Quantitative Easing 2. Some Economists Weigh In.

[Ayatollah So]

Thoughts?

About bloody time! That is: way overdue.

A few more things the Fed needs to be doing
1) Get rid of the interest rate on excess reserves. Start charging penalty rates, like Sweden, only do it comprehensively.

Integral for Fed Chairman.

2) A nominal GDP target would be best [...]
Set a nominal anchor for expected sales. That breaks the circle described in (1), pushes a regime shift in expectations, and might get things moving again. Or I might just be delusional as usual.

You have a lot of faith in the faith of businessmen in the Fed. You might be right, and you should know much better than me, but I'd be greatly surprised to see this trick work, if you hadn't told me it would.

Now that you've told me, I'd be mildly surprised if it worked And - - I'll still be greatly surprised to see it tried.

 

[EnglishEdward]

Almost no one sees any threat of inflation. It just isn't in the cards in the foreseeable future.

Then, Sir, my name is "No One"

We shall see.

 

[kronic]

Since I think that the US economy (and much of the Western economy) is trapped in a solvency crisis, another round of QE will achieve as much as it did so far, about nothing. At least, I don't see how QE is going to solve the problem. Most of the money will probably be invested in emerging markets. And we're going to produce another asset and commodity price bubble.

 

[Tacitusitis]

What a joke that this will go through but unemployment benefits will not.

It reminds me of that other story about the guy who got away with a fine for running over a doctor because he is too rich to be sued.

 

[countrygrl]

Link to video.

 

[Cutlass]

Link to video.

1 minute in and they are factually wrong and pushing an agenda.

 

[Tacitusitis]

Don't blame me, I've always been against The Ben Bernanke.

 

[Cutlass]

Ben isn't perfect. But we probably would have been far worse off without him.

 

[Masada]

The only thing I can see de-flating, is the Feds cred-i-bility.

 

[Cutlass]

Greenspan accomplished that years ago.

 

[Masada]

This video is hilarious.

 

[JerichoHill]

If you are against Ben Bernanke, you don't know monetary policy

The correct answer would be
Ben got it wrong in that he thought you should never burst bubbles proactively. He has since admitted that mistake.
After Ben realized he was wrong about the above, his policy and actions have been critical to the prevention of a major depression. He deserves alot of credit for moving and moving fast since the recession really got underway.

And, for the record, I'll take Fed Chair before Integral. That way, I can screw it up and he'll look even better, even if its just a conspiracy between us.

@EnglishEdward
Almost every indicator tells us that deflation is the short term concern. There just isn't any short term inflationary pressure anywhere, and QEII is likely to be big enough to cause an inflation bubble in the long run (noting this is a stochastic process so things do change over time and we cant really predict the error term)

 

[Tacitusitis]

If you are against Ben Bernanke, you don't know monetary policy

I cultivate a deliberate ignorance of monetary policy, it helps with my blood pressure.

The fact that someone who ran an investment bank can go run a Fed branch, and that this is not only possible but actually routine... going to go take my meds now.

 

[Whomp]

I cultivate a deliberate ignorance of monetary policy, it helps with my blood pressure.

The fact that someone who ran an investment bank can go run a Fed branch, and that this is not only possible but actually routine... going to go take my meds now.

When did Bernanke work for a investment bank? Academia and government for Bernanke.

 

[Tacitusitis]

When did Bernanke work for a investment bank? Academia and government for Bernanke.

Talking about the NY Fed.

 

[Cutlass]

I have always disliked the part about open market operations going through a limited venue rather than public trading. What's the need for that?

 

[Mise]

I read in a blog that the Fed should start purchasing other assets, such as stocks, instead of bonds, and perhaps guaranteeing a minimum level for the DOW (say 11k), in order to boost confidence. (He also suggests selling stocks if the market rises too quickly, to avoid stoking another asset bubble.)

It sounded like a good idea, but I don't have the brains to think it through. Maybe one of you guys could do it for me?

 

[Integral]

I've heard of that -- that the Fed could buy/sell index funds to directly stabilize the DOW or S&P (just as right now it buys/sells bonds to directly stabilize the nominal interest rate).

I feel vaguely uncomfortable with the notion, but don't have a model behind that unease as of yet. There are certainly second-order effects (unintended consequences) that would need to be fleshed out.

The point that you could prevent asset bubbles in this manner is something worth thinking hard about. It's a bit direct for my taste but then who said my taste was what mattered? In general, even the weakest EMH would rule out trying to pop bubbles preemptively via any rule-based measure; short of having the Fed directly intervene in stock markets.

--

Integral for Fed Chairman.

Getting there. 'Tis a long ladder to climb.

 

[Whomp]

Talking about the NY Fed.

I see so it's not his PhD in Economics from Berkeley you have a problem with it's simply that he worked as chief economist for Goldman Sachs. Got it.

I read in a blog that the Fed should start purchasing other assets, such as stocks, instead of bonds, and perhaps guaranteeing a minimum level for the DOW (say 11k), in order to boost confidence. (He also suggests selling stocks if the market rises too quickly, to avoid stoking another asset bubble.)

It sounded like a good idea, but I don't have the brains to think it through. Maybe one of you guys could do it for me?

I think the main problem with this is equities are perpetual and bonds are final. The whole weighing machine not voting machine thinking Ben Graham suggested.

I could make the case for the Social Security system acquiring equities because it's a long term trust but trying to intervene in the equities markets short term sounds like a complete disaster and riskier than the unintended consequences we're already seeing with QEII (IE municipal finance).

The Fed has flexibility with margin and could ease margin requirements from 50% and accomplish that goal with less risk by adjusting up and down the requirements. I think Greenspan should've done this when he made his "irrational exuberance" comments. This technique was done quite a bit in the 60's.

 

[Cutlass]

Didn't Greenspan's trying to deflate the Irrational Exuberance bubble with monetary policy cause more of a recession in the real economy than manage to deflate the bubble?