Author: Will Wilkinson

Vice President for Research at the Niskanen Center

4 thoughts

  1. You should think about DeLong’s criticisms of Dan Mitchell in his blog today. I’ve long thought the same — the guy belongs in National Review along with that bozo Pilon.

  2. I must say this is a very good post not because of the information, but mostly for the analytical presentation. As two individual have different mindset, they must have different opinion. I think, this is the main reason behind the deviation on the thought of Friedman and DeLong. Another point I want highlight here is “decentralized money supply”.

  3. Debt is a form of money that isn’t included in M0, M1, M2, or M3. For a thorough discussion of debt-as-money, see:
    The money supply isn’t expanding, it’s collapsing.
    Few will agree with that, because M0, M1, M2 are all moving upwards. But none of these include newer debt instruments.
    Debt is traded and transferred like other forms of money. Over 60 TRILLION dollars of credit default swaps (CDS) alone existed at their peak. The value of this form of money is plummetting, and this represents a rapid collapse of the effective money supply that is an order of magnitude greater in the downward direction than the upwards movement of M2 and other measures.
    The Federal Reserve is expanding the more traditional measures of money supply to compensate for the collapse of the total real money supply. The seemingly-reckless expansion of M2 is a result of attempting to compensate for the far-larger collapse of the real money supply.
    Thus, the “asset deflation” is really no different from price deflation and reflects the contraction of the money supply. Welcome to 1929, relived.
    What the Federal Reserve is doing (quantitative easing) is absolutely correct, but probably still too small to achieve the needed effect.
    The fiscal stimulus of big federal budget deficits is also perfectly appropriate, but probably too small to achieve the needed effect.

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