AEIdeas

The public policy blog of the American Enterprise Institute

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Discussion: (2 comments)

  1. Rather, if the Fed wishes to achieve both of those policy objectives, it must complement its policy of quantitative easing with vigorous use of its macro-prudential policy tools to limit the amount of risk financial institutions can take on their books.

    Is anyone on this site going to ever argue for a free market approach on the economy? History has taught us that central planning cannot ever achieve anything positive that the free market cannot do far more effectively. It was easy for us to laugh at the idiot Russians, Indians, or Chinese when they ruined their economies via regulations and central planning but for some reason we have not laughed at ourselves for following the same failed approaches.

  2. Ian Campbell

    The coherence of this argument is not strong!

    On the one hand, you accept that QE might help the economy recover because it bolsters (inflates) asset prices. On the other hand, this is undesirable because it blows asset bubbles that must be stopped – if the incentives to buy those inflated assets works through to systemically important institutions, who should be stopped from getting over-involved in the otherwise anticipated bubble.

    It’s fine for non-systemically important institutions (and presumably individuals) to buy inflated assets. But without the big boys filling heir coffers with those assets, there will be no desired effect.

    As suggested by above, better to leave it to the market to sort out. That would be the AEI’s first instinct, surely?

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