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Home Publications Blogs Beat the Press Robert Samuelson is Worried More Quantitative Easing Could Spark Strong Growth

Robert Samuelson is Worried More Quantitative Easing Could Spark Strong Growth

Monday, 18 October 2010 05:11

I'm not kidding, read it for yourself. Samuelson notes Fed plans to buy more Treasury bonds. He then warns of the "dangers." He comments that the policy may prove ineffective -- the Fed may be pushing on a string:

"But if all the cheap money spurs much higher economic growth, many of these reserves will turn into loans and raise the specter of higher inflation -- 'too much money chasing too few goods.' The Fed would then have to withdraw or neutralize the added money through higher interest rates."

That's great, we're sitting here in the most prolonged downturn since the Great Depression, with the inflation rate closing in on zero, and Samuelson is worried that we may get a burst of growth that could lead to higher inflation. Only in the Washington Post.

Comments (13)Add Comment
written by izzatzo, October 18, 2010 6:08
If Samuelson was an engineer and built a bridge strong enough to withstand the risk of earthquakes or floods on a 500 year basis - where once in every 500 years these could destroy the bridge - the bridge would never be used for fear of failing.

This is the neurotic obsessions of an inflation fearmonger at work. No risk of inflation is too small to avoid and any risk is worth avoiding at all costs, like never using the bridge.

Inflation is a problem when it's a problem, but for Samuelson it's always a problem, to be feared as if earthquakes and floods occurred every year, and must be avoided at all cost, like extensive unemployment, by never using the bridge.
written by skeptonomist, October 18, 2010 8:08
The Fed has already bought about $1.1 T in MBS's and most of the "money" thus created is sitting in bank reserves. This was certainly a very good thing for those who held or hold mortgage securities including big banks. Let's see what the Fed buys this time - could it be that the announcement has more to do with the publicized problems in mortgage adjustment than with any real intent to counter deflation?

Samuelson has it mostly backwards as usual, but in fact there is a lot of bunched-up string already in Fed policy as shown by those reserves.
written by skeptonomist, October 18, 2010 8:21
Corporations also have a lot of money now, but executives are apparently using much of it to buy their own stock rather than increase production. Should the CPI include stock prices?
written by Queen of Sheba, October 18, 2010 9:33
I have no idea why the Fed (or the White House) thinks buying more treasury bonds will reignite the economy. The banks don't need more reserves, and corporations are sitting on piles of cash. The supply side has been stuffed fatter than a Christmas goose. Can none of the wizards in charge of the economy figure out how to spark the demand side? As a business owner, I need customers, and no one is doing anything to help bring them to my door unafraid and ready to spend.
It's where the money is coming from
written by James Cole, October 18, 2010 10:09
Queen of Sheba, it's not the purchase of treasuries, per se, it's where the money is coming from for the purchase. The money is coming from the Fed printing presses and the overall goal is to spur inflation by increasing the money supply (via printing it) but I agree with you that there's already enough cash with the banks, it's the demand side that needs to be spurred. Too bad the rich guys in charge forgot what it's like (if they ever knew) to have to make tough decisions about whether to spend or save as a consumer and worker.
written by wrf1984, October 18, 2010 10:12
Would somebody explain to me why Samuelson still has a job? Has he EVER been right about ANYTHING?
Why are you so afraid of deflation?, Low-rated comment [Show]
written by Joe the Plunger, October 18, 2010 12:28
"capitalism is premised upon deferment of reward, not instant gratification."

Hmmm. I'll remember this in December when the banksters are spending their million $ bonuses on Ferraris while I choke down yet another bowl of tepid Ramen
written by Ron Alley, October 18, 2010 1:40

Great comment. Don't Bernanke's remarks and the foreclosure piece discussed below indicate a remarkably consistent banks first policy of the Obama administration.

The part I don't get is why Obama continues to favor banks even as a large part of the base is sitting on the sidelines during these midterm elections.
written by keith johnson, October 18, 2010 7:39
@ Randy: You say deflation is good because it discourages spending, thus increasing savings and investment. But there won't BE any investment if people are not buying goods/services--there's no point in investing if you can't sell your product. Right now there is too little spending to employ everyone who wants to work and to grow the economy; decreasing spending NOW will reduce investment, not increase it.
Timberland boots sale
written by Timberland boots sale, October 18, 2010 9:49
Timberland boots are very popular amongst everybody, from young to old people. A pair of Timberland shoes brings beauty and comfort to wearer. Most people buy Timberland boots for wet weathers or outdoor activities.?Timberland 2011 shoes are certainly more stylish than its formers. Every pair is excellent style and exquisite crafting which drive the development of Timberland boots sale. A cheap Timberland boots can be found at a larger range of styles. Timberland boots are high quality and comfortable as well as being genrally water resistant.
The economic crisis business has been praying for has come true.
written by Scott ffolliott, October 19, 2010 12:27
The economic crisis business has been praying for has come true.

"The economic crisis as the disaster that now creates an opportunity for business that they can reshape the economy on corporate lines." from George Monbiot in reference to Britain, but very much applicable o the U S of A
Deflation is good???
written by Roger Strassburg, October 19, 2010 3:42
You might want to read what you wrote, and then sit back and think through the logic:

"With prices falling, saving becomes more attractive. With what is saved, more money becomes available to loan for expanding manufacturing..."

Now let me get this straight, if people buy less, companies will manufacture more... Wow, that makes sense...

And of course companies will want to borrow money at a time when prices - and profits - are falling, making their debts grow in proportion to their income. Savers, of course, will particularly enjoy having those companies default on their loans as a result. What makes this especially attractive is that had they not taken the opportunity to risk their money for zero interest, they would have had to put it under their mattresses, where the interest rate would have been the same, but their money would have been boringly safe.

Yes, your logic is pretty easy to follow.

Now I think I'll go invest in building houses in Florida - I hear people aren't buying them, so this would be a good time to borrow lots of money and build some more.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.