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Krugman on the Fed

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Krugman assesses what the Fed is doing -- and what it can do:

Earlier this week, the Fed changed course — but barely. It now says that it will reinvest the proceeds from maturing securities in long-term government bonds. That’s a trivial change, basically the least the Fed could get away with without facing a firestorm of criticism — and far short of the major asset-purchase program the Fed should be undertaking.

Back in 2000, Mr. Bernanke also suggested that the Bank of Japan could move expectations by making announcements about its future policies. In particular, he argued that it could make private-sector borrowing more attractive by announcing that it would keep interest rates low until deflation had given way to 3 percent or 4 percent inflation — an idea originally suggested by yours truly. Since we are, if anything, in worse shape now than Japan was in 2000, an inflation target of at least 3 percent would very much be in America’s interest. But as chairman of the Fed, Mr. Bernanke has explicitly rejected any such move.

By Ezra Klein  |  August 13, 2010; 10:00 AM ET
Categories:  Federal Reserve  
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Next: Obama and Reagan cont'd

Comments

I wonder whether the fed would be more daring in their monetary policy if there were more progress on the long term fiscal situation. If so, Ezra's suggestion on tradeoffs between short term stimulus and long term cutbacks would help promote both stimulative fiscal and monetary policy.

Posted by: jduptonma | August 13, 2010 10:16 AM | Report abuse

It's simple.

The fed structure is mostly comprised of Republicans.

Even the idiot Obama kept Bernanke on board.

The fed wants to help the GOP by keeping a low profile and keep the economy tepid until after the election.

The conservative fed OTOH worked real hard in 2000 to hurt the economy to help get Bush elected. Since then they've been on an insane rush to destroy interest rates so as to compel people to shift savings to the stock market so Bush could claim the market was doing well. We see how the feds actions keep interfering in our economy.

I am not a fan of the fed. I think the fed should be disbanded or at the very least made completely transparent and 100% audited. The fed is a political animal run by big-business pro-globalization Republicans and is one of the major sources of our continued economic decline.

Posted by: lauren2010 | August 13, 2010 10:34 AM | Report abuse

lauren 2010 got it right about low interest rates on savings. Raise the rates and we will start to spend more.

Posted by: axto188 | August 13, 2010 10:43 AM | Report abuse

"The conservative fed OTOH worked real hard in 2000 to hurt the economy to help get Bush elected."

The unemployment rate for September and October 2000 was 3.9%. If the Fed was trying to wreck the economy before the election it wasn't going about it the correct way. The Fed also cut rates in late 1995 again in early 1996 in advance of the Presidential election, and it hiked rates right up to June 2006 despite a vulnerable Republican Congress.

I think it's more plausible that Fed chairs care a lot more about their reputation than winning points for a political party.

"Since then they've been on an insane rush to destroy interest rates so as to compel people to shift savings to the stock market so Bush could claim the market was doing well."

Aren't they doing the same thing right now under a united Democratic government?

"lauren 2010 got it right about low interest rates on savings. Raise the rates and we will start to spend more."

???

Can someone explain this?

"I am not a fan of the fed. I think the fed should be disbanded or at the very least made completely transparent and 100% audited."

Actually agree here. I think the Fed should either target nominal GDP to grow along a path consistent with zero long run inflation but some short-term reflation (to the extent that it can) or we shouldn't have a central bank.

Posted by: justin84 | August 13, 2010 12:22 PM | Report abuse

The Fed & Bernanke are NOT able to fix the unemployment TSUNAMI. Tweaking small policy issues or interest rates will not work. Nor will training for "new" jobs that can still be offshored quickly in pursuit of cheaper labor. Presidential Candidate Obama promised to reopen our Trade Agreements with an eye to correcting the decimation of the US manufacturing jobs. Now, Obama is silent about reopening Trade Agreements, and worse, he PROMOTES NEW ones.

The only REAL solution to the massive unemployment we are seeing now has to include what never seems to be mentioned in talk about jobs creations in the USA: Tearing up our so-called Free Trade Agreements and Favored Nation Status with China, Mexico, etc, and then implementing new tariffs and trade policies that would make it unprofitable to import stuff not manufactured in the USA. MILLIONS of jobs have disappeared overseas because of cheaper labor and lax environmental regulation in places like China & Mexico. The standard line from the mainstream press seems always to be, "Those jobs are never coming back. Get over it and find some other way to create jobs in the USA."

Sorry, but NO! This evisceration of the USA's manufacturing base was an incredibly short-sighted experiment that has gone on too long. Protectionism IS a national good when it keeps jobs and the ability to produce our own basic needs here within our own borders. National security depends upon it, and there really is NO other solution that will bring back jobs to the USA without instituting some harsher new trade laws that insist upon production being done HERE in the USA whenever possible. Cheaper labor costs overseas do NOT outweigh the need to keep jobs and manufacturing ability in the USA. Plenty of jobs ARE being created everyday, just not here in America.

Mark M Pepp

Chicago IL

Posted by: pobox10275 | August 13, 2010 1:00 PM | Report abuse

axto188- "raise the rates and we will start to spend more"

you should seriously consider taking an Economics course before commenting about basic subjects like this. Raising rates makes savings more profitable, thus people spend less.

also Mark M. Pepp is an idiot.

Posted by: rt72 | August 13, 2010 1:14 PM | Report abuse

rt72: I know you are but what am I?

Oy

Takes one to know one

Posted by: pobox10275 | August 14, 2010 4:29 PM | Report abuse

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