Raising Reserve Requirements to Slow Inflation: China Shows How It’s Done
Dean Baker submits:
U.S. economists seem to not understand that central banks can raise reserve requirements as way to control inflation. This is apparently the reason they find it inconceivable that the Fed could buy and hold large amounts of debt without leading to inflation. If the Fed buys and holds the debt, then the interest on the debt would be paid to the Fed and then refunded to the Treasury. In this way it would impose no net cost to taxpayers.
If the Fed were to buy and hold say $3 trillion of the debt being incurred due to the downturn, then it would reduce the projected interest burden in future years by close to $150 billion a year (@ $1.5 trillion over a decade), a bit less than 1.0 percent of GDP. Given the national obsession with reducing the deficit, it would be reasonable to expect that this would be one Complete Story ยป
View full post on All Stories