Thursday, October 20, 2016

At least Congress could say their hands are clean

At Wall Street on Parade: The Fed Has Been Winging It for Eight Years; It’s Time for Congress to Step Up.

"Since the Wall Street crash in 2008", the article says, things have not been good. They point out that capacity utilization is lower now than it was in 2007, and they mention the "sharp decline since November 2014." They show this graph, to which I've added a bright red line:

Since 2008? I think they miss the bigger picture.

Here's the opening paragraph:

Since the Wall Street crash in 2008 crippled the U.S. economy, Congress has played the role of a spectator at a big league baseball game – munching on popcorn and licking its greasy fingers soiled with corporate campaign loot – as the real players on the field, the Federal Reserve, controlled the action.

And the final paragraph:

It’s long past the time for Congress to wash off those greasy fingers and do its job.

But other than the washing of hands, there is no specific suggestion as to what should be done. The best I can suppose is that the article calls for a change of emphasis from monetary policy to fiscal. Yet as they point out

Since the crash, the Federal debt has doubled to $19.4 trillion

so I'm not sure what they have in mind.

Perhaps they are saying you can tell by current conditions that the doubling was clearly insufficient. Yeah. I think they mean the Federal debt has only doubled to $19.4 trillion, while the "balance sheet of the Fed has more than quadrupled". I guess they want the Federal debt to double again, to get it up in the quadruple range too.

But then, Scott Sumner would say you can tell by current conditions that the quadrupling of the Fed's balance sheet was clearly insufficient. So maybe people will soon be calling for an octupling of debt and balance sheets. And after that, a 16-tupling maybe.

Myself, I think fixing the economy requires a little more finesse of thought.

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