…is apparently not only adequate for Greg Mankiw, who suggested that the FED should create hyperinflation to solve the economy (I know thats not what he said, but thats the result of his policy), apparently the same goes for the FED. Great. The guys at the biggest banking monopoly in the world have just gone out and said that the economy needs interest rates of -5%. Do you people understand the implications of this? (for a nice slashing of Mankiw by Robert Murphy, go here)
This is the equivalent of saying that in order to “save the economy”, the FED wants everyone to borrow from their neighbours savings, and only return 95% of it a year later. What the FED thinks is that the fact that someone else goes out and spends your money is going to revive the economy. But while the FED thinks that money = wealth, and that they can print money to cause inflation and make the real interest rate drop below zero – in the real world, money lent out has to come from somewhere. This means that any and every dollar saved anywhere should according to the FED be devalued by 1/20th per year, or more. Because what is the difference of you lending someone $100 and getting back $95 – and you taking $5 and burning it? From your perspective – nothing, except that the borrower in the first scenario may default and then you get nothing back.
Instead of $100 being available for investments for the future at a sound interest rate, the FED wants said $100 to be given to some reckless idiot that will spend it, and default because he won’t even be able to pay back the $95 that the FED wants.
This is by far the worst argument ever heard. If this is what you honestly believe, then why don’t you just take ol’ Bernanke literally.
Print one gazillion dollars, load it into airplanes and lay a nice mat of money over every american city. There. You now have inflation enough for your -5% interest rates.
Hyperinflation anyone? Ultra-hyperinflation anyone? Peter Schiffs videoblog puts it more eloquently than me …