The Beatings Will Continue Until the Economy Improves (Downgrade Update)

More on “Helicopter Ben’s” latest airborne currency dump from John Steele Gordon:

And all this is storing up big trouble in the future. The Fed has increased its balance sheet enormously by buying up assets and, in effect, printing the money to pay for them. Getting that money back is going to be very, very difficult to accomplish without slowing the economy once again or setting off a nasty bout of inflation.

But then, see Timothy Lee at Forbes.com, who argues that Milton Friedman would approve of Bernanke’s moves:

Zero interest rates have fooled a lot of people, such as the Wall Street Journal editors, into thinking monetary policy is loose. But in reality, it’s been tight, as indicated by the below-target inflation rate.

Note also Friedman’s advice that Japan adopt quantitative easing “until the high powered money starts getting the economy in an expansion.” That’s the key difference between past rounds of quantitative easing—which involved fixed dollar amounts for limited periods of time—and yesterday’s open-ended commitment to buy assets until the economy recovers.

Lee may be right on the technical point of monetary policy, though I remain skeptical.  But even if this is the right move, I’m equally sure Milton would be certain to add right now that this monetary aggressiveness wouldn’t be necessary if Obama’s hostility toward markets wasn’t so pronounced, and I’m sure he’d warn that this extra stimulus the Fed is making increases the risk of future inflation.

UPDATE: The Egan-Jones rating firm has just downgraded the U.S. by one half a notch.  Nice going President Downgrade.

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