Tag Archives: QE

Draghi’s Doom Loop(s): More than just the euthanasia of the rentiers

By Rob Parenteau

The recently adopted QE approach by the ECB, in concert with the negative deposit policy rate (NDPR) introduced last summer, has set off a number of nested disequilibrium dynamics that may unwittingly introduce a material increase in systemic risk for the eurozone, and perhaps beyond. Lord Keynes anticipated what he termed ”euthanasia of the rentiers”, as he expected active monetary policy would be successful in reducing long-term interest rates, and the share of the population living off of bond coupons would eventually just wither away. By way of contrast, if the following assessment is correct, Draghi may have signed a mutually assisted suicide pact with finanzkapital in the eurozone.

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Marshall Appears on Fox Business

NEP’s Marshall Auerback appears on Fox Business News weighing in on QE and Markets. You can view the segment here.


Understanding the Permanent Floor—An Important Inconsistency in Neoclassical Monetary Economics

By Scott Fullwiler

I’ve written numerous times already about how a deficit “financed” by bonds vs. “money” doesn’t matter in terms of inflationary effect.  Notwithstanding my views there (which are not discussed in this post), the point of this post will be to explore the neoclassical paradigm on this matter, since this is at the core of the recent debate between Steve Randy Waldman (see here, here, and here) and Paul Krugman (see here and here) on the so-called “permanent floor.”  (It might be of interest to some that I explained how a “permanent floor” would work back in 2004.)

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Where Did the Federal Reserve Get All that Money?

By Stephanie Kelton (h/t Matthew Berg)

Federal Reserve Chairman Ben Bernanke gave his fourth lecture at George Washington University yesterday. Buried in the lecture, beginning at about 19:18 in the video, Bernanke explained where the Fed got the money to “pay for” the assets it purchased as part of its Quantitative Easing (QE) policies.

I remember when the Fed announced the first round of QE. Those who don’t understand Fed operations – think most mainstream economists – went nuts. Many worried that the Fed would be unable to “unwind” its positions (i.e. divest itself of the assets – MBS, Treasuries, etc. – it had purchased) because banks would refuse to swap their nice safe cash for riskier instruments when the economy recovered. Others insisted that QE was “stuffing the market full” of too many dollars and that this, inevitably, would result in hyperinflation.

John Carney just wrote a very nice piece, showing that not only was the Fed able to find buyers for its assets but that markets actually bought them back at a premium. Bernanke addresses the second objection in his remarks below – idle balances don’t chase any goods – but it’s the financing of the asset purchases that I want readers to understand, because this is fundamental to understanding Modern Monetary Theory (MMT).

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