2 comments on “Meltdown

  1. ok, i have a question for you:

    assume a bank makes a $100k bad loan. and they take a $50k loss on it. “money” was destroyed.

    now assume the fed prints $50k and gives it to the bank through various programs/edicts.

    also assume the fed will remove this $50k as soon as velocity picks up so that the inflation impact is negligible.

    who bears the cost of the malinvestment in this case? nobody.
    I’m tempted to assert there was no malinvestment. except maybe for the materials used to build that house, but that’s negligible.

    is modern monetary policy the proverbial free lunch?

  2. Monetary policy provides a free lunch if it fixes problems connected to the value of the currency. I would model your example as the Fed altering who loses the $50k, and maybe at the same time preventing some hard to measure harm by stabilizing the value of the dollar.

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