I think Geithner and Bernanke would Vote for this solution.
written by Lucas Engelhart
I was thinking about the Keynesian liquidity trap today, and I came to an interesting conclusion.
If Keynesian theory were true, and Krugman were right that we are in the liquidity trap, then the Fed has a rather obvious solution in its hands: print a bunch of money and pay off everyone’s debts. (It can do this by buying every loan, and then forgiving all of them.)
Immediately, the banks wouldn’t have to worry about toxic assets, as there would be none. Every debt instrument would be purchased at face value. Families wouldn’t have to worry about making loan payments, as the loans would be gone. Every single balance sheet in the US would show a large, positive net worth (well, except for those of silly renters - like my wife and me - who refuse to go deep into debt).
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