With the Federal Reserve printing massive amounts of money, $3 trillion, since the start of the COVID-19 economic collapse, one Fed economist says that is not enough and is calling for negative interest rates.
St. Louis Fed economist Yi Wen says in a new paper, How to Achieve a V-Shaped Recovery amid the COVID-19 Pandemic, that:
I found that a combination of aggressive fiscal and monetary policies is necessary for the U.S. to achieve a V-shaped recovery in the level of real GDP. Aggressive policy means that the U.S. will need to consider negative interest rates and aggressive government spending, such as spending on infrastructure.
Importantly, these policies also need to continue even when the crisis is about to end to provide a further boost, leading to a more robust recovery. Furthermore, it’s the combination and coordination of both monetary and fiscal policies that provides enough stimulus for a V-shaped recovery. In other words, aggressive monetary policy—such as negative interest rates—may be ineffective on its own without aggressive fiscal stimulus. If the U.S. fails to have an S-shaped recovery in growth (which leads to a V-shaped recovery in the level of GDP), then the economic consequences of the coronavirus pandemic will be permanent.
Give this guy the Neil Ferguson award for absurd modeling.
The economy doesn’t need more money printing, it doesn’t need negative interest rates and it doesn’t need fiscal spending.
All that is required is for the government to get out of the way and all business to get back to business.
Economists like Wen at a very fundamental level do not understand that it is production that fuels an economy and not spending (supply creates its own demand). If product is produced, the economy will grow. End of story.
He is so hyped up on twisted Keynesian aggregate thinking that he makes less sense than Stephanie Kelton.
Someone less polite than I am would call Wen a crank.
Wen has Ph.D. Economics from the University of Iowa, an M.A. Philosophy of Science from Notre Dame University, 1991 and a B.S. Medical Sciences from West China University of Medical Sciences.
He has been an Assistant Vice President, Federal Reserve Bank of St. Louis since January 2008.