Scott Sumner is evidently in about the same mood as me today, but his motivation for doom and gloom isn’t the apparently final collapse of the Enlightenment project after a pretty good run. No, his concerns are a little more prosaic: he’s gobsmacked that Ben Bernanke continues to fiddle while the economy burns. After noting that current monetary policy is quite likely contractionary even with near-zero interest rates — and that Bernanke seems none too concerned about it — he surveys the Fed’s possible responses:
There are three things the Fed could do with minimal price risk; lower the interest rate on reserves, set a price level target, and do several trillion in QE [quantitative easing] with T-bills and short term T-notes.
….Here’s how to tell if the Fed is serious, if and when it moves. If they take one of those three steps, it will merely be a desultory action aimed at mollifying the markets. If they are serious, and really want to turn around market sentiment, then they will use the multi-pronged approach I recommended last year; eliminate interest on reserves, major QE, and some sort of quasi-inflation targeting language. As Bernanke indicated, the best we could probably hope for regarding inflation targeting is a
vague mention that rates would be left low until some collection of macro indicators rise much more substantially — i.e. no early exit. Those three steps might not be enough for a fast recovery, but it would almost certainly get things moving again.
….Today fills me with gloom. It will be interesting to hear what you commenters think. How about it JimP? Did Bernanke exhibit the sort of “Rooseveltian Resolve” that (in 1998) he insisted the Japanese needed in order to get out of their Great Recession? Did he show the “yes we can” spirit? The Rooseveltian/Kennedyesque/Reaganesque determination that we won’t put up with high unemployment for as far as the eye can see? Or did he blink?
I dunno. I wish I had something smart to say, but it’s all been said a thousand times before. The economy is in the doldrums; it’s not likely to get out of the doldrums any time soon; there’s a marked risk that an economy in the doldrums might fall back into recession; millions of people are going to suffer needlessly because of this; and an unholy alliance of partisan Republicans, cowardly Democrats, and Fed members in hock to ancient superstitions is preventing us from doing anything about it. So I’m full of gloom too.
