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What the Fed is afraid of

Neil Irwin extends Chris Hayes's farming analogy to offer the best explanation yet of why the Fed is reluctant to do new things to speed a slow recovery. This is a debate I have trouble adjudicating, but when you think about how bad the current moment really is, it's worth dwelling on the fact that the Fed's main powers are totally tapped out and further interventions would require the development of original and untested interventions. This isn't just a bad economy. It's a bad economy that's teetering on the edge of our political system and the central bank's ability to respond.

By Ezra Klein  |  August 19, 2010; 1:01 PM ET
Categories:  Federal Reserve  
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Comments

Any bets on how long we have before the IMF comes in to get us out of this jam?

Maybe some imposed austerity measures and structural reforms would do us a little good.

Then again...

Posted by: itstrue | August 19, 2010 2:26 PM | Report abuse

Ezra,
To what extent is the Fed worried about making a visible commitment and failing? If Tyler Cowen and others are right that this slump is the end of family-deficit spending, it is quite conceivable that the Fed will fail to deliver that which it promises to deliver. At that point, the institutional players in the Fed will have lost credibility, which would lead to a lose of independence from politics.
So, to what extent is the Fed acting like Peter LaFleur from Dodgeball, "If you never try anything, you'll never fail"?

Posted by: ctown_woody | August 19, 2010 2:32 PM | Report abuse

It is ironic that Americans are looking to an appointed board of central bankers for leadership in this country.

Posted by: tuber | August 19, 2010 2:41 PM | Report abuse

Nixon imposed tariffs. How could that be a bridge too far?

Our problem is that globalization has utterly destroyed the 'Great American Jobs Machine' and there is no political or social policy that can fix the ensuing disaster.

Posted by: mminka | August 19, 2010 2:50 PM | Report abuse

we need a little more inflation. that will create a floor to the housing market, and will counter the fears of a deflationary spiral. The best way to do that is to print a bit more money.

Posted by: SnowleopardNZ | August 19, 2010 6:17 PM | Report abuse

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