Reflections on Monetary Policy - Then and Now (web publication)

How to cure debt-deflation

In the first Shadow Monetary Policy Committee Discussion Paper, Gordon Pepper outlines the role of the Bank of England, the Debt Management Office and the Financial Services Authority in the financial crisis that began mid-2007.

All three of these institutions come in for criticism, along with the Bank's Monetary Policy Committee, which, it is argued, failed to understand properly the role of liquidity in asset-price inflation.

In a devastating analysis it is shown that the authorities have failed to grasp both the causes of the crisis and the right measures to ameliorate its effects.

The author sets out the monetary policies that can be deployed to cure the current problem of debt deflation. Printing money may be safer in the longer term than easing fiscal policy providing the Bank of England and the government take the appropriate action as soon as t