Monday, February 11, 2013

Monetary policy can "go critical"

Reality Check: How would you comment on the proposal made by David Kemper, Chairman, President and Chief Executive Officer of Commerce Bancshares, Inc., and past President of the Federal Advisory Council of the Federal Reserve: “I propose the Federal Open Market Committee’s next move be to take our central bank to a whole new level—a 2013 campaign that I call QE Cubed. Why not expand the Fed balance sheet exponentially, from its current $3 trillion to $33 trillion? Earning an extra 3 percent on another $30 trillion in bonds would allow the Fed to return an additional $900 billion to the Treasury—thus wiping out most of our federal deficit while avoiding actually having to do anything about current government spending”?
James Rickards: This view is consistent with that espoused by so-called Modern Monetary Theorists and is not far removed from views expressed publicly by President Charles Evans of the Chicago Fed and President Dennis Lockhart of the Atlanta Fed among others. This view is highly flawed because it assumes that money supply is a linear dynamic that can be dialed-up or dialed-down at will by central bankers in a predictable fashion with predictable results. In fact, monetary policy exists in a critical state dynamic. If it is pushed too far, it will "go critical" and catastrophically collapse in the same way that uranium can "go critical" and turn into a nuclear explosion when put into a certain configuration. Proponents of unlimited monetary easing are risking a sudden and unpredictable collapse in the international monetary system.
--http://english.ruvr.ru/2013_02_11/American-leaders-do-believe-in-the-invulnerability-of-the-dollar-system-but-they-are-misguided-James-Rickards/
"sudden and unpredictable collapse in the international monetary system".  Nah, impossible.

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