Final Word from Tuesday, May 7, 2013
Paul Krugman is one of the main cheerleaders for quantitative easing and argues that if there's a problem with it, it's that there's not more of it. Printing money isn't inflationary, he wrote, and budget deficits don't drive up interest rates, because there's a "liquidity trap." People are sitting on their cash instead of spending it, he said. We might add that much of the money printed by the Fed is being socked away by banks and interest-rate arbitragers, instead of entering the main-street economy. It's kind of like the Czech methanol affair. Thousands of liters of poisonous spirits were dumped on the market, but only a fraction was fully absorbed into the economy. Yet when it was absorbed, it killed. Likewise, when all that cheap money starts flooding the economy, the impact will be toxic, and measures as stringent and as detrimental as the Czech prohibition will inevitably follow, in an effort to avoid one casualty after another.[Czech Republic Federal Reserve]
Glossary of difficult words
cheerleader - an enthusiastic and vocal supporter; a person who leads cheers and applause, esp. at a sporting event;
quantitative easing - a central-bank policy of buying government securities or other instruments to increase the money supply;
to sock something away - to put money aside as savings;
main street - the general economy, as opposed to Wall Street;
stringent - strict, precise and demanding;
detrimental - tending to cause harm;
casualty - a person or thing badly affected by an event or situation; a person injured or killed in a war or accident.