David McWilliams met with our visiting MMT economists last week and was sufficiently impressed to devote a column to their ideas. We’re very happy that we’ve helped them get this much-deserved credit.
So is there a third way? Is there possibly a way we can inject capital into countries in danger without going to the bond markets?
Consider the New Orleans debacle. The US Federal Reserve credited the State of Louisiana and gave it the cash to spend. Now the Fed just printed that money. It printed the money, backed by a piece of paper issued by the US government. So the US deficit rose modestly.
Could something like this be done in Europe? If you could persuade the ECB to set aside a certain amount of money for emergency economic times which would be lodged into the account of the governments of those countries which are affected by an economic emergency. How could you do this without raising corresponding taxes from the richer countries to pay for the ones in crisis?
What about just printing a certain amount of money, without any backing, and setting this aside via let’s say the European parliament for each country divided up by population so that there can be funding during a crisis?
… So who loses? Well no one really, if you can persuade the ECB not to worry too much about its balance sheet. If you can persuade it to be a bit more like the Fed, the Bank of Japan and the Bank of England and understand that the central bank can’t go bust because it is the only entity that can print the currency. In current conditions, the ECB could establish this emergency fund without any risk of inflation.