E Fed Tricksters, Put Your Monetarism Where Your Mouths Are

Monetarists need to step up to the plate and provide a clutch hit in this very serious game of economics. It is a time for action. We have all heard the phrase:

Put Your Money Where Your Mouth Is.

That means to take action to support your claims, most commonly by backing your claims with a bet. It takes nerve and guts to take action to support your claims, in all walks of life. It is much easier to just play tricks on people than to think about the economy.

Well, it is time that monetarists to start putting their monetarism where their mouths are. Monetarists believe that the proper control of the money supply is a key element to the creation of prosperity, and the maintainance of a stable and growing GDP. Clearly, monetarism as defined by Milton Friedman is not operating on all cylinders. This is why monetarism gets such a bad name. It is seen as neo-liberal trickle down asset buying and nothing else. That trickle down has made the rich richer and the poor poorer.

But monetarism could offer so much more and the genius behind monetarism, Milton Friedman, knew it. Before talking about that aspect of genius, I have boiled monetarism down to two basic schools, and one controls the Fed:

1. The Market Monetarists seek more NGDP targeting in place of inflation targeting, which proved futile in the downturn of 2008, as NGDP was cratering and inflation held steady. The tool they want to use to create this stability is asset purchasing. Asset purchasing is sometimes the best game in town in a crisis. But as Mohammed El-Erian said, it falls short and has diminishing returns as time goes on, as it helps wealth gravitate to the top.

2. The New Monetarists control the Fed. I am not always sure they are monetarists, as the Fed often interferes in markets. But clearly, they are for limited monetary intervention. The do a little asset buying and selling and try to control interest rates whenever the market lets them. That limited involvement did not work out so well in the Great Recession, or in the Great Depression for that matter. 

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Disclosure: I am not an investment counselor nor am I an attorney so my views are not to be considered investment advice.

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