AEIdeas

The public policy blog of the American Enterprise Institute

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Discussion: (11 comments)

  1. She probably will continue, perhaps even longer than the departing Ben Bernanke would, the “quantitative easing” that is “trickle-down economics” as practiced by progressives“…

    Ahhh, so progressives think that monopoly money can be used in lieu real money, eh?…

    Dagong Downgrades the U.S. Sovereign Credit Ratings to A-

    On October 16, 2013 EST, the U.S. Congress approves the resolution to end the partial government shutdown and raise the debt ceiling. By such means the U.S. Federal Government can avoid the default crisis for the moment. However the fundamental situation that the debt growth rate significantly outpaces that of fiscal income and GDP remains unchanged. For a long time the U.S. government maintains its solvency by repaying its old debts through raising new debts, which constantly aggravates the vulnerability of the federal government’s solvency

  2. Todd Mason

    If it only low interest rates were punishing the affluent alone. There are literally millions of retirees who won’t buy stocks on a bet and who limp along with CDs at rates that won’t cover pet food.

    And I for one would be grateful if the blogger curbed the use of models to “prove” QE put us in a better place than we would have been. Could be it’s the real estate recovery lifting economy (with an assist from the Fed.) Could be the models are wrong.

  3. So in order to provide retirees with guaranteed income, Todd, you’d redistribute even more wealth from the Millennials by way of forcing us to pay more interest on the student loan debt a vast majority of us have?

    1. Todd Mason

      No. 1, investment income isn’t guaranteed. With the best 5-year jumbo CD rate at 2 percent, far from it.
      No. 2, the transfer of wealth in this case is from old to young. (Your lender gives you a great deal on student loans because geezers are getting a raw deal.)
      No. 3. There’s no net redistribution in SS either. Yet. FICA collections plus interest on SS’s $3 trillion surplus will make the nut through 2020 give or take.

      You want to be upset with someone, pick Dubya, who decided that the Koch brothers needed tax relief first and he’d get around to fixing SS for young workers later.

      1. 7 percent interest is “a great deal”? How about zero percent interest, because without an educated population, there won’t be anyone working to pay for those future Social Security benefits? How about retroactively canceling all student loans?

        I don’t care that CDs don’t earn anything. Nobody is entitled to make a living by doing nothing more than stuffing money in a bank account.

        1. Todd Mason

          Dunno how or why you pay 7 percent but the current federal rate is 3.86 percent, which, in fact, is cheap money. http://studentaid.ed.gov/types/loans/interest-rates

          And the geezers getting screwed are not moneybags types, but ordinary folks who skrimped and saved over a lifetime, I am tempted to succumb to Millennial stereotypes here but will simply say that you’d be surprised at how much money a frugal person can accumulate in a lifetime.

          1. “The current federal rate…”

            Which doesn’t help anyone who borrowed, oh, last year, or the year before that, or the year before that…

            What *most* students pay on *most* of their loans… yes, 6.8%.

            http://studentaid.ed.gov/types/loans/interest-rates#what-are-the-interest

            So please don’t whine to me about “geezers getting screwed.”

          2. Todd Mason

            I am not whining but rather responding to the bloggers point that interest seekers can afford ultra low returns. Apparently you have a point to make as well — that not all borrowers are enjoying low rates.

  4. I am far from qualified to judge the advantages and disadvantages of active versus passive fiscal policy as practiced by the Fed and by the ECB. However, if the Federal Reserve adjusts bank interest rates in reaction to rising and falling inflation and if the ECB is controlling through secondary bond market transactions in reaction to changing debt ratios – both methods would be reactionary, thus active, methods.

    The challenge at the ECB appears to be finding the best way to keep the social push toward more from the government, under any economic trend, in check with 13 or so separate entities and one currency.

    QE at the Fed, it seems to me, would be on the extreme edge since it is a 180 degree turn from interest rate setting – but that may be because setting negative interest rates would be inappropriate.

  5. “Easing serves two Obama goals. It enables the growth of government by deferring its costs with cheap borrowing. And it redistributes wealth: By punishing savers, it effectively transfers wealth from them to borrowers.”

    Who is borrowing? I thought the banks are holding onto the QE $$$ in reserves? Appreciate feedback

  6. Benjamin Cole

    First, George Will should read Milton Friedman’s seminal piece on QE, before he (Will) writes another word: Please George Will, love you and read this:

    http://www.hoover.org/publications/hoover-digest/article/6549

    There you have Friedman, writing for the Hoover Institution, that QE is what Japan needs, the more the better.

    If that is not conservative credentials, then I do not know what is.

    Then, consider that any federal policy—from defense, the agriculture, to foreign relations to the tax code—will have some winners and losers.

    If Market Monetarism is shelved as some groups might benefit…then let’s shelve defense too, as people in defense industries directly benefit, or rid ourselves of the home mortgage interest tax deduction….why not kill the concept of money, as it only helps bankers, and we can go back to barter….

    Back in the real world, I think by stimulating demand, and thus demand for workers, QE will help the “lower-class” as much as anybody. Tight labor markets seem to shift income to labor. Duh.

    GIve unto me a growing, prosperous economy, I want to see Fat City again. Boom times baby.

    The Fed is asphyxiating America. That is the real story. The ECB is doing the same thing to Europe.

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