Monetary erroneous thoughts

Paul Krugman
New York Times

One of the lessons of the Great Depression that should never underestimate the destructive power of bad ideas. Alas, some of those bad ideas, then contributed to the catastrophic upheaval, however, proved to be very durable. Although in some kind poizmenen today they continue to affect the economic debate.

Holy Faith

What it actually saying? Economic historian Peter Items claims that one of the main causes of the Great Depression was the so-called gold standard mentality. By this term he indicates not only sacred belief in maintaining the value of one currency into gold, but also related attitudes, including: manic fear of inflation, even when there is much more real threat of deflation, the opposition of the free lending, even when the economy desperately needs him, so on the ground that the loan will be distorted effect, claims that even the government is able to create new jobs, not doing it because the recovery will be artificial.
In the early 30’s precisely this kind of thinking led governments to raise interest rates and reduce government spending, despite mass unemployment in the latest attempt to defend its gold reserves. Even after the parties have abandoned the gold already rooted attitude made them too reserved to any eventual lowering of interest rates and creating more jobs.

Now times are different. Or not?

Of course, the United States not invited to return to the gold standard. However, a modern version of the related mental model has an increasing impact on economic discourse of the country. A new version of the old bad ideas can undermine America’s chances for full recovery.
Take for example the current account fuss about the falling value of the dollar in international markets. The truth is that the drop of the green currency is good news. At least, we should be glad that the decrease is the result of rising confidence – the dollar went up in the midst of financial crisis, after the panic investors sought refuge in the United States. That is, we now ought to fall, because fear has started to poutihva. Less expensive dollar is a boon for U.S. exporters and help countries in transition from a huge trade deficit to a more stable international position.

Rod for conservative Fed

If you read the editorial page of The Wall Street Journal, however, you are saying that the dollar depreciation is a terrible thing. For American audiences this did not signal that the world loses faith in the U.S. and, of course, in President Barack Obama. Surely you believe that you should do something about it. Indeed, the rate of the dollar has become a stick with which conservative congressmen require the Federal Reserve and pressed him to relax its efforts to stimulate the U.S. economy.
We can only hope that the central bank would resist this unreasonable pressure.

Incontinent words

More worrying however is that the system of Federal Reserve itself is perceived unpleasant signals insinuate wrong attitude of monetary policy.
In recent weeks heard statements from representatives of the Federal Reserve (mainly but not exclusively, by some presidents of the regional federal banks), calling for an early return to the strict monetary policy, including entering and higher interest rates. People who work in the Fed system are usually very cautious in his statements concerning the future direction of monetary policy, not to undermine the Commission’s efforts to open markets to shape expectations. It is unusual that all such reasonable bankers suddenly began to violate the unwritten rules of practice and to learn committee, which actually sets the rates.

Bad ideas

Even more surprising is the idea that in the near future will require an increase in interest rates. Finally, unemployment has reached appalling 9.8 percent and continues to grow and inflation is well below the long-term goal of the Fed. In this situation the central bank has no where to be quick to tighten. Actually, if you are guided by the standard guidelines of the policy interest rate should not be changed at least the next two years or at least until the unemployment rate falls to around 7%.
Some representatives of the Federal Reserve wants to pull the trigger much sooner. „To avoid a big inflation will have to act long before the unemployment rate and other indicators of resource use are returned to their acceptable values,“ says Charles Plosar from Federal Bank in Philadelphia. Jeffrey Lakar Federal Bank of Richmond did was of the opinion that it may be necessary to raise interest rates even before unemployment have gone down.
I do not know what kind of analysis these incontinent based attitudes, but perhaps things did not touch up analysis, but to the mental model – the feeling that the central banks are expected to act strictly, and not to provide affordable credit.
It is vital to not let this mentality to set policy. It seems that so far we’ve managed to avoid a second major depression. However, if you leave of prejudice, bullying our ancestors, we will only bring you the next worst case scenario – an era of slow growth and high unemployment.

––––––––––––––––– ––––––––––

Вашият коментар

Вашият имейл адрес няма да бъде публикуван. Задължителните полета са отбелязани с *