A Provocative Proposal to Fight Deflation

Unprecedented monetary stimulus by central banks in the U.S., European Union and Japan have done little to create economic expansion.

Price growth is almost nowhere to be found. A prime example is commodities. They’ve been in a downtrend for almost five years.

International Monetary Fund Economic Counselor Maurice Obstfeld says it’s “time to start thinking outside of the box” when it comes to fighting economic stagnation.

Here’s more from a November 5 Wall Street Journal article:

So, what would be thinking outside the box for Mr. Obstfeld? One option is a proposal by Adair Turner, a member of the Bank of England’s Financial Policy Committee, for central bankers to overtly finance increased budget stimulus with permanent increases in the money supply. By contrast, the increased money supply resulting from recent central bank bond-buying programs is meant to be temporary.
In a paper prepared for the IMF conference, Mr. Turner contends Japan will be forced to use such “monetary financing” within the next five years and says the policy should become a normal central bank tool for all economies facing stagnation.
Such an option would be highly provocative to fiscal hawks and those who fear giving central banks too much power, especially when many economists question both the returns and financial-turmoil side effects from existing easy-money policies.
The provocative nature of the proposal underscores the extent of the deflation-related anxiety among some policy makers, however.

You can read the entire article by following the link below: