Monetary Policy At War With Itself

by Mario Rizzo  

It is well-known that John Maynard Keynes favored permanently low interest rates in order to foster adequate and stable investment demand. Let us first focus on stability and then we’ll see a connection to adequacy.

 What happens when counter-cyclical policy (aka Lerner’s “functional finance”) is practiced?  

The Wall Street Journal ran an excellent small article by Richard Barley, focused mainly on the UK, that makes interesting general points. Investors must try to figure out when the current policies of quantitative easing will be reversed. Those who are long (or plan to be long) in the securities which central banks have bought are quite interested in timing.  Continue reading