Overt Money Financing of Fiscal Deficits: Navigating Article 123 of the Lisbon Treaty

4 Responses to "Overt Money Financing of Fiscal Deficits: Navigating Article 123 of the Lisbon Treaty"

  1. Nichol   July 24, 2013 at 2:18 pm

    This seems like a nice way to get around the Eurozone rules for monetary financing of governments. But if there would have been the political will to do something like this, wouldn't it already have happened? Isn't this scheme a bit like the US plan for a trillion dollar platinum coin to circumvent the debt ceiling .. a scheme that is also not considered politically possible.

    • richard wood   July 24, 2013 at 5:54 pm

      Thanks, but as economists we can only set out options and alternatives. It is our view that the monetary and fiscal policy combination we propose is the most effective policy combination that will simultaneously increase output without increasing public debt. That logic cannot be put asunder, but political parties can be thrown out of office. As Europe slips deeper down, the German hegemony/orthodoxy will at some point become intolerable to the periphery and to all concerned citizens. Then a pro-growth plan will have to be prepared.

  2. Mike Thomas   August 3, 2013 at 11:15 pm

    Isn't it somewhat naive, as Professor Roseff suggests at http://bit.ly/11BrrSv among his several trenchant observations about the above article, to believe that parliamentary control would be sufficient to prevent loosening of OMF to the eventual point of hyperinflation? It seems that we should be very wary of proposals such as those of Bossone and Wood that ignore how people will react to protect their assets when they hear that their government is fully in control of the money printing press. This has already been tried with disastrous results, most recently in Zimbabwe. I believe the author is correct when he writes, "Moreover, where QE seeks to flatten the yield curve the pricing of risk becomes distorted throughout the economy. New capital investment is directed toward otherwise unproductive and unprofitable businesses. Interest rate-dependent decisions are based on artificial borrowing price signals. Bond price and asset price bubbles proliferate, and high-risk structured financial instruments re-emerge. Mere discussions of exit strategies increase interest rates, thus raising uncertainties," yet the author then thinks that providing counterfeit money to different parties through direct government spending will avoid distorting pricing of risk? Pricing of risk is always distorted in any type of inflationary environment, just the particular malinvestments may differ based on whether the inflation is of the QE type or the OMF type. The economic ailment this article mentions was baked in when the monetary inflation binge was begun with QE and would be greatly increased with OMF.