Posted Apr 5, 2014 by Martin Armstrong
I should point out that this problem of always trying to reduce things to a single cause and effect is a serious error we make overall within society that has to stop. Legarde is correct the problem is LOW INFLATION but she cannot stimulate by merely increasing the money supply. The Fed has proven that idea does not work. They are trying to stimulate DEMAND and that is constructed from CONFIDENCE.
Increasing the money supply will NOT be inflationary when you are offsetting that by raising taxes. If the total money supply is $1,000 and I tax you 20% leaving you $800, increasing the money supply at $1,500 and raising taxes to 50% is still deflationary for you end up with less – $750. Absolutely everything is balanced. This is why the cause and effect scenarios fail every time – it is a bell curve in everything.
Legarde advocates increasing the money supply, but she is hunting down everyone she can find to extract more taxes. This is self-defeating and in the end, it is even more deflationary for those with capital will then just hoard it and not risk exposure by open investment.
Keynes is always ridiculed and blamed for the deficit spending. When I am gone they will no doubt do the same to me. Stop glossing over Keynes and painting him with the same brush as politicians for Keynes made it clear you move to deficit spending only in a depression to stimulate DEMAND, and otherwise you lower taxes in just a recession to stimulate DEMAND – something they will never do.
Politicians took only the part of Keynes they wanted to hear. Nobody in their right mind EVER advocated deficit spending every year with no intention of ever paying anything back. This is not Keynesian economics – it is fiscal mismanagement.