EC The Fed Needs To Deploy Digital Dollars To Support Recovery

COVID-19 has left the U.S. and global economies in tough shape.

After a steep decline in economic activity that began in February, the economy added 2.5 million jobs in May. Lost in all the celebration were 295,000 more workers—and over 1 million over the last three months—were classified as permanently unemployed.

The Federal Reserve does not expect the jobless rate to fall to pre-recession levels until at least 2023. Chairman Jerome Powell and his colleagues may be committed to doing “whatever we can” but even their much-expanded toolbox may prove not adequate—especially if a second wave of infections takes the economy down again.

Photo by Morning Brew on Unsplash

A synergism of monetary and fiscal stimulus through the creation of digital dollars and additional Treasury borrowing to finance direct stimulus may be the best route.

Congress has committed $3.6 trillion to stimulus and relief spending. Conservatives may be aghast at the impact on the national debt. However, some of that money is in loans that should be repaid, added economic activity will boost tax collections, and the long-term impact on federal debt held by the public will be less.

The latter includes Treasuries held by the Fed. Those have already increased by $1.8 trillion this year, and its overall assets holdings are up $2.9 trillion.

As interest earned on those assets is largely remitted to the Treasury, the real issue is not additional interest on the national debt but the Fed printing money to buy those assets. Inflation could become a problem but only when the economy more closely approaches full employment, unless foreign investors lose their voracious appetite for Treasuries.

With the future of the euro shaky and yuan carrying great political risk, the dollar remains the currency of choice for international commerce and a safe haven for foreign investors. Foreign holdings of Treasuries continue to grow, and the United States is in the happy position of printing the global currency.

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Peter Morici is an economist and professor at the Smith School of Business, University of Maryland, and widely published columnist. He is the five time winner of the MarketWatch best forecaster ...

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William K. 2 days ago Member's comment

I notice now, at the end of the week, that none have challenged the assertion that boosting the money supply promotes inflation, and likewise none have challenged the assertion that inflation is damaging to all of those not involved in the financial sector.

Moon Kil Woong 4 days ago Contributor's comment

The government needs to act and continue the stimulus. The effects of Covid will last at least a year. The most effective way to keep the economy up and not distort it is to give money to people who will spend. This prevents government making choices on who to help, the market (real people making consumption choices) are still who decides where real assets are allocated. The reason the first stimulus worked is because it went to people who are unemployed (unemployment assistance) as well as everyone who filed taxes (the stimulus checks). This worked as well as helped the economy as quickly and efficiently as the government does anything.


Don't give up on something that worked. It's much better than depending on the Federal Reserve to pervert the monetary system. If the fed wanted to help you should have it offer individuals a low interest amount they can borrow, not corporations. However, Washington doesn't like this because they don't get enough pork and lobbying money with deals like this. They prefer giving it to companies that donate to their campaigns.

William K. 5 days ago Member's comment

At the same time that many workers producing the goods that are to be purchased are out of work, the fed wants to pump billions into the economy. That will certainly result in higher prices., more commonly called inflation. Inflation is bad for everybody whose income is not adjusted for inflation. And that is most folks outside of the financial sector. So the rest of the folks get to chase fewer goods with less money while the prices get bid upward. That does not sound at all like fun.