Yglesias on Monetary Policy


Matthew Yglesias gets it right by not knowing what he’s talking about:

I’m perennially baffled by the occasional phenomenon of American officials publicly complaining about China’s currency policy. After all, what kind of a world are we living in when a great nation can’t think of a way to devalue its own money? Larry Summers is a brilliant economist, but he can’t think up a better way of making this happen then asking the Chinese nicely (or not-so-nicely) then maybe he ought to step aside and let someone stupid take the helm. Maybe it’s just that I have no idea what I’m talking about, but I actually feel confident that if Barack Obama put someone who doesn’t know what he’s talking about (me, say) in charge and give me a mandate to devalue the dollar I could get the job done.

This relates to a point I made in a thread on MySpace USP:

The only real assumption that you can make is that the Fed, being bound by the number zero, is powerless to offset any movements in the current account…but this would be wrong as well. There isn’t a single person alive that has witnessed a “liquidity trap” — nor will there ever be. The liquidity trap is like the “event horizon” of economics…unobservable. In fact, since the dawn of the universe, no central bank has ever failed to hit a nominal target, ever. (and just to reiterate, ever)

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