Article;
Why some Fed officials want the bank to retreat stimulus campaign more quickly?
Comment;
The Pigou-Effect works in liquidity-trap… Now that We have
reduced unemployment-rate close to its natural-rate, but economists say that
the US
economy is still stuck in liquidity-trap… To overcome liquidity trap Keynesians
recommend the use of Fiscal-Policy, but, again, the Public-Debt of the country
does not allow it to loose string… So the economy has totally failed to cross
the trap… sorry… but, by not using any of the above methods… so it is neither
Classical nor Keynesian… However, we can not reject the thesis that politicians
are not necessarily economists. Pigou says, in liquidity-trap, when people
accumulate reserves in expectation of lower prices ahead and are unable to
arrive at the right conclusion, because they always expect that prices will
fall more, greed…, it is good from the point of view of growth to let the
prices fall and help clear-market and generate more demand… In this state of
affairs if interest-rate is at minimum as it is now, it will definitely help
the economy to pick steam… economic-activity always awaits low interest rates…
Inventories will be sold-off and low interest-rate will help improve supply for
future. Economy will gain momentum… Once Bernake himself said, not long back,
that “little deflation is not bad”… Pigou says lower prices will increase
real-wages, what Yellen wants, higher wages! Higher real wages and income
should definitely reduce voluntary-unemployment, “stopped looking for jobs”. Still
early to increase rates…
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