Friday, December 4, 2009

Scott Sumner's New Best Friend: Joseph Gagnon

Joseph Gagnon is calling for $6 trillion more in global monetary easing. This should not be too hard to implement since the Fed is a monetary superpower.

Update: The Economist's Free Exchange blog comments on Gagnon's "roadmap" to further monetary easing:
I don’t doubt that many of his [Gagnon's] former bosses at the Fed, Mr Bernanke included, agree with his premises; they may even find the specific estimates reasonable. But the barriers to further quantitative easing at the Fed aren’t economic, they’re political. The Fed was taken aback by how critics on Wall Street, in foreign central banks, and in Congress screamed that its modest, $300 billion Treasury purchases were monetising the government deficit and paving the path for future inflation. They have added to the atmosphere of hostility now surrounding the Fed. The Fed has essentially decided to pursue a second-best (i.e. insufficiently aggressive) monetary policy because a first best monetary policy could bring political perdition.
So bad politics trumps good economics. Bill Woolsey notes this proposal would help push nominal spending back toward its long-run trend.

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