A Sustainable National Monetary Policy – I Want to Invest in America

Faced with the dilemma of financing WWII President Franklin D. Roosevelt received adamant advice to raise taxes and introduce a forced savings program.  Instead, FDR wisely followed the advice of Secretary of the Treasury Henry Morgentthau, JR., who working with Peter Odegard, a political scientist specialized in motivating masses (read propaganda) created the War Advertising Council.

The result was a whopping $187.5 Billion ($2.5%2B Trillion dollars adjusted for inflation into 2009 dollars) to fund the war effort.  Just as important as the money, the War Bonds became a rallying cry for the public to express its patriotism, follow its iconic leaders’ calls for action, and allowed for 85 million Americans to actively participate in the War effort.

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Monetary Aggregates Play Little Role In The Conduct Of Monetary Policy

In conventional macroeconomic thinking, the money supply is considered the main determinant of long-run inflation. A variety of monetary aggregates have been proposed to measure the money supply. Yet, nowadays, monetary aggregates play little role in monetary policy deliberations at most central banks.

A new study in the Journal of Money, Credit and Banking examines the leading arguments for assigning an important role to tracking the growth of monetary aggregates when making decisions about monetary policy. The analysis finds that none of the arguments provides a compelling reason to assign a prominent role to monetary aggregates.

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Conduct of Monetary Policy

Two views seem to have clearly emerged about the conduct of monetary policy in the country. There are several analysts who think that there is now enough evidence to suggest that the monetary policy stance of the State Bank needs to be eased.

With import growth contained and a steady downward trend achieved in (non-food, non-energy) core inflation, the SBP is in a position to reverse its tight policy and ease interest rates as early as the first quarter of 2007.

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