Wednesday, January 18, 2012

A Comment to Satyajit Das Post...

Satyajit Das I
Satyajit Das II

I thought this short comment, by Richard Wood to Satyajit Das' post at Roubini's blog, placed the horse in the field, where he belongs...

"I should have summarise my proposal.

Throughout the centuries governments have had two options: they could finance their budget deficits by printing money or by borrowing from the public. When inflation is high, or a threat, then it is appropriate to finance the deficit by borrowing money from the public. But when public debt is already very high it is appropriate to print money to finance the budget deficit.

When unemplyment is high it is essential to run budget deficits, to put more money into the economy than you take out, to raise demand.

It is not the budget deficit as such that is the problem in periphery countiries today. Rather it is the manner of their financing, borrowing from the public, that is the problem. With aggregate demand depressed the way forward for periphery countries is to stimulate by financing the on-going budget deficit wirh new money creation. In this way the rise in public debt is stopped and debt default can be avoided. Inflation can be avoided by sterilisation as appropriate. Austerity is unnecessary and takes the economy into depression. "
Richard Wood

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