Plosser, who now has a vote on the Fed, argues that current unemployment is mostly structural – about retraining people for other sectors – and that monetary policy has little to say or do about that. Murphy at Mises happily expounds on the Austrian theory of business cycles: “monetary factors cause the cycle but real phenomena constitute it.” What it brings to my mind is Sumner’s claim that he is fighting the next recession (ie – getting in place policies that would prevent or make more mild the next cycle – even if his nGDP-growth-targeting policies don’t retrain construction workers to be nurses. On the other hand, when Thornton also at Mises follows that up by arguing yet again that a 0.7% increase in expected inflation causes food and commodity price increases of 28% or Egyptian food price increase of over 100%, I worry at how much misunderstanding there is about inflation and monetary factors among the Mises faculty.
Sumner gives us a simple test: “There’s an easy way to tell unsophisticated old Keynesians from the more sophisticated new Keynesians. Do they call for fiscal stimulus when interest rates are positive?”
Hamilton explains how the Fed prints money without actually printing money. Actual currency growth has been slowing down and expanded less quickly during this recession than the 2001 recession. Instead, the Fed just credited banks’ accounts with reserves and the banks never turned those reserves into money. The part I agree with most (oh, how nice of me to agree with him!):
All that changed dramatically in the fall of 2008, because (1) the Fed started paying interest on excess reserves, and (2) banks earned practically no interest on safe overnight loans. In the current system, new reserves that the Fed creates just sit there on banks' accounts with the Fed. None of these banks have the slightest desire to make cash withdrawals from these accounts, and the Fed has no intention whatever of trying to print the dollar bills associated with these huge balances in deposits with the Fed. …
[Worrying about how the Fed will exit from this system] is very different from the popular impression by some that hyperinflation is just around the corner as a necessary consequence of all the money that the Fed has supposedly printed.