Vince Dhimos answered a question at Quora.
Q: HOW CAN MONETARY POLICY INSTRUMENTS AND FISCAL POLICY INSTRUMENTS BE USED TO INCREASE COUNTRY PRODUCTION?
Vince Dhimos, Editor-in-Chief at New Silk Strategies (2016-present)
The economic experience of the US ever since the creation of the Federal Reserve in 1913 is solid proof that finance cannot solve economic problems in the long run. Finance attempting to intervene in economic crises has only succeeded in exacerbating the problem, as clearly evidenced by the ballooning US sovereign debt and the fact that the Treasury is no longer finding sufficient buyers of Treasury bonds (due to the low interest rates) — obliging the government to print more money. Billions are now being printed daily to solve the repo (sometimes called “overnight lending”) market crisis, but money printing (quantitative easing) was originally intended only as a temporary stop-gap measure. Now it is a permanent part of US finance and has been since the 2009 crisis.
The Fed has in fact tried to use money printing as a financial policy instrument to revive a wilting economy. The aforementioned repo market is a little-known means of securing quick (often just overnight) loans for cash-strapped companies. Last fall, the supply side of this market fell short of the demand for loans, due mostly to the low interest rates creating a cash shortage in the banks. To “solve” this problem, the Fed – which had caused the problem in the first place – was obliged to resort to quantitative easing (although it refrained from using that now-toxic term so as not to frighten the public). Now it is printing billions of dollars a day to prevent the repo market from collapsing. As I have said many times before, financial instruments do not provide permanent relief to economic problems. This is why the Fed is not an appropriate agency for this solution.
Further, there is now no escaping this debt trap. This is because, if the Fed raises rates to attract bond buyers, it will not be able to afford to pay the service on its debt. But by keeping the rates artificially low, it is stuck in the rut of simply buying its own debt, and the only way to do that is to keep printing more dollars. But this poses the inevitable risk of hyperinflation as in the famous example of the Weimar Republic, where workers had to carry home their cash from the banks in wheelbarrows.
No economy has ever survived such a debt crisis.
The Fed has been busy kicking the debt can down the road for decades, but the wall is now in sight. And then?