What do you do when your GDP is so large, that when your central bank prints more money, you end up inflating the world due to lopsided trade flows? Ah ha, a good question yes? One, I'd like to pose rhetorically to the Federal Reserve Board and its chairman. Okay so, let's talk shall we?
First, there is an interesting set of papers you should read on this topic are those written by Ben S. Bernanke and Michael Woodford; "Inflation Forecasts and Monetary Policy" November 1997 published in the Journal of Money, Credit and Banking, Vol. 29, No. 4, Part 2: Dynamic Effects of Monetary Policy.
This information is important because we have a real challenge here with managing our monetary policy to inflation rates, and yet continuing this myth that it is somehow the Federal Reserve's job to fix the unemployment problems here at home. More stimulus usually leads to more inflation, but lately it has not increased employment, thus, no real wage inflation, and all we have to show for it is;
Inflating the rest of the world
More temporary spending by consumers
More off shore money flows and trade deficits
Is this bad? Well, it's not helping jobs is my point. Sure we want the US Dollar to be the world currency, the EURO won't work, and cannot be trusted and who knows if the EuroZone will survive or the ECB will get the power needed to manage it all - and even if it could, there are too many socialist nations in Europe. The Chinese currency is a nightmare, and the other BRIC nations are sketchy, too much volatility. So, whereas, we need to get money into the system, and money creation theory in global markets aside, this isn't helping jobs, nor should anyone really expect it too.
Further, more spending by the Federal Government just creates more economic industry bubbles at home, thus, only temporary jobs and incompatible job stability. On September 1, 2012 the Wall Street Journal had an article titled; FED Sets Stage for Stimulus - central Bank Chief Bernanke Defends Past Measures, Says Weak Labor Market Requires More Help," by Jon Hilsenrath.
Well, has it occurred to anyone that maybe we ought to ditch inflation target monetary policy or realize that creating money here, isn't creating inflation here, or jobs, it's doing that abroad due to poor trade policies and trade flows. Further the real answer to this question is not money creation or even quantitative easing.
The real solution is regulation reduction so our companies here can compete here at home and abroad. That isn't the Federal Reserve's job, nor their responsibility - that would be something the Federal Government needs to do, unfortunately our socialist leaning administration just doesn't get it. See my points here?
Lance Winslow has launched a new provocative series of eBooks on Economic Concepts. Lance Winslow is a retired Founder of a Nationwide Franchise Chain, and now runs the Online Think Tank; http://www.worldthinktank.net/
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