However, QE is undoubtedly beneficial for financial asset prices... which is why stock market perma-bears hate it so much. Regardless, the government’s enormous fiscal stimulus during a time of high unemployment is exactly what MMT prescribes. MMT doesn’t advocate helicopter money. In fact, MMT downplays the importance of monetary policy. MMT proponents believe that the level of short-term interest rates or QE stimulus are far less important for the economy than fiscal policy. Basically, the Fed’s influence on the economy is overstated. helicopter money involved coordinated monetary and fiscal stimulus. To be clear, there isn’t overt coordination between the Treasury and Fed. But the effect is the same.
because it increases the money supply. It involves the central bank buying financial assets, such as government bonds. There’s no evidence that QE leads to inflation – the rising prices of goods and services. That’s because QE increases the base money supply... but not necessarily the overall money supply (which is dependent upon commercial bank lending). However, QE is undoubtedly beneficial for financial asset prices... which is why stock market perma-bears hate it so much. The S&P 500 Index hit an all-time high this past February. Then, the pandemic fallout caused the fastest bear market (20% decline) in U.S. stock market history. Peak to trough, the S&P 500 lost as much as 34%. Then, on March 23, the Fed announced that QE purchases would be as large as necessary to support the economy and markets. In other words, the money printing would potentially be “unlimited.” It’s no coincidence that the stock market bottomed that very day. And over the next month, the S&P 500 rallied 25%. Of course, there was also massive fiscal stimulus. Congress passed a $2 trillion relief package, which was roughly equivalent to 10% of pre-pandemic GDP. The combination of enormous government stimulus with “unlimited” Fed bond buying is essentially “helicopter money”... In 1969, economist Milton Friedman described a theoretical scenario of a helicopter dropping money on the streets. Friedman’s
GOVERNMENT DEBT IS NOTHING TO FEAR
Since the U.S. government can effectively create currency out of thin air, it can’t “run out of money.” Neither can the government of Japan. (The countries in the eurozone are in a different situation. The euro currency union imposes fiscal constraints – similar to that of a gold standard.) As Mosler wrote in his book, Soft Currency Economics , in the mid-1990s:
Government fiat money necessarily means that federal spending need not be based
American Consequences
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