Federal Reserve support is a breeding ground for moral hazard, whether support takes the form of emergency lending to MMMFs at below‐market rates or the form of purchasing assets from MMMFs at above‐market prices.
They say that a bad penny always turns up. But when it comes to crises these days, it seems that what keeps turning up is a bad idea—namely, the idea of having the U.S. Mint strike one or more trillion‐dollar platinum coins.
Predictably, the depths of the present economic crisis, including the remarkable flattening of interest rates since it began, have led to several calls by economists for the Fed and other central banks to ready their money choppers for a major money‐financed spending‐spree.
I believe that it’s as important as ever for the Fed and Congress to stick to their respective fiscal and monetary turfs, and that if there’s any reason why they can’t do so, while taking all necessary steps to address the crisis, it’s that Congress refuses to take responsibility for any potentially risky operations it would rather have the Fed undertake.
Market Monetarism is more consistent with both old‐fashioned Monetarism and Austrian economics than Murphy allows, and that, to the extent that it differs from versions of either, it does so in ways that improve upon them.