First of all, you have to understand that Michael Woodford is probably the leading monetary theorist in the world. He holds degrees from the University of Chicago, Yale Law School, and a Ph.D. from MIT in economics. He teaches economics at Columbia University. He literally wrote the book on the implications of monetary theory for macroeconomics. Unlike Professor Paul Numbnuts, who writes about economics for the New York Times and won the Nobel because of his vociferous (and poorly-written) screeds about the Iraq war and the misprisions of the Bush Administration, Woodford is a genuine heavyweight, and if he won the Nobel Prize from that bank in Sweden for his work in economics, it would make some sense.
Enough preamble. Here is what Michael Woodford had to say on the question of Quantitative Easing:
"If we are going to scare the horses, let's scare them properly. Let's go further and eliminate government debt on the bloated balance sheet of central banks," he said. "This could done with a flick of the fingers. The debt would vanish." (Quoted by Ambrose Evans-Pritchard in London's The Telegraph.)Woodford, who's serious in general, is serious about this. What he is recommending is that the Federal Reserve simply buy up the entire annual federal deficit (in the $1 trillion range currently) and take the entire stock of public national debt (about $11 trillion) and place it on its balance sheet, along side the $3.2 trillion it has accumulated previously, most within the last four years of "asset purchasing."
Faithful readers (and I know you exist, even if Blogger has somehow made it impossible for me to access comments anymore) will recognize Woodford's plan as a variant of my Big Buy Thesis, whereby the Fed fronts a huge loan to its pet banks (the Primary Dealer community), say on the order of $100 trillion, which is used to "purchase" a huge stock of new Treasury debt issued at an interest rate sufficient to finance the federal government's annual budget (let's say $4 trillion). The "remittances" from the Federal Reserve to the Treasury would then be sufficient to finance the government without taxation.
It's perfect. It's a Perpetual Motion Machine that does not confound the rules of thermodynamics. Mr. Woodford notes that the present system confines the money flow from the Fed to the canyons of Wall Street, where it winds up blowing asset bubbles in the stock market and housing sector. If we simply acknowledge what we're doing (monetizing the debt through money printing), we can do some real societal good. The Treasury can issue as much debt as it wants, the Fed will buy it all, and Congress can pump the free money into a national modern rail network, desalination plants, alternative energy grids, the works.
Bear in mind that Mr. Woodford is of course aware of what happened when the Reichsbank in Germany attempted something along these lines between 1922 and 1924, resulting in the Weimar hyperinflation (the archetypal wheelbarrow full of money is pictured below). What is less well-known is that Japan succeeded with a money-printing scheme in the early 1930's and used it as a means to escape the worldwide Depression and gear up its war machine.
I am reminded of Ralph Waldo Emerson's good advice in his essay "Self Reliance," wherein he suggested that if you have an idea, even if it seems dubious and unprecedented, even a little crazy,
As Woody Allen had Larry David say in the movie of the same name: Whatever Works. What stands in the way is a fussy shopkeeper's mentality that has us stuck in the obsolete belief that money must bear some relationship to existing wealth, incrementally increased by organic "growth." Balderdash. Print the stuff, print it till we can't print no more. Distribute it far and wide, into every nook and cranny of this fair land. If we're going to scare the fricking horses, let's scare the fricking horses!