Legal Commentary

The Lost Decade Will Continue

By Big Tent Democrat

Not only are we not going to get any more stimulus (in fact, the likelihood is a decrease in federal government spending), quantitative easing is a bad idea:

[Joe Stiglitz:] [T]he way I’d think about using monetary policy first is in a cost-benefit analysis. The likely benefit of monetary easing is very low for all the reasons I’ve said. Now, if it were costless, you might say, sure, the Fed messed up, it feels guilty, it wants to show it’s worried about unemployment, so why not let it do what it can do? But this is not costless. The first cost is the potential of currency wars [. . .] The second cost, which people haven’t talked about, is that the reason the private market for mortgages has dried up is that everybody knows the moment the government withdraws from the mortgage market, the effect will be that there will be a capital loss on the mortgages -- and the same thing goes for our long-term bonds. [. . .] The third point is that to avoid recognizing the loss, the Fed is likely to do silly things, like rather than buying and selling government bonds, they’ll pay interest on deposits banks make to the Federal Reserve in order to absorb the liquidity.

See also Krugman and DeLong. But what the hell do they know? They were only right about everything on the economy.

Speaking for me only

Full post as published by TalkLeft on November 04, 2010 (boomark / email).