First, the Fed could launch an “Operation Twist” on the yield curve, selling short-term Treasuries and buying long-dated bonds with the aim of driving down long-term yields. ...The problem is not what the Fed can or can't will or won't do. The problem is that American business are over-regulated and suffer the world's highest tax rates. Couple that with an administration that continually talks about raising taxes still further, regulating evermore strictly and comprehensively, and it's no wonder that business managers are not hiring and are just hunkering down.
Second, the Fed could cut the rate it pays on banks’ excess reserves from 25 basis points to 10bp. That again is an option it explicitly rejected last November. ...
Third might be a third round of quantitative easing or “QE3”. But imagine that the Fed bought another $600bn of assets. ... If there is any doubt about inflation, then the Fed will be reluctant to tie its hands so far into the future.
A similar objection applies to option four: a promise to keep rates lower for even longer than the current “extended period” or to make a similar promise about its balance sheet.
The earliest such a pledge could be reversed is September. ...
That leaves the final option: acknowledgment of the weaker economic data and a robust signal, delivered either on Tuesday or in the chairman’s speech at Jackson Hole on August 26, that the Fed is willing to act to counter any deflation risks that emerge. ...
But the crucial point is that none of these options are especially appealing. They all come with costs and those that are easier to do will not impart much stimulus to the economy.
It's not the Fed's fault. It's the fault of a hyper-regulatory regime that thinks "that there is some kind of perpetual engine of economic prosperity in America that is going to just continue. And therefore they are able to take from those who create and give to those who don't."
So why create? is the question. And the answer is, don't.
No comments:
Post a Comment