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  1. DorganG

    None the less, there are voices that China will continue to finance the U.S. because Chinese leaders are too cautious to promote a social safety net and consumer spending and that Chinese savings rate remains high – maybe also because Chinese live in an authoritarian regime.

    1. GrkStav

      You appear to have misunderstood (or, worse purposefully misconstrued) the “helicopter money” policy option, as presented in the paper by McCulley and Poszar that you are critiquing..QE2, and 3 are irrelevant as examples of the policy mix advocated by McCulley and Poszar as they were not accompanied by fiscal expansion. You also seem to operate under the assumption that the U.S. government, for example, literally borrows its own dollars back from e.g. China to finance its operations. Clearly, it does not, and it need not. The “Helicopter Money” policy-mix option is to be used by e.g. the U.S., the U.K. and Japan in the face of continuing private sector de-leveraging. It is not meant to spark private-sector leveraging.
      China is not currently financing the U.S. anyway; it is choosing to exchange non-interest bearing (Federal Reserve Notes) for default-risk-fee liquid interest-bearing (T-bills) US$ denominated financial assets. “It” acquires the former as a result of maintaining a substantial trade surplus with the U.S.. Why it would choose to use them to buy Gold, e.g., instead of T-bills is a mystery.

      1. George Dorgan
        George Dorgan

        Thanks, QE3 is still in the green sector (monetary/fiscal expansion), but no explicit “helicopter money” like Abenomics. The U.S. is still running fiscal deficits, just less than before.
        I adopted the title for the critique, you are right, I criticize the effectiveness of monetary expansion in a global context.

  2. DorganG

    You are right, I have corrected things a bit, because they got misunderstood. Please reread.
    Be aware that the U.S. was doing rather neutral fiscal policy, 4% deficit is less than previously, but still a lot.
    McCulley and Poszar put the U.S. into the green sector.

    1. GrkStav

      The U.S., by all accounts, has not (yet) attempted the combined monetary&fiscal policy options #6 (“helicopter money”) or #12. The ineffectiveness of unconventional, radical, and even ‘nuclear’ monetary policy (as such) in the face of a deleveraging private sector and non-aggressively expansionary fiscal policy was a major point of McCulley and Poszar, if I understood them correctly. Given current “political” and ‘ideological’ realities, it is unlikely that policy option #6 will be pursued anytime soon. On the other hand, option #12 may become a reality, so long as there are no further net fiscal contractions (no net government spending reduction, no net tax increases). By the way, the (new) last sentence does not make sense to me. It appears that the conclusion ought to be: “Hence, with the private sector deleveraging, the combination of monetary and fiscal policy denoted as ‘Helicopter Money’ works for the kinds of countries and economies (relatively large and relative ‘closed’) McCulley and Poszar specified”.

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