Economist Allan Meltzer says easy money and more government spending won't help the economy recover.
“The United States does not have the kind of problems that printing more money will cure,” Meltzer writes in The Wall Street Journal, noting that banks currently hold more than $1.6 trillion of idle reserves at the Fed, money they can use to create much more money.
The main effect of adding more reserves, says Meltzer, would be a further devaluation of the dollar against competing currencies and gold, followed by a rise in the price of oil and other imports.
Meltzer also says President Barack Obama is wrong to push for higher taxes for millionaires to redistribute wealth.
|President Barack Obama
(Getty Images photo)
“That path leads to future crises because higher taxes support the low productivity growth of the welfare state, delay the transition to export-led growth, and do not reduce future budget liabilities enough,” he says.
“The central issue facing the U.S. is whether we turn away from unsustainable budget and trade deficits toward an economy that grows at historic rates with low inflation,” Meltzer says. “More redistribution now won't do that.”
“More investment and productivity growth now will, and it will also provide more resources to pay for a greater share of future healthcare costs at lower tax rates.”
Meltzer says the government should reduce corporate tax rates permanently, make long-term reductions in entitlement spending, put a five-year moratorium on new regulations affecting energy, environment, health and finance, and set an explicit inflation target between zero and 2 percent.
"Inflation is now at the edge of the Fed's comfort range, which is below 2 percent," says Meltzer. "Money growth (M2) reached 10 percent for the past six months, presaging more inflation ahead."
Forbes reports that 10-year U.S. Treasurys are now officially a money losing operation because current yields of 2.1 percent mean real rates are next to nothing after accounting for inflation.
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