For a long time, I’ve been complaining that the proponents of more money printing won’t specify how they want the money to be printed. What else is left for the Fed to buy at this point? They won’t say.
Yglesias finally touches on the issue a bit here.
“One key point is that the Fed staff puts much more emphasis on the literal mechanics of asset purchases and much less on the expectations channel than I think is warranted.”
Funny that Fed staff would care about how to accomplish the task they need to accomplish.
The Fed prints money by buying stuff. The Fed’s major constraint in this area is that it’s only allowed to buy certain things. The article lists: Treasuries, agencies, agency MBS and foreign exchange. I’m pretty sure they can at least buy gold too (central banks like to talk about how gold is a “relic” but they also like to buy lots of it).
At this point, interest rates on Treasuries, agencies, and agency MBS are all incredibly low. Buying more of these assets is unlikely to be very stimulative, given the current super-low yields (thanks to the fact that the Fed has already bought so much of these things). Gold is at highs – also thanks to Fed activity. This basically leaves foreign exchange – in other words, the Fed would print dollars and buy foreign currencies, driving up the value of foreign currencies and down the value of the dollar.
Yglesias thinks the Fed should do this to stimulate the economy. I think so too, as it would increase the value of my gold holdings a lot.
The article notes that massive Fed purchases of FX would amount to economic warfare. Yglesias likes this, thinking that retaliation would force money printing in Europe. You can’t make this shit up. Yglesias apparently has no concern for the destabilizing consequences of rampant world-wide inflation. I guess you have to break a few eggs to make an omelette. Anyway, the fact that a policy maker who is taken seriously is arguing for this wildly irresponsible action is the best possible argument for buying gold that any goldbug could ever come up with.