Citi's Buiter: Roll Out Massive Stimulus, Abolish Paper Currencies

Friday, 11 May 2012 07:59 AM

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Central banks worldwide need to flood their economies with stimulating liquidity and then abolish paper currencies, replacing them with electronic monetary units in order to save the global economy, says Citi analyst William Buiter.

Since the downturn, central banks have slashed interest rates to near zero and have bought trillions of dollars in bonds and other assets from banks, injecting them with liquidity in the process with the aim of spurring growth.

Such asset purchases, known officially as quantitative easing but dubbed by many as printing money out of thin air, aim to stave off further decline but arguably lay the seeds for inflation down the road.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

So what, Buiter says.

The economy needs as much monetary stimulus as it can, and on top of quantitative easing, central banks need to find even more ways to drop money out of a helicopter so it winds up in more households.

"We think central banks in the U.S., euro area, Japan, and the U.K. could and should do much more," Buiter says in a note to clients, according to Business Insider.

Aside from rolling out massive forms of quantitative easing, interest rates need to fall to zero in the U.S., the U.K., the eurozone and Japan, as in the end, industrialized economies would suffer more from deflationary decline than from inflation.

Lastly, monetary authorities should roll out "try anything" measures such as "abolishing currency completely and moving to E- money on which negative interest rates can be paid as easily as zero or positive rates" to further stimulate the economy.

The Bank of Japan has said it will continue with its easing measures although the Federal Reserve and the European Central Bank are taking a wait-and-see approach to gauge how past measures play out.

The Bank of England is set to announce it will end its quantitative easing program.

The U.K. economy shrank 0.2 percent in the first quarter of 2012, putting Britain officially back into recession.

However, most agree better days lie ahead.

"It's essentially in line with what we had in the preliminary GDP estimate. But the underlying picture looks a bit better because of the stronger manufacturing number," says RBS economist Ross Walker, according to Reuters.

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.



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