Could this time have been different? by Ezra Klein

(via DeLong)

Krugman: Monetary Base and Prices

Brad DeLong: "Why LM Is Still Here"

Let me be the first to say that I really, really wish the Federal Reserve would pull a Paul Volcker--would change its operating procedures--and announce that it will buy as many risky and long-duration assets for cash as it needs to in order to push market expectations of nominal GDP five years hence back to its pre-2008 trend level of $18 trillion/year.

That's going on my poster: "Gentle Ben: We Need You to Pull A Volcker!"

My favorite poster so far: "Fuck Opportunistic Disinflation - It's a Dual Mandate!"

I have David Wessel's book In Fed We Trust: Ben Bernanke's War on the Great Panic and it's good reading. The story about the panic is pretty well known now and was even dramatized in HBO's Too Big To Fail. On the back of In Fed We Trust are blurbs by Joseph Stiglitz, Thomas Ricks, N. Gregory Mankiw and Ron Suskind.

I went to the local Barnes and Noble to skim Suskind's new book Confidence Men and it was better than the impression I got from the reviews. He does seem to make some fundamental mistakes and has an antipathy towards Summers, but apparently Summers was behind a bigger stimulus and a Swedish type solution and he wanted to be Fed Chair. Obama wanted stability and to stay the course but perhaps it was a mistake. Certainly Summers would be under even more fire now than Bernanke but maybe Summers would have done more as Fed Chair. Anyway Suskind seemed to want better economic policy than we got and his heart was in the right place even though his various critics may be right, probably are right. Suskind would endorse OWS I imagine.

I searched the pages listed in the index for Bernanke and according to Suskind Obama never really talked to him.  Apparently Bernanke was tacitly backing Geithner in most things, but otherwise he's in the background. Maybe to maintain independence?

Via Delong, David Wessel on What the Fed Might Do:

Wessel: The Fed is not out of ammo, the economists at the Bank Credit Analyst insist, but….

There are three potential ‘nuclear options’ at the Fed’s disposal that could have a major impact on economy activity,

writes Peter Berezin, managing editor of the Montreal-based monthly report.

Unfortunately, all three options would be hard to implement and carry significant risks.

The three:

• Target a higher inflation rate or pre-specified level for the consumer price index or nominal gross domestic product. Problem: “could undermine the Fed’s long-standing commitment to price stability.”
• Stimulate bank lending by putting a tax on excess reserves, hoping that banks will the lend out the money if the have to pay borrowers to take the loans. Problem: “could lead to the collapse of money market funds and the disintermediation of the financial system.”
• Buy corporate debt, equities, real estate or foreign currency. Problem: Could require an act of Congress. “Given that the U.S. economy remains stuck in a liquidity trap,” Berezin concludes, “fiscal policy would be the most straightforward way to stimulate….However, the likelihood that the U.S. will receive major fiscal stimulus anytime soon is close to zero.”

His bottom line: “The recovery remains subpar” and the stock market “characterized more by volatility than a clear upward trend.”

Says DeLong: "I see no risks in attempting any of these three--and great risks in continuing to dither"

Don't Let Monetary Policy Off the Hook by Tim Duy

Brilliant post. Supposedly Republicans are worried about government debt and concerned about the Fed causing inflation/destroying the economy. The Fed's actually creating debt Japan-style and enacting opportunistic disinflation. Republicans are wrong twice over.

Robert Solow reviews Sylvia Nassar's Grand Pursuit: The Story of Economic Genius

(via Mark Thoma)


The Demand Doctor: What would John Maynard Keynes tell us to do now—and should we listen? by John Cassidy

IS-LM by DeLong

Krugman elaborates on DeLong's post

The Fed Drops the Ball by Tim Duy

Bernanke Urges Obama and Congress to Do More for Economy by Binyamin Appelbaum

In recent speeches, Mr. Bernanke had suggested that the economy did not need much more help, and that growth would pick up speed so long as the government did not interfere, for example, by making sharp cuts to short-term spending. But the Fed, like many private sector forecasters, has been too optimistic in its predictions over the last two years, repeatedly overestimating the pace of growth.

Bernanke testifies to Congress (via Calculated Risk):

Monetary policy can be a powerful tool, but it is not a panacea for the problems currently faced by the U.S. economy. Fostering healthy growth and job creation is a shared responsibility of all economic policymakers, in close cooperation with the private sector. Fiscal policy is of critical importance, as I have noted today, but a wide range of other policies--pertaining to labor markets, housing, trade, taxation, and regulation, for example--also have important roles to play. For our part, we at the Federal Reserve will continue to work to help create an environment that provides the greatest possible economic opportunity for all Americans.

Emphasis added. Didn't a lack of regulation get us into this mess? The housing bubble was allowed to inflate and an unregulated shadow banking system that's vulnerable to a Diamond-Dybvig-type crisis was allowed to arise. So when the bubble popped we had a classic bank run. And yet too much regulation is a problem?

It wouldn't be too much of a problem if he had adequate fiscal and monetary policy. But Republicans are blocking fiscal stimulus and the Fed feels its doing enough as long as the economy doesn't sink into a deflationary trap.

What Would Keynes Do? by Thomas Geoghegan

Famous samurai duel: Miyamoto Musashi VS Sasaki Kojiro via Krugman.

Mavis Staples played the Hideout Blockparty back on September 24th and the beer lines and portopotty lines were really long. Waiting in line I met a pretty young lady named Ivy. The next night I ran into her again with her friend Brian at a small show put on by Lætitia Sadier. Yesterday I ran into them again at the free "Cultivate Festival" which had the White Rabbits and Calexico. Calexico did an excellent cover of Love's "Alone Again Or" (see above.) Brian said he was at the Onion A.V. Club Blockparty with Archers of Loaf back on the 11th. Ivy was at the Beirut concert, the night after Sadier's show. We joked about what's next on the calendar.*

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*Ivy mentioned Ryan Adams.