Excerpts from When Unconventional Becomes Conventional
“The central bank has a profound duty to meld itself with the fiscal authority, until the fat risk of deflation is eliminated.
And as a practical matter, there is nothing magic about the zero line for inflation. Inflation that is too low implies similar pathologies as actual deflation, just not as severe: Incentivizing private sector deleveraging, even while making it more difficult to achieve, generating negative animal spirits and a chronic shortage of aggregate demand relative to aggregate supply potential.
In such circumstances, fiscal policy restraint is not a virtue but a deflationary vice. What is actually needed is yet greater leveraging of the fiscal and monetary authorities’ balance sheets.Thus, I believe the argument for the Fed to explicitly commit to print money to fund increased fiscal expansion is growing by the day.”
No matter how hard I look, so far there are no signs of deflation, quite to the contrary, living expenses for the average citizen are only going up. What I find particularly insidious in his article is his claim “Inflation that is too low ” is allegedly ” generating negative animal spirits .”
So, may I assume, since inflation was higher before the crisis, the infinite greed and hybris of Wall Street banksters who brought about this crisis, were actually positive spirits ?
May I also assume your funds would do better with a little more inflation Mr. McCulley ?