This is a comment on Cardiff Garcia’s post on fiscalists and market monetarists, and also some related criticism of Bernanke’s recent remarks on fiscal policy, criticism which I think is totally wrong. I want to argue that a ‘monetarist’ position which is indifferent to what fiscal policy is doing in current circumstances is untenable. As a result, central bankers have to speak out on the dangers of austerity. 
There are two lines that monetarists might take. The first is that unconventional monetary policy, Quantitative Easing (QE), is a perfect substitute for conventional monetary policy. The second is that an appropriate monetary policy regime can, through expectations, undo the restriction imposed by the zero lower bound (ZLB). Let me take each in turn.
The first argument is wrong mainly because of uncertainty. Macroeconomists know little enough, but we do know something about how conventional monetary and fiscal policy works, and we have a lot of data that can help us. We know so much less about unconventional monetary policy. What kind of model we should use is unclear, and we have very little data.
The second argument would be right if we could fix inflation expectations in exactly the same way as we could, absent the ZLB, fix nominal interest rates. Would a nominal GDP target do that? Of course not. I think it would help, particularly compared to an inflation target regime, because the latter actually inhibits inflation expectations rising above that target. That is why I have recently argued that a path for nominal GDP should be adopted by central banks as an intermediate target. Would adopting such a target raise inflation expectations and speed a recovery? - I think it would. Would it raise inflation expectations by enough to negate the need for any fiscal stimulus (or, more realistically, to counteract the impact of fiscal tightening)? There is no logical reason why it should. But let us just suppose it did. Does that mean we can ignore fiscal policy?
Absolutely not. What we are getting in this case is a recovery achieved by raising expected inflation above (in the UK, US and Eurozone) 2%. That is costly, because it means actual inflation must be allowed to go above 2%. The more we deflate demand through fiscal austerity, the higher inflation has to go (or the longer it has to be above 2%). So monetarists who believe in the expectations channel cannot be indifferent to fiscal policy, unless they also believe it has no effect, or that inflation above 2% is costless. (I make a similar point a little more carefully here.) If, as Paul Krugman says, fiscal policy makers are doing the wrong thing, that is a cost worth paying, but it is a cost nonetheless.
This is why it is really important that central banks, like the Fed, make it publicly clear the difficulties that fiscal tightening is causing them in meeting their mandate. Either this is because they are, quite rightly, uncertain about the impact of QE, or they are aware that the more fiscal tightening there is, the more inflation will have to go above 2% to counteract its impact.
The idea that to speak this truth is wrong because it might frighten the horses is silly. I have used the following analogy before. No one wants to hear a pilot tell passengers that they are no longer in control of the plane. However a better analogy in this case would be the pilot not telling the co-pilot, which would be highly dangerous. The horses that matter here are those in charge of fiscal policy, and they need frightening.
 Sorry Nick. I have a lot of sympathy for the point that we should not routinely exaggerate with language. The (I think just British) phrase I hate is ‘black hole’ when used to describe a worsening in the government’s accounts. The use of austerity to describe what is happening in parts of Europe and the UK right now is less obviously loaded or misleading, but I’m open to persuasion.