Lunch with Scott Sumner (and others) at China Star

How is that for self-recommending?  Here in a short paragraph is my current take on where Ben Bernanke would differ from Scott.  As the shadow banking system was imploding in 2008, due to a downward revaluation of collateral, nominal gdp stabilization would have required that the Fed resort to the medium of currency printing on a very large scale.  Scott favors such a move.  Bernanke would worry that the collapse of (some) intermediation would mean you get most of the output losses anyway, while the printing of currency would create subsequent problems with management of expectations, relative sectoral shocks (currency is only a partial substitute for credit), and medium-term adjustment once the smoke has cleared, not to mention political relations with Congress and interest groups within the Fed system itself.  Therefore Bernanke didn’t want to do it, even though in principle he likes to see nominal gdp stabilized, and has written and said as such.

I am not suggesting that Scott agrees with this perspective.


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