The theory of monetary disorder: debt finance, existing assets, and the consequences of prolonged ultra-easy policy
This paper introduces the notion of monetary disorder. The underlying theory rests on a twin circuits view of the macro economy. The idea of monetary disorder has relevance for understanding the experience and consequences of the recent decade-long period of monetized large budget deficits and ultr...
| Main Author: | |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
Associazione Economia civile
2024-02-01
|
| Series: | PSL Quarterly Review |
| Subjects: | |
| Online Access: | https://rosa.uniroma1.it/rosa04/psl_quarterly_review/article/view/18265 |
| _version_ | 1797322631331971072 |
|---|---|
| author | Thomas Palley |
| author_facet | Thomas Palley |
| author_sort | Thomas Palley |
| collection | DOAJ |
| description |
This paper introduces the notion of monetary disorder. The underlying theory rests on a twin circuits view of the macro economy. The idea of monetary disorder has relevance for understanding the experience and consequences of the recent decade-long period of monetized large budget deficits and ultra-easy monetary policy. Current policy rests on Keynesian logic whereby a large fall in aggregate demand warrants robust offsetting monetary and fiscal policy actions. That logic neglects potential monetary disorder being bred within the financial circuit in the form of inflated asset prices and leveraged balance sheets. That disorder is likely to develop long before inflation accelerates so that inflation targeting fails to protect against it. Political factors increase the policy danger as the benefits of disorder are front-loaded and the costs backloaded. The paper concludes with a policy discussion regarding how to prevent Keynesian goods market counter-cyclical stabilization policy from causing monetary disorder.
|
| first_indexed | 2024-03-08T05:17:07Z |
| format | Article |
| id | doaj.art-654a0ba945054c08acd238cfa7225367 |
| institution | Directory Open Access Journal |
| issn | 2037-3635 2037-3643 |
| language | English |
| last_indexed | 2024-03-08T05:17:07Z |
| publishDate | 2024-02-01 |
| publisher | Associazione Economia civile |
| record_format | Article |
| series | PSL Quarterly Review |
| spelling | doaj.art-654a0ba945054c08acd238cfa72253672024-02-06T19:04:01ZengAssociazione Economia civilePSL Quarterly Review2037-36352037-36432024-02-017630710.13133/2037-3643/18265The theory of monetary disorder: debt finance, existing assets, and the consequences of prolonged ultra-easy policyThomas Palley0Economics for Democratic and Open Societies This paper introduces the notion of monetary disorder. The underlying theory rests on a twin circuits view of the macro economy. The idea of monetary disorder has relevance for understanding the experience and consequences of the recent decade-long period of monetized large budget deficits and ultra-easy monetary policy. Current policy rests on Keynesian logic whereby a large fall in aggregate demand warrants robust offsetting monetary and fiscal policy actions. That logic neglects potential monetary disorder being bred within the financial circuit in the form of inflated asset prices and leveraged balance sheets. That disorder is likely to develop long before inflation accelerates so that inflation targeting fails to protect against it. Political factors increase the policy danger as the benefits of disorder are front-loaded and the costs backloaded. The paper concludes with a policy discussion regarding how to prevent Keynesian goods market counter-cyclical stabilization policy from causing monetary disorder. https://rosa.uniroma1.it/rosa04/psl_quarterly_review/article/view/18265Monetary disorderTwin circuitsinflationasset price bubblesbudget deficitsmodern money theory |
| spellingShingle | Thomas Palley The theory of monetary disorder: debt finance, existing assets, and the consequences of prolonged ultra-easy policy PSL Quarterly Review Monetary disorder Twin circuits inflation asset price bubbles budget deficits modern money theory |
| title | The theory of monetary disorder: debt finance, existing assets, and the consequences of prolonged ultra-easy policy |
| title_full | The theory of monetary disorder: debt finance, existing assets, and the consequences of prolonged ultra-easy policy |
| title_fullStr | The theory of monetary disorder: debt finance, existing assets, and the consequences of prolonged ultra-easy policy |
| title_full_unstemmed | The theory of monetary disorder: debt finance, existing assets, and the consequences of prolonged ultra-easy policy |
| title_short | The theory of monetary disorder: debt finance, existing assets, and the consequences of prolonged ultra-easy policy |
| title_sort | theory of monetary disorder debt finance existing assets and the consequences of prolonged ultra easy policy |
| topic | Monetary disorder Twin circuits inflation asset price bubbles budget deficits modern money theory |
| url | https://rosa.uniroma1.it/rosa04/psl_quarterly_review/article/view/18265 |
| work_keys_str_mv | AT thomaspalley thetheoryofmonetarydisorderdebtfinanceexistingassetsandtheconsequencesofprolongedultraeasypolicy AT thomaspalley theoryofmonetarydisorderdebtfinanceexistingassetsandtheconsequencesofprolongedultraeasypolicy |