Originally Posted by sugarkang
I don't know why you keep missing the other parts to my argument. We are agreed that we have a demand problem. I only purport to have some humility on the matter and to the proper fixes. You're advocating a Keynesian policy. This Recession was caused by that policy. It's possible that we may need a crap ton of inflation to get out of this mess and I've said so in another thread. That doesn't make it crystal clear that we should.
Humility is my argument.
We are discussing policy here, right? Policy does not get better with humility. That might be a factor in selling
it but not in it effectiveness. Furthermore this whole thread we have been talking monetary policy. I am asking the Fed to do the following:
1. Eliminate interest on excess reserve (if memory serves Fed never paid interest on reserves so this is just revoking something that did not even exist 3 years ago before the Lehman collapse).
2. Switch its portfolio from short term treasuries to long term treasuries (note that this would not change the size of its balance sheet).
3. Start QE 3.0 at a rate of 100 - 200 billion per month in long term treasuries until the unemployment drops below 7.5%.
These are not Keynesian policies, if you read Krugman you can see how dismissive he has been of monetary policy at zero lower bound
. A Keynesian policy would be a trillion dollar fiscal stimulus to be implemented immediately.
Also for all the talk of humility you seem awfully certain what caused the crisis. I am not sure about that at all. I am not even convinced that the housing bubble was the main cause, after all the housing bubble burst in late 2005/early 2006 and US did not go into recession until two years later.
And I've said that the house bubble was the easing. Hayekians say that you can't have easing on top of easing. The idea is that QE1 worked, QE2 didn't, and QE3 will be more trouble than it's worth. Am I sure that this is right? No. But what makes you sure that it isn't?
You can't have easing on top of easing? What does that mean? The Fed can't lower interest rates twice in a row? And if lowering interest does not count why do QEs count? And who said QE 2 did not work? It worked perfectly well its only problem was that it had a ceiling. The Fed should not have a fixed amount for Quantitate Easing. The textbook QE ties it to unemployment rate or a level of Nominal GDP.
If you want consistency, then before comparing our debt to Europeans, shouldn't we consult Americans on whether or not intragovernmental debt is debt?
Here's what PBS says on the matter.
I get the feeling that you want certain facts to be true. I'm only interested in what actually is.
My point was that you have to compare gross debt to gross debt and public debt to public debt (public debt does not include intragovernmental debt). EU countries have intragovernmental debt of their own. Now you may ask if my figures were public debt or gross debt and upon reflection they might be gross debt in which case you are correct and it would be appropriate to look at US gross debt rather than public debt.
But even after adding the intragovernmental debt the US situation is markedly better than the EU countries: Greece's debt is way passed any reasonable limit and like I said Ireland's problem is that it decided to guarantee its banks. That leaves Portugal which has a debt level similar to US. But then you can look at markets: Portugal's 10-year notes have a yield of ~ 11% while for US that number is hovering around 2%. Obviously people have decided that US will pay its debt, no problem.
Again people who oppose Fed easing should not call themselves Hayekians. Hayek was for targeting NGDP which in turn implies additional substantial easing.