How monetary policy might mitigate Washington’s budget crisis this time around

How monetary policy might mitigate Washington’s budget crisis this time around

Neither the government shutdown nor the debt ceiling crisis are good for growth. I think the uncertainty argument has merit, plus actually failing to raise the debt ceiling would create a potentially severe economic shock.

But things could be worse. There were some aggravating monetary factors present back in 2011 that are absent today, given the Fed’s ongoing bond-buying program. MKM’s Mike Darda:

– First, QE2 came to an end in July, just as the fiasco in Washington DC was in full swing.

– Second, just as QE2 was coming to an end, the ECB catastrophically tightened monetary policy in April and July when they should have been easing it, precipitating a double dip recession and setting off a run on Spanish and Italian bond markets.

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