Why is the Fed planning to fail?

[ksen]

http://www.economist.com/blogs/freeexchange/2014/09/monetary-policy

Basically talking about how the Fed is failing at getting out of the Zero Lower Bound they're stuck in.

My thought is that if the Fed is stuck at the ZLB then haven't we exhausted what monetary policy can do and should instead be looking at fiscal policy to get the economy going fast enough to get us out of the ZLB?

iow, I don't see how this is all the Fed's fault.

 

[bilby]

It takes a strange ignorance of mathematics to think that zero is the lowest possible interest rate.

...effectively the lowest possible level, since the zero return on cash means that the central bank could not effectively deploy negative interest rates

Er, the return on cash is positive if the interest rate is negative. Essentially the Fed would be paying people to take money off their hands. Whether this is a good idea or not doesn't alter the fact that it is possible; nor does it change the fact that a 25 basis point decrease from 0 to -0.25% is mathematically almost indistinguishable from a 25 basis point decrease from 0.25% to zero. It's just numbers; there is nothing magical about dollars that makes negative numbers 'special'.

Of course, if you are going to give money away, it might be better to simply post a cheque to every adult citizen. But that's a policy decision; "What should we do?" is policy; "What can we do?" is mathematics - and negative interest rates are certainly in the 'can' basket.

Inflation is easy to stimulate; but for ideological reasons, nobody is able to bring themselves to do the obvious things to stimulate it - like letting poor people have more money.

 

[dismal]

Inflation is easy to stimulate; but for ideological reasons, nobody is able to bring themselves to do the obvious things to stimulate it - like letting poor people have more money.

Yeah, making inflation is easy. Even complete basket cases like Venezuela and Zimbabwe can make some damn good inflation.

The process is simple:

1) Print money
2) There is no 2

The difficulty has historically been in not creating inflation because printing money is fun.

What's hard is ignoring the sweep of history and deluding oneself into believing that inflation is going to solve your problems .

 

[Tom Sawyer]

I agree with dismal. Inflation is gong to solve all our problems.