Could Fed Bailouts of State and Local Governments Hurt the Economy? [VIDEO]
Dr. Jim Richardson, Professor of Economics at Louisiana State University in Baton Rouge, talks with 101.7 / 710 KEEL's Robert J Wright and Erin McCarty about the latest federal government plan to bailout state and local governments facing fiscal troubles because of the Coronavirus shutdown.
Richardson tells KEEL listeners that the federal government, specifically the Federal Reserve, has the ability to print money, unlike state and local governments that are facing fiscal troubles. "The Federal reserve was created to control the money supply," Richardson begins. "They create it, but the real issue there becomes, does it at some point cause inflation? If you look historically at what's going on, we have, in one sense, been creating money. They're doing that again right now. It has not led to any major inflation. I fact, we've had very low inflation for some time now. Now, the question is, if there's suddenly a demand for services and the economy starts roaring back, the Fed will start pulling (money) back a little bit. The bottom like is it has not caused the inflation that may have been predicted, but mostly because the economic activity is so meager."
Richardson closes by addressing the question, could too rapid a recovery of the economy from the shutdown trigger an uncontrolled and rapid rise in prices? "It wouldn't be a disaster to start up too fast, but if we really start roaring too quickly - and I don't think that will be the case - the Fed can start pulling back. If they don't start pulling back, don't do it quick enough, then it can create an inflation problem. If they start to see the economy recovering, then they should start the pulling back."