(C) Expansionary Monetary Policy

I have been wondering how some people still think and talk of the expansionary monetary policy as of a printing-press. Kind of alludes some banknotes printing… kind of very misleading allusion for the non-finance backgrounds’.

For those who still think printing banknotes is a solution:
1. Banknotes are just 3-8% of the money supply.
2. A very expensive banknotes printing in order to double the banknotes will result in a mere 5-6% inflation per annum… makes no sense when bearing in mind the high costs.

Let me ask you to think of the expansionary monetary policy in terms of keyboard click made by Marvin King, Ben Bernanke, Jean-Clod Trichet…

Only when the supply of money takes by surprise the economy, the effects might turn positive. Well, this might be the aim of the US, UK, Canadian and Swiss central bankers. However, certain negative consequences might follow such decision; inflationary processes might trigger interest rates, which will hit back the fixed-income instruments, in particular the ones repurchased by the central bank. This dEFFECT might not be easily swallowed by the large creditors of the indebted economies.

What is essential for the economy is the prevalence of the positive effects (lending and confidence) of the stimuli provided through monetary policy. The most difficult task facing the central bankers is the production of the right amount of inflation which will ignite the engine of the economy. Deficit or surplus of money supply could cause more harm than good in periods of crisis.

However, any monetary policy approach, by its own, with no fiscal support, structural changes, regulatory overhaul, introduction of new consumer behavior, would be void, so would be the rebound attempts for the economy.