Part of the goal here is you are trying to defend the inflation target from the low side. Monetizing debt is widely recognized to be inflationary. It will be both perceived as inflationary and it actually will be. You would push core inflation higher, toward target. Of course you don’t want to overdo this and create a lot of inflation down the line. But we are on the low side of the inflation target at this point so the idea is to move up toward the target.
If I remember right, the Fed's mandate is full employment and price stability. Having 2% inflation means that prices double every 36 years. Is this price stability? I don't think so. What I don't understand is why no one seems to object to the Fed's intention to destroy the dollar. No economist I have ever talked to has ever been against inflation. They all like the idea of 2-3% inflation because they incorrectly believe that it stimulates spending as people buy stuff before the price goes up. They fear that 0% inflation or (gasp) deflation would cause a depression as people and businesses forgo spending, waiting for lower prices. Of course, this is an absurd notion. The real reason the Fed and the government want inflation is because it reduces the real value of the government's national debt. It it just a coincidence that inflation is usually 3%, and the yearly budget deficit is around 3%, too. Bernanke in his deflation speech, confirmed that the government has a strong incentive to create inflation. It is unfortunate that the American people do not understand this concept. Even Lenin understood this and noted that the:
best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but [also] at confidence in the equity of the existing distribution of wealth.It is sad that a nefarious character like Lenin had a better understanding of economics than most capitalist economists. Whatever your views about the Fed, you have to admit that they have done a terrific job of reducing the dollar's value by 96% since 1913.
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