Finally finished reading this article. It is a good one and hits on a lot of important points, though it doesn't really delve into the depths of what put us where we are. One thing though that is completely incorrect is this quote near the end:
Rogoff scoffs at this. “Creating inflation is not rocket science,” he wrote. “All central banks need to do is to keep printing money to buy up government debt.”
I am absolutely shocked that someone of his caliber would make such an incredibly misleading statement.
Creating inflation is actually very difficult in advanced economies. The main reason is that inflation is created far more by velocity of money and credit extension than it is by printing presses.
To give you an example of why this is a problem, the total amount of US physical currency (printed and coinage) is about $1.6T. The total number of dollars in the system is about $9T. This is the result of fractional banking. IE, you deposit $100 in a bank, they loan out $90 to someone else who spends it, that $90 is deposited and another $81 is loaned out, etc.
One of the big problems of the last three years is that banks have not been lending (for a variety of reasons), so that velocity is decreasing, it takes longer for the derivative of a $100 currency deposit be fully fractionalized in the system. Additionally, more of the deposit is not being loaned out, so the net dollars created is smaller too.
Prior to 2008, the total number of dollars in the system was around $11T (Some estimates go up to $20T but that involves a lot of 'cash equivalents' of questionable nature). So we've actually seen a deflation of the money supply of around $2T, though consumer prices, in most cases, have either stagnated or even gone up (I could write a ten page post on how that works!). This is hugely damaging for an economy.
So why not just inflate out of it like Mr. Rogoff suggests? Well, the easiest way to inflate is via the extension of credit. But that hasn't worked. We haven't even be able to keep the level of available credit stable. They could lower the reserve requirements of banks, but even if that spurred lending (which it won't), it makes the system even more fragile.
So if we can't just grow dollars via credit, why not print more?
The simple reason is we can't. To give you an idea of what it would take, there are two currency printing facilities in the US. The current top denomination of bills is $100. If those two facilities did nothing but print $100 bills 24/7 for the next year, they'd produce about $1.4T in new dollars. That's it. That doesn't even cover the dollars lost in the credit contraction much less create actual inflation.
Now, they could do this for several years and yes eventually it would cause inflation, but it would likely take several years before it even covered the yearly decrease in credit (assuming the recession continues).
And there is another problem, there is only one company that produces the paper for US currency and its not that big. They couldn't produce enough material to create that amount of money for one year, much less several years. Sure, they could expand operations, but again, that takes time and there still is a raw material issue.
The next option is to start printing higher denominations ($500, $1000, maybe even $5000). The good news is that doing so could create inflation very quickly. The bad news is that that kind of telegraphed move would cause the credit markets to collapse, destroying the economy. We'd end up with a shell of an economy and run away inflation (this is essentially what happens in a lot of 3rd world countries).