September 18, 2013

WHICH IS WHY THE UR SHOULD STICK WITH BEN:

We need easier money. So why taper? (Scott Sumner, 9/18/13, The Week)

You only need to look to Europe to see the substantial risks of tightening money too soon. In 2011, the European Central Bank tried raising interest rates before a recovery was well-established -- Europe slid back into a double dip recession. Their attempt to "normalize" interest rates actually pushed Europe several years further away from any sort of normal economic situation. It's as if someone who has been seriously ill and bed-ridden suddenly felt well enough to run a marathon, only to run out of gas and injure themselves before the finish line. America and Europe otherwise had similar fiscal policies; what kept our economy from great self-harm was that our central bank was more aggressive in monetary stimulus.

If the Fed does decide today to taper it will be a big gamble. It will mean moving away from the its normal focus on inflation and employment targets, and instead responding to vague and poorly understood fears of "bubbles." The Fed should continue to focus on its mandate: Stable prices (which they interpret as two percent inflation) and full employment.

And that means we actually need easier monetary policy, not tighter.

The new Chairman will have to tighten for emotional reasons, irrespective of economic consequences.
Posted by at September 18, 2013 7:49 PM
  

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