US Federal Reserve ‘Might Legitimately Consider’ Public Money Creation

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Above Photo: From positivemoney.org.

Note: We believe the power to create money which is granted to the federal government in the US Constitution should be taken back from the Federal Reserve so that the United States can have debt-free money. The government should not have to borrow money from banks in order to fund program. This puts the government into unnecessary debt. The government should create money, pay off the debt and then fund essential programs among them paying of college debts and creating tuition free public colleges, transforming from a carbon-nuclear energy economy to a clean-sustainable energy economy, rebuilding US infrastructure and so much more that is essential. KZ

The Federal Reserve ‘might legitimately consider’ using Public Money Creation in ‘extreme circumstances’, when there is ‘very weak growth’ or ‘deflation’, Fed Chairwoman Janet Yellen said earlier this week at a press conference.

Yellen did not elaborate on what type of Public Money Creation the Fed would consider using. However, it is relatively safe to assume that it would most likely resemble some form of money-financed Helicopter Drops as advocated by Yellen’s predecessor – Ben Bernanke. In Bernanke’s proposal, the Fed would use newly created money to finance a tax-cut or direct cash transfer to households, such as a one-off citizen’s dividend.

Public Money Creation, using central bank money to directly finance spending in the real economy, has been taboo for over fifty years. In accepting that the central bank of the world’s biggest economy might have to create money to stimulate the real economy, Yellen is implicitly suggesting that central banks might need to update their toolkits.

While some form of Public Money Creation is looking increasingly like a policy reality, this is a massive step for the general debate and future direction of monetary policy. But more importantly, getting a central bank to create new money for the real economy also represents a substantial step in the direction of a full Sovereign Money System!

Below is a transcript of what Greg Robb, a journalist from MarketWatch, said at the press conference, addressing chairwoman Yellen:

“There’s been a lot of discussion in the last couple of months about the slow pace of demand in the global economy and some economists think that central banks should think about using helicopter money, maybe in Japan first or Europe first, but then former Fed chairman Ben Bernanke weighed in, saying that he thought it would be a good thing for the Fed to put helicopter money in its toolkit in case there was a downturn in the United States, so I’d like to get your comments on that.”

Below is a short transcript of Chairwoman Yellen’s remarks in response to Greg Robb:

“In normal times I think it is very important that there be a separation between monetary and fiscal policy, and it is a primary reason for independence of the central bank. We’ve seen all too many examples of countries that end up with high or even hyperinflation because of those in charge of fiscal policy direct their central bank to help them finance it by printing money and maintaining price stability and low and stable inflation is very much aided by having central bank independence.

Now that said, in unusual times where the concern is with very weak growth or possibly deflation — rather rare circumstances — first of all, fiscal policy can be a very important tool. And it is natural that if it can be employed that just as monetary policy is doing a lot to try to stimulate growth that fiscal policy should play a role. And normally you would hope in an economy with those severe downside risks, monetary and fiscal policy would not be working at cross-purposes, but together.

Now whether or not in such extreme circumstances there might be a case for close coordination where the central bank playing a role in financing fiscal policy. This is something that academics are debating. And it is something that one might legitimately consider. I would see this as a very abnormal, extreme situation where — I warn you it’s an all-out attempt — and even then it’s a matter that academics are debating — but only in an unusual situation.”

Link To Video Here