US productivity increases at roughly 2% per year. With a stable money supply prices would on average decrease by roughly 2% per year. The Federal Reserve has a target inflation rate of 2% per year.
In the best case the Fed would need to hold interest rates a 4%+ per year to compensate dollar holders for the loss of purchasing power. Prior to 2008 those benefits used to accrue directly to the government. The Federal Reserve purchased only Treasury bonds which would lower overall market rates for government bonds. In addition any bonds held by the Fed were effectively interest free as interest was returned to the Treasury.
In 2008 the Fed started to purchase mortgage bonds and other assets and later started to pay interest directly to banks. This is a direct transfer of purchasing power from dollar holders to homeowners and banks.
In this case look at the alternative if the Federal Reserve didn’t allocate those loans. The airline would go to court and file bankruptcy and losses would be allocated to equity holders and creditors. Those losses don’t magically go away because it isn’t easy to see who the losers are.
You’re assuming a fixed amount of stuff and that the system is running at maximum capacity.
If there is any unemployment in the system it isn’t. It is systemically supressed. (There is insufficient spending in the right areas to employ everybody. Largely from the people that would otherwise be employed).
What you are describing is the “full employment fallacy”.
We’re demonstrably not at full employment. Which is when Everybody who wants a living wage job has one. Only then does what you say hold true.
And that’s because Interest Rate Targeting doesn’t work. If the Fed was required to hire everybody who couldn’t find another job they wanted then we’d be in the position you describe.
We’d also have an empirical test of how well Interest Rate targeting works
In the best case the Fed would need to hold interest rates a 4%+ per year to compensate dollar holders for the loss of purchasing power. Prior to 2008 those benefits used to accrue directly to the government. The Federal Reserve purchased only Treasury bonds which would lower overall market rates for government bonds. In addition any bonds held by the Fed were effectively interest free as interest was returned to the Treasury.
In 2008 the Fed started to purchase mortgage bonds and other assets and later started to pay interest directly to banks. This is a direct transfer of purchasing power from dollar holders to homeowners and banks.
In this case look at the alternative if the Federal Reserve didn’t allocate those loans. The airline would go to court and file bankruptcy and losses would be allocated to equity holders and creditors. Those losses don’t magically go away because it isn’t easy to see who the losers are.