Thursday, April 26, 2012

Jared Bernstein — The Limits of the Fed 

They [Fed BoG] control interest rates.  In fact, they only directly control short term rates.  Indirectly, through the “twist” and QE, they can target longer term rates.  But that’s almost all she wrote when it comes to what’s under their direct control.
Don’t get me wrong—that ain’t nothin,’ especially in normal times.  But the price of capital isn’t so much the issue right now.  Borrowing’s cheap, it has been for a while, and corporate cash reserves are flush.  The missing ingredient is demand.  Without that, the Fed is pushing on a string.
Read it at On The Economy
The Limits of the Fed
by Jared Bernstein

Jared Bernstein gets it.

3 comments:

Mike Norman said...

Yeah, he "gets" it. But he's also one of those self defeating progressives who talks about dealing with "long term deficits."

TheArmoTrader said...

True Mike. I like Jared, he might be worried about the Deficit/debt like a lot of main-streamers but his analysis is always insightful.
Also, he doesn't promote policies (like Mankiw) that will destroy the middle class even more.

If only he could pick up on some of the realities MMT preaches...That would be a big "win" for us since he's in the media a lot.

Pete said...

No, the missing ingredient is a free market in money production.

There is a lack of demand not because there is not enough toilet paper money, but because the economy's capital structure is all out of whack, and won't correct because of artificially low interest rates, and Fed inflation that is incorrectly perceived as "not enough."