Business Insider is reporting some comments by Willem Buiter, an economist with Citigroup in London, that are absolutely shocking. Start with these recommendation to central banks:
– (i)reducing rates, first by lowering them all the way to zero (UK and euro area), then by eliminating the effective lower bound on nominal interest rates (all four currency areas);
– (ii) carrying out more imaginative forms of quantitative easing (QE) & credit easing (CE), in all four currency areas, by focusing on outright purchases of and/or loans secured against less liquid and higher credit risk securities, subject to a sovereign guarantee (joint and several in the euro area) for all such risky central bank exposures;
– (iii)engaging in helicopter money drops (all four currency areas): a combined fiscal- monetary stimulus.
The bottom line is that he advocates opening the money sluices at the central banks to create economic growth. This is a reckless statement that reflects no real understanding of what money is. The monetization of sovereign guaranties throws loan standards out the window and invites moral hazard in. The rich will get richer, and poor will get, well, poorer, because these economies would stagnate. Perhaps they would see stagflation, the worst of both worlds.
According to one of my fellow Austrians, “Buiter is a Certified Monetary Crank (CMC) of the highest order. His ideas draw from the most nutty aspects in the history of crankism.”
Hat tip to Michael Pollaro
In addition to the above points, let’s recall that Buiter is not speaking as a private individual. Perhaps Citi needs help. Its stock chart has shown a lot of weakness, with the price slipping below a declining 200 day simple moving average recently:
http://finance.yahoo.com/echarts?s=c#symbol=c;range=1m;compare=;indicator=sma%2850,150,200%29+volume;charttype=area;crosshair=on;ohlcvalues=0;logscale=on;source=undefined;
As in 2008, we may find that JPM’s announcement yesterday was not a solo affair.
“This is a reckless statement that reflects no real understanding of what money is”
Yes & no. While reckless to be sure, I posit that it no longer matters if even the Fed itself has no idea what money is. The bubble in government credit is so big, so ingrained in the human psyche that any predictions of catastrophic failure are likely to be wrong… until they aren’t. Buiter’s crankism, if followed could well lead to ‘economic recovery’, until some aspect of the bubble blowing pops. Will it be the credit of the government itself this time? I can’t say, except to say that it hasn’t popped yet, despite the fact that government & their central banks have been carrying out ever “more imaginative forms of quantitative easing (QE) & credit easing (CE)”, for decades. Their balance sheets are junk & have been for years.
Here http://www.zerohedge.com/contributed/2012-19-10/philipp-bagus-insolvency-fed is what I think is an excellent essay I found on ZeroHedge yesterday, which I couldn’t have written better myself. It was written in 2009 & his concluding sentence proves my point. Three years later central bank credit still pulls the strings. The Fed is insolvent yet the $ price of gold has been weakening since September last year.
I see nothing which says “The end of the experiment is getting closer”.
Here, Mr. Buiter, hold this lit match in your left hand. Now hold this 100 tons of TNT in your right hand. There, now play all you want, but just make sure you don’t blow anything up!!!