Is Something Out of Nothing Possible?

According to Bernanke there is good evidence that cash that goes to low- and moderate-income individuals is more likely to be spent in the near term -- hence, from this perspective, it is going to be beneficial for economic growth. Only if the amount of money in the economy increases, all other things being equal, spending in money terms will follow suit. However, the spending increase in this case is not on account of some multiplier but because of the increase in the money supply. The increase in monetary expenditure that results from an increase in money supply cannot produce the expansion in real output, contrary to the popular story. All that it will generate is a reshuffling of the existing pool of real savings. It will enrich the early receivers of the new money at the expense of last receivers. Obviously then, a loose monetary policy that is aimed at boosting consumers’ demand cannot boost real output by a multiple of the initial increase in consumer demand. Not only will loose money policy not lift production, but, on the contrary, it will impoverish wealth generators. FULL ARTICLE