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When banks or individuals hold on to cash, he notes, the effect is the same as if the Fed were shrinking the money supply. By refusing to spend or invest, they stifle economic activity.
That effect is apparent in the slowing of the economy, which was not exactly galloping to start with. That has put job growth on a glacial pace. Three years after the recession officially ended, we have five million fewer jobs than we had before it began.
The Fed's past quantitative easing programs have helped, but they haven't been big enough or lasted long enough. Sumner argues the central bank should commit to sticking with that tactic as long as it takes to get growth back to a healthy pace -- backing off only if inflation gains a real foothold.
Could inflation make a comeback? Sure. So could the Soviet Union. But until it does, we should deal with dangers that are not imaginary.
Steve Chapman blogs daily at newsblogs.chicagotribune.com/steve_chapman.