From the Washington Post:
…”If this guy [Fed Chairman Bernanke] prints more money between now and the election, I don’t know what y’all would do to him in Iowa, but we would treat him pretty ugly down in Texas. Printing more money to play politics at this particular time in American history is almost treacherous, or treasonous, in my opinion.”
On Friday, Standard & Poor’s, one of the three main credit rating agencies, downgraded U.S. Treasury debt from AAA to AA+, citing doubts about the effectiveness, stability, and predictability of American policymaking and political institutions in being able to deal with the rising debt burden by the middle of the decade. It’s been a wild ride for equity and commodity markets ever since.
Joe Gagnon (formerly associate director of Monetary Affairs, and of International Finance, Divisions at the Fed) of the Peterson Institute for International Affairs has had enough with the policy paralysis . From Stop Sticking Our Heads in the Sand! A Plan for Action on Jobs:
…our leaders have been in denial about the true nature and magnitude of the problem. The ongoing stock market anxiety surely must wake them up.
Some Federal Reserve officials apparently have a rule of thumb for thinking about the impact of the Fed’s large-scale asset purchases. I was curious to compare those estimates with the numbers that would come out of my own research.
Event studies are one method that has been used to try to assess the potential effects on markets of nonstandard monetary policy measures such as QE2. The Federal Reserve Bank of St. Louis recently hosted a conference whose objective was to evaluate evidence on the effects of these policies. Here I relate remarks I made at the conference on some of the challenges from trying to use event studies to answer this question.
Congressman Ron Paul (R-TX) is apparently proposing that the U.S. Treasury simply refuse to pay interest and principal on the $1.6 trillion in Treasury securities currently owned by the Federal Reserve. Dean Baker, Greg Mankiw,
Steve Williamson, and
Stephen Gandel all seem to think it’s not a totally crazy idea. Here’s what I think they’re missing.
This week I attended a conference hosted by the Federal Reserve Bank of St. Louis on quantitative easing. The purpose of the conference, as explained by Bank President James Bullard in his opening remarks, was to answer Stanford Professor John Taylor’s challenge to provide research of real-time usefulness to policy makers. The conference featured analyses by 5 different research teams of the effects of recent quantitative easing measures adopted in the United States and United Kingdom.
I just returned from the annual conference of the
Society for Financial Econometrics
hosted by the University of Chicago. One of the many interesting papers described changes in Federal Reserve policy over time.
Last November, the Federal Reserve announced a plan to purchase $75 billion each month in intermediate-term Treasury securities, a measure popularly described as a second round of quantitative easing, or QE2. June is the last month of this program, and it looks unlikely that the Fed will extend it, causing some observers to be concerned. My view is that QE2 had relatively modest effects, and such benefits as it provided should not evaporate with the end of the purchases.
By David Papell
Today, we’re fortunate to have <a
href=”http://www.uh.edu/~dpapell/”>David Papell, Professor of Economics at
the University of Houston, as a Guest
Contributor.