This article caught my eye:
February 6, 2013 12:03 am Print money to fund spending – Turner (http://www.ft.com/cms/s/0/1be21d54-6fb5-11e2-956b-00144feab49a.html#axzz2K8IurvWe)
By Chris Giles, Economics Editor
Lord Turner, the departing chairman of the Financial Services Authority has defended financing government spending by printing money arguing that, within limits, it “absolutely, definitively [does] not” lead to inflation. Speaking before a farewell speech in London on Wednesday, Lord Turner, who applied unsuccessfully to be the next Bank of England governor, called for “intellectual clarity” in economic policy, including breaking a taboo that permanently printing money to pay for government services is always bad.
He went on: ““I accept entirely that this is a very dangerous thing to let out of the bag, that this is a medicine in small quantities but a poison in large quantities but that there exist some circumstances, in which it is appropriate to take that risk.”
The “cat out of the bag” metaphor reminds me of Paul Samuelson’s warning that the “old time religion” belief that government needs to balance its budget is a useful myth. We wouldn’t want the public to know the truth because they might actually demand that government spend in the public interest!
How could President Obama continue to claim that Uncle Sam ran out of money if the voters knew that is complete baloney?
Finally, in response to the Zimbabwe-Weimar hysterians, Lord Turner (rightly) put the hyperinflationary ventilating in its place this way: it was the absence of monetary financing in the early 1930s, which led to depression, falling prices and the rise of the Third Reich! “Is [monetary financing] desperately dangerous because every pound of money financed turns into inflation? Absolutely definitively not. There is no coherent rigorous bit of economics that takes you in that direction,” he said.
Look it is really quite simple. Sovereign currency is the government’s IOU. It can only get into the economy through spending or lending by the government—through the Greenspan-Bernanke “keystrokes”. Government can keystroke too little and it can keystroke too much. Too little can be just as bad as too much.
The budgeting process is the proper way to decide how much to spend. Forget the old time religion, the superstition, the myth. Get that darn cat out of the bag.