June 20, 2012
The Post told readers that with the Federal Reserve Board’s “Operation Twist” (selling short-term debt to buy longer term debt):
“the Fed is able to bring down more stubborn long-term rates — from corporate loans to mortgages — without “printing more money” to do so. Increasing the money supply increases the chance of inflation, which invites political criticism.”
This is not true. Anything the Fed does to boost demand in the economy increases the risk of inflation. As a practical matter, the idea that there would be a problem of inflation in an economy with so much excess capacity is almost absurd on its face. But if printing money raises fears of inflation, then so should another round of operation twist.
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