it is unlikely to have been able to raise before the data goes really bad

4. So the Fed has to look at more innovative alternatives than negative rates or more/wider QE. Thus it is tentatively looking at a higher inflation target or even level targets for inflation or nominal growth, instead as a sort of last resort back-up plan.

The Fed is causing this confusion because the logic is confused. It has the wrong targets and they are both causing and storing up trouble. Changing the targets would be the right thing to do, even if for all the wrong reasons.

 

Central Bank Quantitative Easing Is Always A Helicopter Drop (It Just Depends on Who Gets The Money)

A Benjamin Cole post

Of late in monetary blog-land has been bruiting about central bank helicopter drops, usually defined as a last resort to boost aggregate demand and fight deflation.

Traditionally, a helicopter drop has been the printing of paper money to aeronautically enrich a euphoric hoi-polloi. But now many monetarists consider digitized quantitative easing (QE) to finance or offset national fiscal deficits or  tax cuts to be a chopper-toss as well. In other words, print money and finance government.

But thinking it over, QE is always a helicopter drop. It just depends who gets the new money.

QE

Okay, in the years 2008 to 2014, the U.S. Treasury ran red ink and sold Treasury bonds, and the Fed digitized money and bought $3 trillion+ in Treasuries, through its QE programs. One does not have to be a cynic to conclude that the Fed printed money and gave it to the federal government, and Columbia economist Michael Woodford, sotto voce, pretty much says so.

So, the institutions and people who sold Treasury bonds into the Fed’s QE program (through the middlemen primary dealers) received in exchange for their Treasuries digitized cash. They received a “helicopter drop” of money, but in exchange for their bonds (bonds that were somewhat appreciated by QE, btw). In this regard there is no moral hazard.

Even today, no one really knows what people who sold Treasuries into the Fed QE program did with the $3 trillion+ in cash they got. We know the $3 trillion went into bank accounts, securities, property, cash or consumption, but by what fractions is unknown. There were property and equity recoveries during the Fed QE years. Some aver that conventional QE was a helicopter drop, but onto asset markets.

But by another conceptual lens or viewpoint, even in the Fed’s conventional QE the taxpayers received a helicopter drop too. Federal taxes were relatively lower than otherwise during QE, as federal government operations were financed by Fed money printing and buying of Treasuries. Net, the federal government stopped borrowing money, or taxing enough to finance operations, and used Fed-created money.

Conclusion

QE is always a helicopter drop.

George Selgin And Me

A Benjamin Cole post

George Selgin, free banker, and one of the most intelligent and enjoyable luminaries in the entire econo-blogo-sphere, took issue with a December 20 post of mine, Zombie Economics Will Never Die.

Mostly, I am flattered Selgin even read my post, which reviewed a former Federal Reserve employee Daniel Thornton’s piece for Cato Institute entitled, Requiem For QE.

As a preface, let me confess I am a fan of QE, and think the Federal Reserve’s failing was that it employed QE timidly; not open-ended until QE3; never vowed that the Fed balance-sheet increase would be permanent; and, yes, QE was somewhat compromised by interest on excess reserves, as suggested by Selgin and Thornton.

But without further adieu, here is Selgin’s comment about my Thornton post:

“Benjamin, this is not a fair post, for all kinds of reasons, but mainly because many of the criticisms you offer are quite unrelated to the claims actually made in Thornton’s paper.

For example, when Thornton claims that QE may have resulted in some unsustainable asset price developments, you observe that there were booms and busts before QE–as if Thornton’s statement amounted to a denial of that fact!

When addressing Thornton claims that QE has unduly influenced the behavior of commodity prices, you criticize, not what he actually says, but what you “think he wants to say.”

You assume that the fact that corporate profits have been “soaring” somehow contradicts Thornton’s concerns about equity prices being excessively high. (Certainly it is now evident that such profits are no guarantee against a major correction.)

You treat the fact that housing starts are still below their level during the last boom as clear proof that Thornton is crazy to imagine that QE has provided excessive stimulus to the housing industry–as if forgetting about all the overbuilding that the last boom entailed.

But most of all, you are too intent on attacking “right wing inflation hawks,” and so, instead of addressing Thornton’s actual arguments about the origins and consequences of QE, you make him stand-in for your favorite bête noire, and then criticize the bête noire.”

Okay, let’s try to answer Selgin.

1. Asset prices. After QE, the U.S. stock market recovered, eventually getting back to historic norms of 20 times earnings, and then flattening in the last year or so. This is during a time of undisputed all-time-record-smashing corporate profits, both relatively and absolutely. It’s been yuge. As an EMH fan, I tend to think the “market is right.” Is 20-times earnings “unsustainable,” as Thornton suggests? Seems in the ballpark to me. Did QE cause stock p-e’s to move back to historic norms? Or did the huge profits, and a seven-year (painfully slow) recovery? What would EMH say?
2. Commodity prices. Thornton’s actual statement is that QE “caused a marked change in the behavior of commodity prices.” Oh, Heavens to Mergatroy, what does this even mean? Commodities have, in general, been declining since QE, especially since QE 3. Printing money causes commodities prices to dump? Gee whiz!

 Actually, commodity prices are set on global stages, and are influenced by China demand, shale-inspired oil gluts, the U.S. ethanol program, new technologies and who knows what all. History shows commodities booming long before QE. Thornton’s opaque thundering is like so many other foggy dire predictions on QE, along the lines of “Yes, the other shoe will drop—just you wait.” If Thornton has a specific observation about global commodities prices and Federal Reserve QE, let him state it clearly. And again, I defer to EMH: I think commodity prices are what they are, due to global market forces.

3. Housing and Overbuilding. Okay, real estate and housing prices have somewhat recovered to 2008 levels, along with the general economy. If QE helped, then I say good for QE. But I would implore George Selgin to read Kevin Erdmann’s blog, Idiosyncratic Whisk, for a while. In general, due to ubiquitous and highly restrictive property local zoning laws in the U.S., the supply of housing is crimped, especially where people want to live (NYC, SF, L.A., Silicon Valley, etc.). Naturally enough, the pervasive artificial constraints propel house prices north (and then feeds into the CPI, PCE). I go further than Erdmann, and ask, “Where is the single-family detached neighborhood anywhere in the U.S. that embraces high-rise condos, ground-floor retail and push-cart vending?” And again, I defer to EMH. Real estate developers built housing as consumers and apartment house owners were buying housing. The Fed caused a deep recession, fighting phantom-bogeyman So housing (leveraged, btw) did not sell. The nation never went through a period of national residential overbuilding, and indeed remains undersupplied in various markets, due to popular structural impediments (property zoning).

Well, enough of this. The genesis and understanding inside the Fed regarding QE may be tortured, and uncertain (well, it is the Fed). And I grant to Thornton, and Selgin that IOER is mysterious, and may reflect a type of industry capture of a regulatory agency (the Fed, in this case), or the Fed’s hysterical squeamishness about inflation.

To me, QE is money-printing and the monetization of national debt, and I am unabashedly for it. I would like to see QE married to FICA tax-cut holiday, with the QE-purchased bonds placed into the Social Security and Medicare trust funds. Whenever the economy slowed, this would trigger a FICA tax holiday and money-printing.

In conclusion, I say, “Print more money and build more housing!”

PS The question is sometimes raised if QE worked at all to stimulate the real economy, and I think it did. Of course, if QE raised asset prices, that had some positive effect, perhaps most in property, in which rising values lead to employment-generating restorations and sales work. There is probably another mechanism that I have never seen alluded to: Most individual and small businesses can only borrow against collateral, and that universally means real estate. (As a small business operator myself in years past, I knew this, and borrowed against my warehouse). Ergo, rising real-estate values increase the borrowing capacity of small businesses. If QE boosts real estate (as Thornton says) then it boosts the borrowing capacity of job-generating small businesses, too.

Another one of the outstanding oddities of modern economics is that no one seems to know who sold bonds into the Fed’s QE program, and what they did with the money they received. That was $4.5 trillion of newly digitized cash that bond-sellers received, and we know only that the bond-sellers thereafter—

1. Bought other assets
2. Spent the money
3. Converted the digitized money to cash
4. Put the money into commercial bank accounts

Of these four categories, only #4 would be inert (yes, banks were sitting on deposits), the other three actions would be stimulative. Conversion to cash may be inert if hiding under mattresses, but likely that money is circulating. BTW, cash in circulation is perhaps not trivial; there is $1.41 trillion circulating today, up from $820 billion in 2008. As long as inflation is dead, expect cash in circulation to expand rapidly, becoming increasingly useful for savings and tax-free transactions. The end-result of this no-inflation-induced burgeoning cash and underground economy is not pretty: Think of a Grecian Banana Republic. Only suckers pay taxes.

PPS It is a canard to define QE as “as swap of bonds for reserves.” The creation of reserves happens after the bondholders who sell into QE who in effect receive freshly digitized cash.

The bondholders sell to the 22 primary dealers, and it is the primary dealers who sell to the Fed, and then receive payment from the Fed into their commercial bank accounts. Those Fed payments are counted as reserves.

So, to be clear, bond-sellers received $4.5 trillion through QE and primary dealers also received $4.5 trillion. We do not know what the bond-sellers did with their fresh cash.

And to George Selgin, I say—can we just have a beer and watch the Super Bowl instead?

Sorry, one last PS: If the Fed is so easy, why is the US dollar stronger now against a trade-weighted basket of currencies than before 2008? And note that the dollar appreciation since mid-2014 goes hand in hand with falling NGDP growth, a sure sign of monetary policy tightening.

Pondering China, the People’s Bank of China And QE

A Benjamin Cole post

Westerners love to hazard guesses on China and that is what they are, guesses. Even a Mandarin speaker in Hong Kong (with whom I recently conversed), with family on the mainland and employed at a large private-equity fund, professes no special insights into opaque China.

But China’s central bank, The People’s Bank of China, appears to have eschewed the advice of Western central bankers, and gunned the money presses this summer. Moreover, the PBoC tactic looks to be working.

Readers may recall the situation faced by China in the warm season. The buzz was “hot money” was fleeing the Sino state, and PBoC had to raise interest rates to keep trillions of dollars from vamoosing back to developed nations. Without that hot money, China corporations would be starved for capital, their debt payments would soar, many bank loans would sour, and the Sino domestic economy would shrink.

The PBoC Responds

• In 2015 the PBoC has cut interest rates five times, from 5.60% to 4.35%, the last cut in October. More cuts are forthcoming, suggest officials.
• The PBoC has unpegged the yuan, letting it sink within a daily band.
• The PBoC has cut bank reserve requirements three times in 2015.
• The PBoC has long engaged in QE, often by printing money and buying bonds from states, which used the money to build infrastructure. The PBoC may be upping its QE, but this is unclear.

Results

• After a summer swoon, China’s stock market has stabilized, even rallied a little. The Shanghai Stock Exchange Composite Index, as of Dec. 24, is up 22.4% YOY.
• On real estate, the Reuters headline of Dec. 18 was, “China November home prices rise for the 2nd straight month.”

• China retail sales rose 11.2% YOY in November, the highest monthly growth rate of the year.

Also notable, as reported by the AFB, a “Chinese boom in air travel defies slowing economic growth” and China Southern Airlines in December ordered $10 billion of jetliners from Boeing, and then another $2.3 billion from Airbus.

Two cruise ship lines, Norwegian and Carnival, have each recently announced they will build special liners based in China, at about a cost of about $500 million to $1 billion each in price.

Inflation?

The China consumer-price index rose 1.5% in November YOY, reported the National Bureau of Statistics. As observers have seen globally for the last several years, central bank stimulus and QE appear to work, but do not result in much inflation, and so it is in China. The PBoC is below its 3.5% IT, and so has lots of room to run.

Interestingly, The Economist has reported that the PBoC has been conducting QE operations for decades, through the nation’s period of rapid growth. The PBoC may have been curtailing QE in recent years, coincident or causative with slowing Sino growth (although slow in China is a 7% YOY GDP increase).

There are reasonable concerns about state agencies allocating capital, not free markets (although who allocates capital to infrastructure anyway?). Nevertheless, the macroeconomic results of QE appear beneficial.

Conclusion

Far East central bankers, at least in Tokyo and Beijing, are eschewing the tight-money totems of Western central bankers, and turning to growth policies instead. The growth strategies are working.  Inflation remains muted.

Indeed, after 30 years of rapid growth and QE in China, they are paying the price…um, that is, 1.5% inflation.

The question is, “Can Western bankers learn from Eastern counterparts? Why not?”

And for Western economists, the question is, “If QE works in practice, but not in theory, should we banish QE, or change the theory?”

PS. China remains backwardly barbaric regarding political and civil rights. Evidently, both “China’s Carl Icahn” (Xu Xiang) and “China’s Buffett” (Guo Guangchang) are in detention or under restrictions by Sino myrmidons. Even novelists dare not write what they want, let alone political activists. Should China implode, it will be from insensate official political stupidity, not economic policies.

The ECB eases further: yet another example of “infinitely short and not variable”

A James Alexander post

Another day another proof of the immediate impact of active monetary
policy in altering NGDP growth expectations and therefore setting the
flight path to a different future. In other words lags in the
implementation of monetary policy are not “long and variable” lags,
but “infinitely short and not variable”. This time it was from the ECB.

The ECB is operating a far from perfect monetary policy. It has to do
huge QE to (nominally) stimulate the EuroZone economy since it is has
massively handicapped both itself and the economy by its inflation
target of “near but no more than” 2%. Of course, it should move to a
strict NGDP Growth Level Target of 5%, but moving will not come soon.
Just floating the idea would help more than a a several tens of
billions of Euro bond purchases. Just try it!

That said, the ECB is still biased towards easing. But events
elsewhere are lowering the Wicksellian Equilibrium Rate of Interest ,
aka getting worse. The main trouble maker is the Federal Reserve with
it’s tightening bias, as well as the UK’s BoE and the Swiss National
Bank, three of the major EZ trading partners. The Fed’s bias also
hurts China since that emerging superpower has cravenly opted to
remain within the Dollar Bloc. So China is having its monetary policy
tightened while also being in a rapid economic slowdown. Not great at
all, for China or the EZ or the rest of the world.

In the face of all this bad news EZ stocks have sold off with the rest
of the world and the currency has been reasonably robust for the last
six months. These market trends indicate deteriorating economic
prospects for the EZ. Today, like a good central bank, the ECB stepped
up to the plate to counter these negative trends.

It altered the rules for the current QE programme in a surprisingly
positive way. The market responded immediately at exactly the time of
the announcement, driving up stocks and driving down the Euro vs the
USD.

A good thing, and demonstrating the impact of monetary policy on
forecasts for the real economy, and thus the real economy itself.
Actual Fed tightening and Chinese masochistic obstinacy may well swamp
these effects over the next few months but the ECB has today shown a
good determination to ring-fence the EZ from poor monetary policy
elsewhere in the world.

The Fed Is Courting a Lethal Deflationary Recessionary Vortex

A Benjamin Cole post

There is something deeply askew about U.S. Federal Reserve policy statements and policies, and, indeed nearly the entire U.S. economics profession.

For example, a Richard Fisher (former Dallas Fed President and FOMC member), an Alan Meltzer or even a Martin Feldstein can go into sweat-drenched hysterics and predict hyperinflation holocausts, and be consistently wrong for years and years, yet still be VSPs.

But no one predicts lethal (to economic growth) deflationary recessionary vortices. I do. I guess if I am wrong for the next 10 years running—well, then I will still be a VUP (Very Unserious Person).

The Threat Is?

But yet, what is the threat today? Inflation or Prolonged Deflationary Recession?

Has Japan ever escaped its low-growth deflation? Can anyone speak confidently of Europe escaping its deflationary recession?

No recovery lasts forever. At current inflation and interest rates, a recession in the U.S. would surely result in deflation and zero lower bound all over again.

But the Fed has set aside QE, and shows no inclination of lowering interest on excess reserves. To go back to QE or eliminating IOER would mark a humiliating flip-flop on policies—and all the while the naysayers would be screaming, “QE didn’t work. See? We are in a recession again. Only tight money works.”

So the Fed will enter the next recession hamstrung, slow to respond to declining prices and recession (I mean ever slower than usual).

Conclusion

The above scenario perfectly sets up a lethal deflationary recessionary vortex, sucking down equities and property values, eviscerating U.S. savings and balance sheets, scaring off investment in plant and equipment. The Fed will be flat-footed while the economy tanks, and unemployment soars. Federal deficit spending will balloon again, resulting in calls for austerity.

Dudes, it will get ugly.

Instead of welcoming a deflationary recession, the Fed should immediately consider “normalization” of interest rates—on excess reserves, which normally earned no interest.

And if the Fed ever wants real interest rates to be “normalized”, i.e., higher than zero, then it has set help set up sustained and robust economic growth. A central bank cannot “normalize” interest rates through monetary suffocation.

In other words, print more money. Like I always say.

The IMF Tells the Bank Of Japan To Hit The Gas? What About The U.S. Federal Reserve?

A Benjamin Cole post

The International Monetary Fund on May 22 badgered the Bank of Japan to adopt a more-aggressive growth stance, even though the island nation posted Q1 real GDP growth of 2.4%, and an annual inflation rate of 2.3%—along with an unemployment rate of 3.4%.

Moreover, under the leadership of Governor Haruhiko Kuroda, the BoJ is buying about $83 billion in bonds a month, a quantitative easing program equal in size to that of the U.S. Federal Reserves’ Q3 at its peak—except that Japan has an economy one-half the size of the United States.

Nevertheless, the IMF warned the “BOJ needs to stand ready for further easing, provide stronger guidance to markets through enhanced communication, and put greater emphasis on achieving the 2% inflation target.”

Fair enough. Maybe the BoJ needs to really pour it on.

Um. What About the Fed?

So, the United States’ posted Q1 real GDP dead in the water, and many are forecasting Q2 not much better. The core PCE deflator is now running at 1.3% YOY, with headline deflation, and the Fed has not reached its 2% inflation target for seven years, except once, and that fleetingly. The U.S. producer price index has been in deflation for several months. The U.S. unemployment rate is 5.4%, and a squishy figure at that.

Yet Fed Chair Janet Yellen never misses a chance to rhapsodize about raising interest rates, and on May 21 warned that Fed cannot wait too long before tightening the monetary noose or it will “risk overheating the economy.”

BTW, also from the Fed: “Industrial production decreased 0.3% in April for its fifth consecutive monthly loss.” Capacity utilization is at 78.2%, below the long-term average.

Conclusion

Yellen has new definition of “overheat,” and that is any room temperature warm enough to melt ice cream. And the IMF…well, what can you say. They appear seriously confused.

The Tale Of Two Central Banks

A Benjamin Cole post

• Haruhiko Kuroda, Governor of the Bank of Japan, on May 22 said he will maintain his bank’s QE package of about $83 billion a month—but said he will do more if necessary, if Japan’s inflation rate does not consistently hit the BoJ’s 2% target by 2016. Japan just reported Q1 real GDP growth at 2.4% YOY and headline inflation of 2.3%. The Nippon unemployment rate is 3.4%.
• Janet Yellen, Chairman of the Federal Reserve Board, on May 22 insisted the Fed is on track to raise interest rates this year. The U.S. real GDP came in just about flat in Q1, and H1 may be flat, or close to it. The headline CPI is…negative 0.2% in April YOY. The U.S. unemployment rate is 5.4%

Add on: Kuroda’s $83 billion a month of QE is bigger than the Fed’s QE at its peak, and yet Japan’s economy is about one-half the size of the U.S. economy.

Okay…

Yes, I have played a little fast and loose with the above numbers. Headline inflation is not core inflation—although the inflation-hysterics trumpet headline inflation after every oil-price spike.

The proper Fed inflation gauge is the PCE chain-type index, which is up 0.3% in April YOY.

In you want PCE core, it is up 1.3% in April YOY.

The truth remains that PCE core is well below the Fed’s 2% official inflation target.

The Feeble Feckless Fed

The Fed remains utterly cowed by the prospect of inflation even approaching its 2% IT, despite the fact the U.S. economy is far less inflation-prone than in the 1970s, or despite the fact that 3% inflation for a few years would merely offset the sub-2% seen 2008.

Upshot

Of course, as Marcus Nunes tirelessly points out, a NGDPLT is much better than an IT, not least for the abject cowardice an IT seems to impart to the Fed.

We will see how the U.S. and Japan economies play out in the next couple of years.

My money is on Haruhiko Kuroda. Oh, did I mention the Nikkei 225 is up 45% YOY?

BNY Mellon Suggests A Brighter Future—And Why Not? Because of the Fed and Anti-Business Cranks?

A Benjamin Cole post

Of the many lamentable aspects of modern macroeconomics is the cowardly defeatism, that only slow growth is possible, and if not that, then advisable.

So welcome is a recent white paper issued by banker BNY Mellon, which ponders a future in which the U.S., China, Japan, and India (the “G4”) come close to fulfilling economic growth potential—and not through heroics, but just by rising to past growth trends.

The return to mediocre G4 growth would add $10 trillion to their projected GDPs by 2020, and another $8 trillion in related growth outside those four nations.

One key paragraph in the BNY Mellon report catches the eye:

“Under Shinzo Abe, Japan now has its most stable government in almost a decade and a central bank that has twice surprised the markets with its determination to defeat deflation.”

Finally?

I have agonized in this space a few times how long the “right-wing” or business class would abjectly genuflect to gold and tight money. This self-destructive monetary peevishness must certainly appeal only to ideologues, theoretical academics, pundits and traders who have shorted markets—and to no one in the real business world.

I have found in interviews with economists in institutional real estate circles that the worship of tight money is absent. And now banker BNY Mellon says that the Bank of Japan’s aggressive QE program is a good thing. How long until the tight-money fanatics are seen for what they are: anti-business cranks.

The Fed Is The Monkey Wrench?

So, we read that the People’s Bank of China has been practicing a type of QE all along and is now lowering rates and considering more QE, and of course the Bank of Japan is in the QE camp. After foot-dragging and destroying the economies of a few nations, the ECB is in QE too.

That leaves the Fed, which has quit QE and blindly painted itself into a corner by endlessly rhapsodizing about raising rates. So now a Fed return to QE would look like a “flip-flop” or institutional ineptitude or uncertainty.

Would you like another $18 trillion in global GDP?

Tell the ECB, the PBoC and the BoJ to pour it on, to go to QE hard and heavy, print way more money.

But mostly tell the Fed.

Ben Bernanke 2002: We Need You

A Benjamin Cole post

“In practice, the effectiveness of anti-deflation policy could be significantly enhanced by cooperation between the monetary and fiscal authorities. A broad-based tax cut, for example, accommodated by a program of open-market purchases to alleviate any tendency for interest rates to increase, would almost certainly be an effective stimulant to consumption and hence to prices…A money-financed tax cut is essentially equivalent to Milton Friedman’s famous ‘helicopter drop’ of money.” Ben Bernanke-2002

I have plugged for QE-offset or -financed tax cuts for a long time. I did not know that former Fed Chairman and now multi-millionaire consultant Ben Bernanke also explicitly believed in the same thing. (My favorite is a FICA tax holiday, offset by $80 billion a month of Fed bond buying, and the purchased bonds placed in the Social Security and Medicare trust funds).

Today in the U.S. we have a sluggish economy marked by weak hiring and below-target inflation (a target that is too low anyway). We are a recession away from stumbling deep into ZLB-land, from which no modern nation yet has ever returned.

Bernanke 2002, we need you.

Greece

The situation in Greece, of course, is far worse. There, unemployment is about 25%, married to deflation. Whoever deserves blame, the point is Europe and Greek leadership are wrecking a nation and promoting extremism.  (I salute the Greek people for eschewing most hate groups. But for how long?)

The ECB-IMF is screaming for a Greek balanced budget. The Greeks are evidently incapable of that (like Americans, btw).

Obviously, Greece should exit the EU-ECB, hold the line on spending as much as possible, and print money to balance their budget. In a sense, money-financed tax cuts, just of the sort Ben Bernanke has advised for deflations. Set taxes at 100% of outlays, and then grant a 10% tax cut.

The pinch-faced money ascetics are, in general, a comfortable lot eager for others to belt-tighten.

But the Greek people are one-quarter unemployed. They need a macroeconomic policy that gets them back to full employment, with robust economic growth.

If not my way, then what have you got?