"If money isn't loosened up, this sucker could go down" - George W. Bush warned in September 2008

Thursday, November 4, 2010

Really good links - QE2 - Scott Sumner - Milton Friedman - Voter turnout - Plain English FOMC

Brad DeLong - QE2 - "The five-year note carries an interest rate of 1.17% per year. The Federal Reserve is thus changing the supply of assets by taking onto its own balance sheet... wait for it... wait for it... duration risk that the market is currently willing to pay $7 billion a year to avoid.
        To take $7 billion a year of duration risk off of the private sector's books in a global economy that still has more than $60 trillion of financial assets is a change in "credit conditions" equivalent to what would be achieved in normal times by a coordinated one basis point reduction in short-term interest rates by the world's central bankers."

Scott Sumner - QE2 - Will it work? - "In the end, the market movements over the last few weeks seem to be telling us that QE2 is likely to provide a modest boost to the economy, and that a double dip recession is less likely than in August. But overall the future still looks bleak. The Fed’s action fell pitifully short of what was needed. At a minimum, I would have liked to have seen enough stimulus to raise 5 year TIPS spreads to 2.0%, instead they merely rose from 1.61% to 1.65%. We didn’t need more QE, but rather the three-pronged attack I suggested earlier (including lower IOR and level targeting.)
        Of course markets are often wrong, and the economy may do better than expected or worse than expected. But for those of us who favor a Svenssonian policy of targeting the forecast, the verdict is already in; the policy is better than nothing, but not nearly enough. My hunch is that unemployment will remain high for quite some time, and the Fed will be forced to do even more in 2011."

David Beckworth - A Reply to Those Who Claim We Misreprensented Milton Friedman - "The growth rates of the monetary aggregates have been anything but stable. In fact, M3 and MZM--arguably better measures of money during this crisis than M2--have had a recent run of negative growth. While M2 has had positive growth, it too appears below trend. All of them have seen plunges in their growth rates. Would Milton Friedman really look at this graph and conclude there has been monetary stability?
        With that said, one should note that in this 2003 WSJ article Milton Friedman appears to have moved beyond aiming to just stabilize the growth of the money supply. For in this piece he praises the Fed for adjusting M2 in response to a M2 "velocity bubble" in the 1990s. Friedman is endorsing the Fed's actions at this time to offset money demand shocks. Thus, in this article he is implicitly calling for the Fed to stabilize the MV part of the equation of exchange (i.e. MV=PY). "

David Myatt (via jeff) - Rational voter turnout - "If each voter is willing to participate in exchange for a 1-in-2,500 chance of influencing the outcome of the election, then turnout will exceed 50%. "

Update: FOMC statement in plain English

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