Hey, a bit late for commenting, but here it goes. Thought to share that Isabel Schnabel, a European Central Bank policy-maker of some clout, just yesterday noted this:
"Against this backdrop, current circumstances call for responsible fiscal policy. Governments need to be clear that current budget deficits are backed by future primary surpluses, via either future higher tax rates or lower spending.
If governments do not credibly signal their commitment to responsible fiscal policies, the private sector may eventually expect that higher inflation is needed to ensure the sustainability of public debt.[16] This would be the case if high unfunded budget deficits ended up eroding the credibility of the central bank to pursue its monetary policy objectives, endangering price stability. [17]"
She explicitly linked the second paragraph (footnotes 16 & especially 17) with the FTPL.
What fiscal theory does is recognize that government debt creates all financial assets. Sure, Divisia M4 is an improvement over the older correlations of economic activity with M2. But it's still lacking, because Divisia M4 does not take into account many assets that are now money-like, such as ETF's. Your Divisia M4 trend chart does not take account of the additional money equivalents in our economy. The fiscal theory includes everything, and that's why Cochrane's predictions are right, the Fed is not done with tightening. Creation of federal debt is the underlying cause of prices, not just creation of Divisia M4.
Hey, a bit late for commenting, but here it goes. Thought to share that Isabel Schnabel, a European Central Bank policy-maker of some clout, just yesterday noted this:
"Against this backdrop, current circumstances call for responsible fiscal policy. Governments need to be clear that current budget deficits are backed by future primary surpluses, via either future higher tax rates or lower spending.
If governments do not credibly signal their commitment to responsible fiscal policies, the private sector may eventually expect that higher inflation is needed to ensure the sustainability of public debt.[16] This would be the case if high unfunded budget deficits ended up eroding the credibility of the central bank to pursue its monetary policy objectives, endangering price stability. [17]"
She explicitly linked the second paragraph (footnotes 16 & especially 17) with the FTPL.
https://www.ecb.europa.eu/press/key/date/2022/html/ecb.sp221124~fa733bc432.en.html
What fiscal theory does is recognize that government debt creates all financial assets. Sure, Divisia M4 is an improvement over the older correlations of economic activity with M2. But it's still lacking, because Divisia M4 does not take into account many assets that are now money-like, such as ETF's. Your Divisia M4 trend chart does not take account of the additional money equivalents in our economy. The fiscal theory includes everything, and that's why Cochrane's predictions are right, the Fed is not done with tightening. Creation of federal debt is the underlying cause of prices, not just creation of Divisia M4.
Barnett makes the same mistake all economists make, viz., the distributed lag effect of money flows.
Indeed, money was too tight in 2009, the CPI went negative.