A Surfeit of Dearth Revisited: The Global Shortage of Safe Assets

David Beckworth:

global economic growth over the past few decades has outpaced the capacity of the world economy to produce truly safe assets

Really? The U.S. could have just deficit-spent more, crediting people’s/businesses’ checking accounts and thereby increasing the global stock of the world’s safest asset: U.S. dollars.

It could (by U.S. law is required to) simultaneously issue bonds in/borrow an equivalent amount, but it comes to the same thing as regards the inflationary impact. (Issuing bonds is actually a bit more inflationary because of the future money-creation needed to pay the interest.)

That fear of inflation — and the resultant unwillingness to provide the safe assets that Beckworth thinks the world needs — is the only constraint on Beckworth’s “capacity.”

If he is correct that the supply of dollars is, has been, insufficient to meet global demand, then inflation is not currently a concern — arguably quite the contrary.

Cross-posted at Asymptosis.

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