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The Central Bank 'Printing Press': Boon or Bane? Remedies for High Unemployment and Fears of Fiscal Crisis

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  • Greg Hannsgen
  • Dimitri B. Papadimitriou

Abstract

In recent years, the US public debt has grown rapidly, with last fiscal year's deficit reaching nearly $1.3 trillion. Meanwhile, many of the euro nations with large amounts of public debt have come close to bankruptcy and loss of capital market access. The same may soon be true of many US states and localities, with the governor of California, for example, publicly regretting that he has been forced to cut bone, and not just fat, from the state's budget. Chartalist economists have long attributed the seemingly limitless borrowing ability of the US government to a particular kind of monetary system, one in which money is a "creature of the state" and the government can create as much currency and bank reserves as it needs to pay its bills (this is not to say that it lacks the power to impose taxes). In this paper, we examine this situation in light of recent discussions of possible limits to the federal government's use of debt and the Federal Reserve's "printing press." We examine and compare the fiscal situations in the United States and the eurozone, and suggest that the US system works well, but that some changes must be made to macro policy if the United States and the world as a whole are to avoid another deep recession.

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Bibliographic Info

Paper provided by Levy Economics Institute in its series Economics Working Paper Archive with number wp_640.

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Date of creation: Dec 2010
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Handle: RePEc:lev:wrkpap:wp_640

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Keywords: Budget Deficit; Federal Debt; Debt Tolerances;

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  1. Rania Antonopoulos & Kijong Kim & Thomas Masterson & Andajit Zacharias, 2010. "Why President Obama Should Care About 'Care': An Effective and Equitable Investment Strategy for Job Creation," Economics Public Policy Brief Archive ppb_108, Levy Economics Institute.
  2. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973.
  3. Dimitri B. Papadimitriou & L. Randall Wray & Yeva Nersisyan, 2010. "Endgame for the Euro? Without Major Restructuring, the Eurozone is Doomed," Economics Public Policy Brief Archive ppb_113, Levy Economics Institute.
  4. Davidson, Paul, 1972. "Money and the Real World," Economic Journal, Royal Economic Society, vol. 82(325), pages 101-15, March.
  5. Reinhart, Carmen & Rogoff, Kenneth, 2010. "Debt and Growth Revisited," MPRA Paper 24376, University Library of Munich, Germany.
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