Devaluing the Dollar

Since yesterdays video about how the Fed makes (literally) money I’ve seen a few questions. On top of recent discussion of how and why we are not seeing inflation…thought I’d bring this recent piece from Barry Ritholtz to the tank. In 2010 Reminder: QE = Currency Debasement and Inflation he points to the long and (then) distinguished list of “experts” who wrote to the Fed Charman claiming how Quantative Easing (QE)  would debase the dollar, cause inflation, etc. It is interesting to me how many people I know, smart people to be sure, who believed this…some still do in spite of history proving them wrong.

QE has continued, pumped money into a weak economy creating jobs and keeping the system solvent. Like I said before it is not the best plan, that would have been direct government stimulous out of Congress. But some truely smart people credit QE with keeping us out of a full blown depression in spite of congressional efforts to allow, perhaps even make the economy worse. Yet as Ritholtz makes the point, none of the signitories on this letter, nor the others claiming inflation and currency debasement, have had no concequences in spite of being so wrong for so long. And here’s Krugman’s take, expectedly much more pointed, What to do When You’re Wrong.

Reader comments are interesting. One in particular points to the various signitures  “A Who’s who of the right wing, with a strong whiff of dead Rand…”

Yup, and they are just not learning.



One thought on “Devaluing the Dollar

  1. Ken Simpson

    Thanks Steve,

    Ken here: Monetary stimulus is mostly a contradictory tool. Low interest rates for example are actually contractionary because they take large amounts government paid interest income out of the private sector. Also, Treasury notes and bills by paying less income to the private sector makes Treasuries less attractive and “forces” cash savings into the stock market. QE works the same way. By buying large amounts of Treasuries, the Fed exchanges one dollar denominated asset of the money supply for another. No new money in the private sector is created, but the cash asset must go somewhere other than under the mattress and it goes into a building stock market bubble. Fed economists think this is helping the “economy” because they mistakenly equate the stock market with the real economy. They also mistakenly think the the rising “wealth effect” will get significant numbers of people to spend. People, who have significant money to gamble in the stock market or save in Treasuries, do not need or want to spend more money on goods and services. They have all the need or want. They are just parking their wealth and hoping for financial gains. Meanwhile, demand for goods and services and thereby job creation are not affected. Effective gains do not take place and thereby do not stimulate the economy.

    I haven’t read Krugman lately, but the last time I did, he did not understand this.

    All the best,



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