Nobody is going to out-“crotchety old man” me!
Here’s Paul Krugman’s latest:
David Beckworth has a good post pointing out that the Fed has been signaling all along that the big expansion in the monetary base is a temporary measure, to be withdrawn when the economy improves. And he argues that this vitiates the effectiveness of quantitative easing, citing many others with the same view. My only small peeve is that you might not realize from his list that I made this point sixteen years ago, which I think lets me claim dibs. Yes, I’m turning into one of those crotchety old economists who says in response to anything, “It’s trivial, it’s wrong, and I said it decades ago.”
Krugman may be 2 years older than me, but I’m more grouchy and reactionary. And thus I can’t help pointing to an article I did 21 years ago (5 years before Krugman’s admittedly far superior paper.)
[Note (1=r)n and (1+r)x are meant to be (1+r) raised to the power of n or x. I don’t know how to do superscripts.]
For example, suppose that at time=zero there is a nonpermanent currency injection that is expected to be retired at time=x. Then, if the real return from holding currency has an upper bound of r, the ratio of the current to the end-period price level (Px-n/Px) cannot exceed (1 + r)n. Furthermore, if real output is stable, it would not be expected that Px would be any different from Po. Both price levels would be determined by the supply and demand for money, as in the quantity theory. The existence of a maximum anticipated rate of deflation (r) has the effect of placing a limit on the size of the initial increase in the price level. No matter how large the original currency injection, the price level at the time of the currency injection cannot increase by more than a factor of (1+r)x. Furthermore, these restrictions on the time path of prices can be established solely on the basis of the future time path of the quantity of money, without any reference to fiscal policy. It is this quantity-theory model that is applicable to the colonial episodes of massive and nonpermanent currency injections. . . .The impact of U.S. monetary policy during the period from 1938 to 1945 provides a good illustration of the preceding hypothesis. Between 1938 and 1945 the currency stock increased by 368 percent while prices (the GNP deflator) increased by only 37 percent. There was no depreciation in the dollar (in terms of gold.) Although real output grew substantially, the ratio of currency to nominal GNP increased from .062 to .132. Why was the public willing to hold such large real balances?
Although the U.S. did not experience deflation following World War II (as it had following previous wars), surveys indicate that deflation was anticipated. During the entire period from 1938 to 1946, the three-month Treasury Bill yield never rose above 1/2 percent. The fact that massive currency injections (associated with expectations of future deflation) were able to drive the nominal interest rate down close to zero, is at least consistent with the modern quantity-theory model I have described.
And stay off of my lawn!
Update: David Glasner found an even older example. (I’m sure there are dozens out there.) But I’d quibble slightly with this:
For one thing, reasoning in terms of price levels immediately puts you in the framework of the Fisher equation, while thinking in terms of current and future money supplies puts you in the framework of the quantity theory, which I always prefer to avoid.
I can’t help pointing out that the Quantity Theory, the Fisher effect, and PPP are three very similar theories, which share almost exactly the same strengths and weaknesses. And let me add that all three have enormous strengths and massive weaknesses. (Yes, the Fisher effect isn’t actually a theory, but you can imagine an associated theory that says nominal interest rates change one for one with inflation. Or if you prefer you can compare the Fisher equation with the very similar MV=PY equation.)
These three theories say the real interest rate, the real demand for money, and the real exchange rate are stable. All three theories are far more useful at double-digit inflation rates than single-digit inflation rates.
Tags:
23. December 2014 at 20:06
Instead of growth of the supply of MB being temporary could it be that the problem is demand for MB has increased permanantly? Maybe people are expecting permanent growth in MB but the demand for it by banks has increased because of low risk adjusted returns from investment. Sort of like secular stagnation.
Any further increases in MB at ZLB only contribute marginally to spending needing exorbitant increases in MB which are deemed risky by fed. Therefore it seems to be a case of riskiness of being more expansionary not a case of lower MB growth expectations.
23. December 2014 at 20:08
Good one. Merry Christmas.
23. December 2014 at 20:22
Use the caret above the 6 to symbolize raised to the power of.
(1+r)^x
(1+r)^n
23. December 2014 at 20:28
Scott, if your blogging software accepts HTML, then:
x
should work.
23. December 2014 at 20:33
Well, it does accept HTML, I think, because it just ate mine right up! Let’s see…
\x\
Trying again… let’s see what comes out!
23. December 2014 at 20:34
Well, that failed pretty badly as well!
In any case, there is a ‘sup’ HTML tag. It is very easy to use, but your blogging software keeps devouring my attempts to show you how easy!
23. December 2014 at 20:41
I’ll give it a try
x2
23. December 2014 at 20:42
Scott,
Your blog does not accept full HTML
23. December 2014 at 20:54
uh. Wow. Do my eye’s deceive me or did Krugman just concede the entire debate? He just straight-out said that the only thing keeping us in the ZLB is the Fed’s unwillingness to commit to a regime change.
23. December 2014 at 21:04
Lawrence D”Anna,
Krugman will concede NOTHING.
Scott:
Here’s Krugman from the same post:
“This is why I get annoyed with statements along the lines of “the Fed has pursued a tight-money policy”. We can argue about definitions, but that doesn’t get very well at the reality, which is “The Fed hasn’t been willing to commit to a permanent regime change in the face of what it considers a temporary problem.” And even if it had been willing to make that commitment, would people have believed it, enough to get the desired results?”
A direct stone in your garden!
23. December 2014 at 21:12
Lawrence,
I thought the same thing. I’ve posted in his blog comments in the past asking him to comment why he would not think the FED adopting Nominal GDP Level Targeting would not be a sufficient regime change.
He’s sitting here saying that it’s not easy to replicate coming off of the gold-standard. Well gee let’s try with with a new monetary policy target.
23. December 2014 at 22:39
Gene and dtoh, Scott is probably able to add html tags but both of you as commenters are forbidden to do so. Sites that allow users to post comments or submit entries to a bulletin board typically filter out tags to prevent what are known as injection attacks. Certain characters that have meaning to the operating system of the server hosting the web site may be filtered as well. But as Richard pointed out, the “^” is a widely accepted convention and is quicker to use.
23. December 2014 at 22:52
@Sumner – ” A slightly off-center [read: ‘unbalanced’?] perspective on monetary problems”
“Nobody is going to out-“crotchety old man” me!” – indeed, old boy.
“Note (1=r)n and (1+r)x are meant to be (1+r) raised to the power of n or x. I don’t know how to do superscripts.]” like this: (1-r)^n, and, (1+r)^n.
“The impact of U.S. monetary policy during the period from 1938 to 1945 provides a good illustration of the preceding hypothesis. Between 1938 and 1945 the currency stock increased by 368 percent while prices (the GNP deflator) increased by only 37 percent. There was no depreciation in the dollar (in terms of gold.) Although real output grew substantially, the ratio of currency to nominal GNP increased from .062 to .132. Why was the public willing to hold such large real balances?”
Why? I will answer this. First, Sumner’s mathematical model is absurd. He attempts to fit a simple linear model on a non-linear phenomena. The Quantity Theory, the Fisher effect, and PPP are rules of thumb (not laws) that hold in good times, not in times of distress (http://en.wikipedia.org/wiki/Fisher_hypothesis – “Fisher hypothesis may break down in times of both quantitative easing and financial sector recapitalisation”). Sumner’s passage above is deficient to answer “Why?” as it fails to account for the main driver for lack of consumption and investment by the public in times of depression: lack of “animal spirits” (http://en.wikipedia.org/wiki/Animal_spirits_%28Keynes%29) Keynes knew this missing animal spirits phenomena and his great contribution to economics is to simply introduce a bit of chicanery with the money supply (either fiscal and/or monetary) to fool people into spending again.
Let me elaborate this last point by analogy. How to temporarily increase factory output in a simple way? Turn up the factory lights. Workers will produce more. (Google this). Some have argued this is because workers can see better, hence produce more. But after a while the workers reach a plateau and eventually revert to the mean again. How to then temporarily increase factory output again? Turn DOWN the lights. Why? Human nature, and complex non-linear systems, have a ‘steady state’ mode and a ‘transient’ mode. The transient mode comes from initial conditions and impulses, and quickly reverts to the steady state mode, which is more driven by the ‘true nature’ of the system. The transient response of factory workers is to work a little harder when their environment changes. Maybe even introducing a morning pep talk, as is done in Japan, would achieve the same thing for a while. Another case of this: switching a nearly dead battery on and off quickly will produce small bursts of peak power that temporarily looks like you are getting more energy that you have (akin to Keynesian ‘money illusion’ chicanery). It’s the basis for a lot of ‘perpetual motion machine’ scams. But the battery quickly reverts to the steady state solution of nearly dead.
Keynes ‘pump priming’ transient response to depression is an attempt to stimulate a complex, non-linear system (the economy) short term, so it becomes unstuck. It’s great in theory, but too bad it’s never really been seen in practice, and abused by politicians all over the world to justify big government. Sumner’s irresponsible ‘threaten to increase the money supply permanently’ solution is merely the game of Chicken, played with Other People’s Money. Will it work? It’s a bit of chicanery akin to turning the factory lights on and off, so it may or may not work (I have argued elsewhere that times were simpler in the 1930s, people were less sophisticated, so these tricks may not work today). But to pound the table with certainty that it will work, and then offer linear mathematical rules of thumb derived for good times to explain behavior in bad times is mere quackery, not just ‘off-center’ as the blog title says.
24. December 2014 at 03:30
Ray, all you’ve done is make an irrelevant (false) analogy and asserted that Scott is advocating ‘chicanery’. There is absolutely no substance or reasoned argument in your comment.
24. December 2014 at 05:12
Inflation being expected as temporary is also an important factor that explains why there has been a significant run up in the spending on, and where applicable the prices of, stocks, bond, derivatives, commodoties and other non-consumer good assets, is that investors are not willing to consume much more out of their capital, because they know the capital prices are going to eventually have their source, from the Fed, removed.
This is also why stock prices are so correlated with Fed activity. It has less and less to do with “fundamentals.”
This does not bode well for economic calculation and coordination.
24. December 2014 at 05:18
The musical chairs theory of stock markets is that temporary inflation encourages stock speculation, where every investor knows the music will end at some point, so each hope to get in and get out before then.
24. December 2014 at 05:24
At some point, investors might come to realize that there will be no reversal of stimulus, or cessation of inflation.
They need more deflation worryworts to “educate” us into believing it is permanent.
24. December 2014 at 05:29
Ray,
There are so many things in that comment that could use a link more than ‘Fisher Hypothesis’ and ‘Animal Spirits’ …
Later you tell us to google some random effect with factory lights!
24. December 2014 at 05:33
@Phillipe – cite please? Prove me wrong. Appeals to your authority will not work unless your name is Paul Krugman, and even then I am suspect.
@MF – nice reasoning. Indeed, stock prices are showing the effect of Fed money printing. Here is another interesting thing I noticed: any monetary expansion by government (of the kind our host wants) will be offset by more private savings. Effectively sterilized. This has already happened.
See the Economist review of Koo’s book, in the third sentence below): if the private sector is not borrowing, despite increased asset prices, and private debt is decreasing (see Household-Debt-to-GDP here: http://research.stlouisfed.org/fred2/series/HDTGPDUSQ163N) it is because public debt has been increasing, offsetting the private deleveraging. note this graph: http://research.stlouisfed.org/fred2/series/GFDEBTN (public debt-to-GDP)
So, “Rational Expectations” says that government attempts to stimulate offset private savings and *prevent* deleveraging as a whole, which is a “balance sheet recession” as taught by Koo, will fail because deleveraging is exactly what is needed. Granted, Koo thinks government spending and keeping nominal GDP from falling is a good thing, which I disagree with, but it seems any government expansion, in a balance sheet recession or weak times as now, will be met by private sector contraction.
http://www.economist.com/news/finance-and-economics/21636750-new-book-prescient-economist-lets-get-fiscal?fsrc=scn/fb/wl/pe/letsgetfiscal
Mr Koo’s case, which he first made in “The Holy Grail of Macroeconomics”, a book published in 2008, has been strengthened by intervening events. However, there are some points that he glosses over. ***A side-effect of QE is that asset prices have risen sharply in value; that should have repaired corporate and personal balance-sheets but the private sector is still not borrowing. Why not?*** And he probably does not take the arguments for secular stagnation seriously enough: deteriorating demographics and sluggish productivity growth are important. Growth in the rich world has been slowing for decades. Even politicians with the wisdom of Solomon might have struggled in the circumstances.
24. December 2014 at 05:38
@nick–the fault lies with WordPress, which is lousy and actually often infected with malware BTW. You cannot edit your posts, you have to type in a tiny box three inches across, and the comments are not ‘threaded’ so I have to type @nick and hope you understand which post of yours I am replying to. Let me Google factory lights for you… ah, three second later (you should learn how to do this for yourself Nick): http://en.wikipedia.org/wiki/Hawthorne_effect (Hawthorne Effect is the technical name).
24. December 2014 at 06:01
Ray,
Thanks! I know one can’t easily get a ton of links in here, and though it looks like a bug its a feature to me.
Why should I learn to google that? You are putting effort into these comments, deciding which potential links your readers would most benefit from following is basically a good in and of itself. And using the proper name the first time is just a good idea.
But I liked your other comment, good links there, keep up the good work and don’t lean too much on wiki links please! At least give is one of the external links from the wiki page in support of your specific point.
24. December 2014 at 07:40
@ MF of course aggregate stock prices are correlated with Fed activity. If the price of a stock is related to the present value of all its future cash flow, and the central bank announces pursues a more accommodative policy than markets expected…then investors on the aggregate can expect (at least in the short run), better cash flow from their investments than if the central bank did nothing. Fundamentals are absolutely still used in valuations every day. I work in the industry and I can tell you that company, industry and economic fundamentals all play a relevant role in looking at the valuation of any asset.
The musical chairs theory of stock markets and “temporary inflation” is the wrong analogy. I think what you meant was to tie it to accommodative policy. Which is still incorrect, the most relevant measures would be inflation and real growth, or to tie them together nGDP growth.
@Ray- “Indeed, stock prices are showing the effect of Fed money printing”. I disagree; I would argue markets respond far more to forward guidance than “money printing”. Look at the last few months- there has been no more bond purchases since the end of October and the S&P500 has been up almost 100 points (5% in 3 months). Even on the announcement date QE would officially end, stocks continued to increase. The market reacts to what the Feds outlook on NGDP growth will be- QE is just a tool.
Scenario- Fed is undergoing QE program and suddenly decides to stop the asset purchases- at the around the same time, expected nGDP growth goes from 3% to 6%. How do you think markets would react?
24. December 2014 at 07:44
On a completely different topic, wouldn’t a variable tax to establish an import price floor on oil serve some strategic goals right now.
24. December 2014 at 08:30
Scott,
Here’s a complaint from a “crotchety old woman” I thought you would appreciate, given the long wait from your publisher…
http://www.theguardian.com/business/2014/dec/22/authors-are-now-judged-by-their-twitter-followers-and-its-a-world-gone-mad
24. December 2014 at 09:06
CMA, If they keep the IOR at 0.25% then the demand for base money will fall sharply in a few years.
Thanks Brian, best wishes to you.
Gene and dtoh, I’m afraid I know nothing about HTML. I’ll use ^ in the future.
Lawrence, He’s always been a bit vague on the issue–readers get a different impression depending on which point he is trying to emphasize. He’s always thought regime changes could work.
Ray, It’s getting so your stuff isn’t even funny anymore, just irrelevant to the discussion. Yawn.
Jon, Maybe, but I’d prefer a revenue neutral carbon tax, offset by lower taxes on capital.
24. December 2014 at 09:10
Becky, I have yet to enter the social media.
24. December 2014 at 09:15
Elfin Laura and Anna have a Christmas present for everyone;
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2526055
‘Santa Claus is now back at the frosty North Pole. After enjoying the Caribbean sun all summer long, he is now planning the Christmas celebration ahead. To do so,he is surrounded by his Christmas Economic Advisors (CEA) Dasher and Dancer and Prancer and Vixen, Comet and Cupid and Donner and Blitzen together with the chairman Rudolph who are assisting and advising him in the preparation of the
Christmas Economic Report. In this report Santa a benevolent dictator aiming to bring love and joy to everyone celebrating Christmas sets outs the planning for the
next holiday season. Santa is furthermore supported by a team of elves, mainly in charge of the logistics, marketing, accounting and financing of the presents.
‘After some troublesome years of increasing demand for presents, Santa’s finances are tight. He is not sure how to finance the next Christmas season. Thus, Santa consults the CEA. Rudolph has clear-cut advice. The capital should be invested in stocks right before Christmas because economists found a pre-holiday effect in countries celebrating Christmas. This is characterized by abnormal returns on the day(s) preceding Christmas. Investing all liquid assets in stocks will solve Santa’s financial problems within days. Even more surprising, the economic literature is not even very controversial about it. The occurrence of this effect is wide spread and persistent.
‘But this cannot be true, Blitzen replies, it contradicts Fama’s (1970) Efficient Market Hypothesis. If it is as simple as you say, this knowledge should be sufficient for
all rational investors exploiting this effect, so that it disappears. And Jagannathan et al. (2012) show that investors are more likely to make their investment choices at the end of the year. Therefore, abnormal returns on special and predetermined occasions such as Christmas cannot exist.
‘Rudolph is not convinced by Blitzen’s objections and refers to the paper of Lakonishok and Smidt (1988). As early as 1988, they found that pre-holiday returns are 23 times higher than those on other days for the US besides Ariel (1990) found 10 times higher returns compared to the rest of the year. Even more, several empirical studies report that returns preceding religious holidays tend to be superior to returns of other holidays (see Cao et al. 2009 and Bley and Saad 2010). And this pre-holiday e¤ect has not only been established in the US in several studies2, but also in several other markets.’
24. December 2014 at 11:38
Dear Commenters,
Why has the one-year UST yield doubled in the past month?
http://www.crossingwallstreet.com/archives/2014/12/quiet-day-with-new-highs.html
24. December 2014 at 12:12
Sumner: “Ray, It’s getting so your stuff isn’t even funny anymore, just irrelevant to the discussion. Yawn.” – I see. When you lose the debate, as you did in the last thread, and you did in this thread, you just resort to ad hominem. I am glad however, because based on your advocacy, as another commentator said, NGDP will never amount to anything. And that’s good for savers world-wide. That’s a Christmas present we can all enjoy. Adios Sumner, humor yourself with your little 2D charts.
24. December 2014 at 13:40
I was just wondering, Scott, if you could offer a quick comment on the current financial crisis in Russia and what part you think monetary policy is playing in it?
24. December 2014 at 13:41
Well, excellent blogging but I have a question. My take is that QE3 (open-ended, results-dependent) was too little, too late but worked. It worked and the Fed has not committed to maintaining its balance sheet (as it should).
What if the economy is Fed tone deaf (as I believe it is)? In my checkered career in worked in several industries in many different companies, and was owner-operator too. No one ever mentioned the Fed. I never thought about the Fed.
So why did QE work? Well, the Fed printed up $4 trillion and gave it to bondsellers. The bondsellers then had immediate claim on goods services and other assets. In other words they could either spend or invest their money or put it in the bank. So, we saw some stimulus and a large increase in bank deposits, also called reserves.
Am I to believe that Fed actions–that is $4 t ft illion of QE–are less important than the words of the Fed spoken to a deaf public?
24. December 2014 at 14:45
Dear Commenters,
Are there any noteworthy people left-of-center who have stated that Sumner is right and Krugman is wrong besides Ryan Avent and Yglesias (not even sure that they believe that)?
24. December 2014 at 15:05
Ray:
“…any monetary expansion by government (of the kind our host wants) will be offset by more private savings. Effectively sterilized. This has already happened.”
Actually monetary expansion can and has resulted in higher consumer goods prices, which means there is at best only a partial offset. Spending has been increasing as well.
Tom M:
“MF of course aggregate stock prices are correlated with Fed activity. If the price of a stock is related to the present value of all its future cash flow, and the central bank announces pursues a more accommodative policy than markets expected…then investors on the aggregate can expect (at least in the short run), better cash flow from their investments than if the central bank did nothing. Fundamentals are absolutely still used in valuations every day. I work in the industry and I can tell you that company, industry and economic fundamentals all play a relevant role in looking at the valuation of any asset.”
DCF models are not the only models used by research departments and asset managers to value stocks. Indeed, I have noticed a decline in the popularity of those models because they don’t work very well during volatile earnings times, since they are very sensitive to small changes.
DCF models are not that popular for valuing stocks. Especially when a substantial portion of the stock’s total return is comprised of capital gains (quite the case during inflationary booms!).
When it comes to valuing stocks, P/E multiple and other relative valuation models are most popular.
But even within discount models, there is the discount rate. Fed policy can make borrowing and financing costs “cheaper”. A lower discount rate increases present values even if future cash flows are unchanged.
“The musical chairs theory of stock markets and “temporary inflation” is the wrong analogy. I think what you meant was to tie it to accommodative policy. Which is still incorrect, the most relevant measures would be inflation and real growth, or to tie them together nGDP growth.”
This is a rather confused paragraph. First you say temporary inflation is the wrong analogy, but then you say the most relevant measure is inflation plus X.
Stock prices do not rise when real output expands and prices concomitantly fall. If a company sells, or is expected to sell, twice the goods for half the price, their revenues or profits do not rise, and so there is no reason for stock prices to rise. If they do rise, it must be for different reasons, such as what I explained above.
I disagree that temporary inflation is the wrong analogy. I think it is a gopd analogy. I define inflation as an increase in the quantity of money. Perhaps you thought I meant prices?
24. December 2014 at 15:18
Prof. Sumner,
Please see Bryan Caplan’s new post:
http://econlog.econlib.org/archives/2014/12/why_florida_is.html
Just curious: why do you intend to retire in California rather than Florida?
24. December 2014 at 15:30
Scott,
Happy holidays
24. December 2014 at 18:27
@MF -thanks. I agree. I was just pointing out what the 80s Rational Expectations crowd might say, and, as you can see, I think there is some sterilization going on. The deleveraging by the private sector has been offset by the government sector. It’s not one-to-one but it’s there based on the two graphs I cited. So the more expansion by gov’t, the more the private sector wants to save, if this is a balance sheet recession. But actually, I think it’s more of a structural secular stagnation.
24. December 2014 at 19:35
Patrick, Merry Christmas to you too.
Ray, You said:
“Let me elaborate this last point by analogy. How to temporarily increase factory output in a simple way? Turn up the factory lights. Workers will produce more. (Google this). Some have argued this is because workers can see better, hence produce more. But after a while the workers reach a plateau and eventually revert to the mean again. How to then temporarily increase factory output again? Turn DOWN the lights. Why? Human nature, and complex non-linear systems, have a ‘steady state’ mode and a ‘transient’ mode.”
I admit it, there’s no way I could possible “win a debate” with someone who makes those sorts of comments. To think otherwise would be like believing you could win a debate with someone in a lunatic asylum.
Ashton, I don’t have any insights into the Russian crisis, beyond what you’d read in the press. I doubt that monetary policy played much of a role, but am not certain.
Ben, I believe the actions did have some direct effect, but monetary policy is always about (mostly) expectations.
Travis, I can’t bear to live anywhere that is flat—too depressing. If Florida had the terrain of California it would be great. California is also better form a cultural perspective.
Edward, Thanks, and same to you.
24. December 2014 at 20:02
@TravisV, Dean Baker had some good stuff to say about monetary accommodation recently.
25. December 2014 at 07:02
Brian Donohue,
Sure, but I don’t think Dean Baker has written any posts saying “Sumner is right about this macroecon point and Krugman is wrong.”
I’m almost certain that Avent has multiple times. Good chance Yglesias has, too.
25. December 2014 at 07:04
Also, Merry Christmas, everyone!!!
25. December 2014 at 08:03
Travis, Merry Christmas to you as well.
29. December 2014 at 12:10
I doubt anyone really expect the Fed to shrink its balance sheet. The Treasury needs to keep issueing bonds to finance government spending and the Fed isn’t going to compete with the public in buying bonds. The Fed also needs to keep interest rates on g-bonds at a permanently low level.
We’re on the way to direct money printing to finance spending, for better or worse.
As far as expectations go, the financial community believes the Fed will do whatever it can to support the price of financial assets. I suspect the financial community believes the Fed *can* do this. Not so sure myself, but it’s possible.
29. December 2014 at 21:35
Charlie, If they don’t shrink the balance sheet they’ll probably raise the IOR. Either way they won’t be “financing” government debt.
29. December 2014 at 22:40
The Fed does indeed “finance” government debt by way of encouraging dealer members to be initial buyers after which they can flip them right to the Fed.
If someone legally printed dollars in their basement, and promised to buy General Electric debt from the secondary market, encouraging primary debt market investors to pile into GE debt for a sure profit, and encouraging GE to issue more debt, the person in the basement with the printing press would in fact be “financing” GE debt.
Just because there is a middleman, it doesn’t mean the GE debt monetization does not exist.
And nobody should act surprised if GE massively expands its borrowingand spending because of this moral hazard.
Central banks allow and encourage states to grow more than they otherwise could have grown, ceteris paribus.
Minarchist monetarist is a practical contradiction.