About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

37 Cato J. 247 (2017)
Monetary Mischief and the Debt Trap

handle is hein.journals/catoj37 and id is 272 raw text is: MONETARY MISCHIEF AND THE DEBT TRAP Robert Heller Monetary mischief' is a situation in which the current stance of monetary policy does not serve the long-term objectives of the nation. In this article, I argue that the Federal Reserve is causing monetary mischief in two ways. First, the Federal Reserve is mistaken in declaring that 2 percent inflation constitutes price stability. In fact, the cumulative effect of such an inflation rate over time will be very significant and eventually result in a massive erosion of the value of the dollar. Second, the Fed's long-lasting low interest rate policy, which was implemented through massive purchases of federal debt and mortgage-backed securities, has led the United States toward a debt trap, in which the debt-to-GDP ratio rises above 100 percent and the interest rate on debt service is greater than the growth rate of GDP. In such a situation, debt service obligations grow more rapidly than the economy; eventually, the accumulated debt can no longer be serviced properly. In other words, the dynamics of the situation become unsustainable and a death spiral ensues. I short, I believe that the Federal Reserve's policies on inflation and quantitative easing have resulted in severe financial dislocations that will cause future financial and economic instability. Cato Journal, Vol. 37, No. 2 (Spring/Summer 2017). Copyright @ Cato Institute. All rights reserved. Robert Heller is a former member of the Board of Governors of the Federal Reserve System and former president and CEO of VISA U.S.A. He thanks Herbert Grubel, Michael Keran, Frank McCormick, and Steve Stein for helpful comments. 247

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most