Monday Links on America’s Seduction, Europe and Bernanke’s Money Printing

The lead post here is from CW contributor John Lounsbury on the seduction of America. He wrote the original version in the Spring of 2009; yet, this piece is as relevant today as it was then – a must read. Then there is Felix Salmon’s post on Ben Bernanke. The line that caught my eye was "Yes, Ben, you are printing money. It’s how you pay for those Treasury bonds you’re buying." I agree with Felix despite denials from QE apologists and some MMT folks that Bernanke is printing money.

What Bernanke is doing is an asset swap of previously non-existent dollar credits for Treasuries, which are existing financial assets. The Fed creates these credits specifically to buy the bonds and take them out of financial circulation. The result is that net financial assets in circulation are unaltered but the monetary base has expanded. This is clearly a political debate because we are just parsing words. "Printing money’ has negative connotations and that’s why QE apologists are trying to warn off this phraseology.

Rather than use the phrase ‘printing money,’ one could more accurately describe QE as ‘executing an asset swap of reserves for Treasuries’ (in the hopes of reducing interest rates by whatever consequence such an asset swap would have on interest rates directly or indirectly). Try using that description with your grandma if you want her to be confused. Obviously, the phrase ‘money printing’ – negative connotations or not – is going to be much more well understood by the layman.

Also see the FT commentary and my post on Otmar Issing about Eurobonds. As I first mentioned last week, this is going to become a hot topic in Europe, just as QE has in the US. With austerity depressing demand in the periphery, worried policy makers are looking for a non-fiscal release valve. The Germans don’t want to give it to them.