Greg Ip knows just enough economic conventional wisdom to be a masterful and well respected word soup chef. Today he took on an explanation of why Argentina could ‘create’ inflation via money printing, and the Fed, ECB, and BoJ couldn’t.
He said that it was because Argentina’s central bank bought government debt directly, and the major central banks didn’t. Apparently buying government debt indirectly via third parties somehow insulates economies from having inflation. He explained it, and his bobblehead Wall Street Journal readers and fellow media word soup practitioners all shook their heads in agreement, even though they didn’t understand a word of it. But it sure sounded plausible for those who ignore the basic accounting of how money goes from a government debt auction into the economy and banking system.
With inflation in the U. S., Japan and the eurozone stuck below their 2% targets, central banks are asked regularly if they have the tools to prod it higher. A better question would be: Do they have the will?
There is a tool virtually guaranteed to create inflation. It’s called helicopter money – named for the image of dropping cash from helicopters – and consists of a central bank explicitly printing money to finance increased government deficits.
This post was published at Wall Street Examiner by Lee Adler ‘ April 27, 2016.
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