With a dysfunctional Duma and Administration, lonely eyes turn to
Joe DiMaggio the Fed for economic hope. Krugman advises don’t expect much. We agree. It’s always a comfort to know the Fed sees the same color sky as the rest of us. Still, in practical terms, there’s not much it can do. The easiest course is play to market and consumer psychologies. Which is what this piece in the WaPo is all about. ‘There’s alot we can still do.’ Except there isn’t.
Fed leaders are weighing modest steps that could offer more support for economic activity at a time when their target for short-term interest rates is already near zero. They are still resistant to calls to pull out their big guns — massive infusions of cash, such as those undertaken during the depths of the financial crisis — but would reconsider if conditions worsen.
The main floated idea? It’s a recycle. Even before Bernanke became Fed Chairman, based on his study of Japan’s ‘Lost Decade’, he noted that the Fed could do more than drive short term rates to zero or historic lows re mortgages, etc. The Fed could venture into influencing long term and private debt. How? By ‘signaling’ markets its commitment to keep such rates ‘exceptionally low’ for an ‘extended period’. To be effective this language would require an implicit commitment to embark upon (most likely) a public asset (bond) repurchasing program. This ‘comfort letter’ would in turn stimulate economic activity.
Except that even here, the Fed’s hands are largely tied, despite assurances offered by, say, the President of the St Louis Federal Reserve Bank in the WaPo item. Krugman refers (ironically) to a Goldman analysis as a guesstimate: to achieve our current near zero short term rates would be the equivalent of the Fed embarking on $10 trillion in asset purchases. If the short-lived Fed 2008-2009 actual long term asset purchase program of around $2 trillion is perceived as unprecedented and ‘massive’? So we take Krugman’s point.
Obama’s folly of premature ‘bi-partisan’ surrender to ineffectual tax cut demands gutted the already inadequate stimulus package. The ‘Summer of Jobs’ comes home to roost. ‘Mission Accomplished’, indeed. Wither economic policy now with a radicalized demos? Disturbing data suggests Democrats in power have accomplished the once unthinkable — nudging Boomers generationally to embrace the irrational Rightists. Losing this demographic is more than just a partisan political body blow per supra.
We haven’t seen the generational preference data ourselves. We don’t dismiss it, however. David Winston, while a proud partisan, is deeply committed to the empirical. This from personal experience. We tend to give both his analysis as well as generalized glosses more credence than from others that come to mind.