Sunday, June 10, 2012

And I Have a Bridge for Sale

Today in the NY Times Romer is giving out advice again. But remember it is the very same Romer whose projections on unemployment we have been tracking for almost the past four years, never even close!

I agree that we need more effective fiscal and housing policies. But neither is likely to happen, at least not before the presidential election. As a result, the Fed is the only plausible source of immediate help for the American economy. It was set up as an independent body precisely so that somebody can do what’s right when politicians can’t or won’t. 

Then she suggests:

After the Fed has pushed interest rates down to zero, its main remaining tool is communications. It can affect expectations of future growth and inflation, which can have powerful effects on consumer spending and business investment today. But to have a big impact, the monetary actions need to be bold — and pursued with gusto. In an earlier column, I discussed one of economists’ favorite examples of such a policy: setting a target for the path of nominal gross domestic product. 

If the Fed doesn’t want to do something as drastic as adopting a new operating procedure, it could at least make any smaller actions it takes more effective. The previous rounds of quantitative easing may have done little to improve expectations because their size and duration were limited in advance. If the Fed does another round, it should leave the overall size and end date unspecified. Or, better yet, the ultimate scale and timing could be tied to the goals the Fed wants to achieve. 

 Frankly leadership is totally lacking, across the board. It appears that the folks in DC are totally clueless but that perhaps is not totally true. We have shown for four years that the FED has just pumped up the banks and then allowed then to continue to play with money mortgaged on our grandchildren's future. Then we also watch as Fiscal policy runs amok, again total lack of leadership.

Currently the FED is just an observer.A nice place to sit and drink coffee and watch others mess things up. But following the above somewhat vague suggestions based on her track record, please!