[jmherbener]

Yes, Fed monetary inflation can be, and has been, exported under a dollar reserve system.

Fed monetary inflation is used to expand the supply of credit which permits the government to increase its demand for credit. But the Fed does not use monetary inflation directly for government expenditures. So monetary inflation is not, directly, a substitute for taxation. Indirectly, it is by permitting the government to borrow more.

The system generates domestic credit expansion and stimulates foreign demand for dollars. So monetary inflation and credit expansion allows the government to borrow more without much domestic price inflation.

[samgheb]

Ok thank you very much. This has been very clarifying for me and the sources have been very good.

One very last question on this topic. I heard the speeches Gary North and Joseph Salerno gave in 2010 on the bankruptcy of macroeconomics. I understand their points but can you think of any mainstream economists who have admitted as much?

I just want some confessions for my paper so I can prove that we are indeed living in an era where economists have admitted that they can’t solve the problems

[jmherbener]

David Colander, “The Stories We Tell: A Reconsideration of AS/AD Analysis,” Journal of Economic Perspectives (Summer 1995), pp. 169-188.

http://www.aeaweb.org/articles.php?doi=10.1257/jep.9.3.169

And here is his assessment of economists and the financial crisis, “The Financial Crisis and the Systemic Failure of Academic Economists.”

http://keenomics.s3.amazonaws.com/debtdeflation_media/papers/Dahlem_Report_EconCrisis021809.pdf

Colander is a professor of economics at Middlebury College:

http://www.middlebury.edu/academics/econ/facultyofficehours/node/51761

[samgheb]

Thank you for everything Prof. Herbener

[Author]

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