The idea is that a consumer and business spending spree, to boost GDP, should be initiated by a huge tax cut, funded by issuance of a lot of Treasuries, ie debt, sold not to the public but to the Fed. As a result, the Fed's balance sheet expands, but the national debt does not. As the economy kicks in, the debt (which stays the same) to GDP ratio goes down, and the economy is seen to be, and in fact is, healthier. The expansion of the Fed's balance sheet is inflationary. However, increased GDP results in increased tax revenue, which can be used in part to de-monitise the debt created to get the economy rolling. That is, trade a lot of deflation for for lesser inflation, which is easier to fix.
Sounds good to me.
Full article - an excellent read imo, is here
Post a Comment