Sunday, November 27, 2011


"What Could Ben Bernanke Do?"

"I can't blame Occupy Wall St..."
UC Berkeley economist Brad DeLong puts himself in Ben Bernanke's shoes and comes up with a Fed strategy to...uh, pull the country out of a deep ditch. Given that the Federal Reserve has autonomous power,  monetary policy is still feasible in the near term while every other path is "gridlocked" by dysfunctional and/or corrupted politics. Wonky but worthwhile suggestive commentary on a crucial piece of the economic puzzle:
(T)he Federal Reserve might be able to spark a real economic recovery by…
1. Announcing that it is going to keep short-term Treasury interest rates low not just as long as the economy is depressed but even afterwards when the economy has recovered and when it would normally be raising interest rates: that it is going to keep short-term Treasury interest rates low until it generates an inflationary boom, and that you had better start building capacity now to serve your customers during that inflationary boom or your competitors will do so and take your profits.
2. Not just announcing but actually bailing-in the taxpayers of the United States of America as the risk-bearing partners of American financial institutions: with the taxpayers as their risk-bearings partners, financial institutions that were previously tapped-out on their risk-bearing capacity will now have the ability and the incentive to make more loans at more attractive terms to more potentially-expanding businesses.